INVESTMENT MANAGEMENT AGREEMENT
This INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated as of
the 24th day of April, 1998, is made by and among 312 CERTIFICATE COMPANY, a
Delaware corporation (the "Issuer"), INTEGRITY CAPITAL ADVISORS, INC., a
Delaware corporation (the "Portfolio Manager"), and THE FIRST NATIONAL BANK OF
CHICAGO, as Agent for the Certificateholders (as such term is defined below).
Capitalized terms used herein which are not otherwise defined herein shall have
the meanings assigned to such terms in the Face Amount Certificate Agreement (as
such term is defined below).
WHEREAS,
A. Pursuant to the Face Amount Certificate Agreement of even date
herewith (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "Face Amount Certificate Agreement"), among the
Issuer, International Securitization Corporation, a Delaware corporation
("ISC"), and the Agent, the Agent has acquired a $500,000,000 Installment Face
Amount Certificate of even date herewith (as amended, substituted or replaced
from time to time, the "Face Amount Certificate") issued by the Issuer in favor
of the Agent for the benefit of ISC and certain financial institutions
("Liquidity Banks") from time to time party to that certain Liquidity Agreement
dated as of even date herewith, among The First National Bank of Chicago, as the
"Liquidity Agent" thereunder, ISC and such Liquidity Banks (ISC and such
Liquidity Banks being referred to herein collectively as the
"Certificateholders").
B. The proceeds of the sale of the Face Amount Certificate will be
deposited in an account (the "Custodial Account") held with an independent,
third-party custodian mutually agreed upon by the parties hereto in order to
maintain such proceeds as security for the Face Amount Certificate by investing
in a pool of fixed-income securities which will be actively managed pursuant to
a set of investment guidelines attached hereto as EXHIBIT A (the "Investment
Guidelines") and agreed upon between the Issuer and the Certificateholders.
C. The Issuer desires to appoint the Portfolio Manager to manage the
securities and other investments now or hereafter owned by the Issuer including,
without limitation, those held in the Custodial Account (the "Portfolio"), and
has directed the Custodian to respond to the investment instructions of the
Portfolio Manager. The Portfolio Manager desires to serve as investment manager
with respect to the Portfolio, and the Certificateholders desire to ensure that
the Portfolio is managed pursuant to the investment guidelines agreed upon
between the Issuer and the Certificateholders.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Issuer, the Portfolio Manager
and the Agent do hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"DEFAULTED SECURITY" means a Security: (i) as to which the Obligor
thereof has taken any action, or suffered any event to occur, of the type
constituting an Insolvency Event, or (ii) as to which any other event has
occurred and is continuing which has caused, the acceleration of the maturity of
all or a portion of the principal of such Security, or which otherwise entitles,
or with the giving of notice or the passage of time or both could entitle, the
holder or holders of such Security to take actions for the enforcement of such
Security or any collateral or security therefor.
"ELIGIBLE SECURITY" means a Security:
(i) which is payable only in the United States (except for Eurodollar
Perpetual Floating Rate Securities), and is denominated only in U.S.
Dollars;
(ii) with respect to which (x) no Obligor thereunder is an Obligor on
a Defaulted Security; (y) no Obligor thereunder is an affiliate of the
Parent or any Transaction-Related Party; and (z) each Obligor thereunder is
incorporated or organized under the laws of the United States or any state
thereof or under the laws of an Organization for Economic Cooperation and
Development country;
(iii) which is scheduled to be paid in full on or prior to the 30th
anniversary of its issuance or is a Eurodollar Perpetual Floating Rate
Security rated NAIC 1 by the National Association of Insurance
Commissioners whose base level index resets at least semiannually;
(iv) which is rated by any of Standard & Poor's Ratings Group, Xxxxx'x
Investors Service, Inc. or the National Association of Insurance
Commissioners;
(v) with respect to which any payments of interest made to the Issuer
thereon are not subject to any taxes, levies, imposts, deductions, charges
or withholdings imposed by any governmental authority of any jurisdiction
(other than taxes imposed on or measured by the net income or overall gross
receipts, capital and franchise taxes attributable to the Issuer);
(vi) which is not a Security (a) with respect to which any related
Obligor is primarily engaged in the building, real estate, land development
or real estate investment trust industries, or except as otherwise
permitted in the Investment Guidelines, (b) which is principally secured by
a lien upon real estate, and either (x) does not provide for recourse to
the general assets of the related Obligor for the repayment of such
Security, or (y) such real estate constitutes all or substantially all of
the assets of the related Obligor;
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(vii) which, at the time of the Issuer's acquisition of such Security,
is not being redeemed pursuant to its terms;
(viii) which is not by its terms convertible into or exchangeable for,
or secured by, any capital stock, equity security or interest in the equity
of a entity, or any warrant, option, right or other agreement pursuant to
which any such capital stock, equity security or interest can be acquired,
whether or not actually evidenced by a security;
(ix) as to which, at the time of the Issuer's acquisition of such
Security, the Issuer will have good and marketable title to such Security,
free and clear from liens except as created under the Pledge Agreement, and
which has been the subject of the grant under the Pledge Agreement of a
first priority perfected "security interest" (within the meaning of the
Uniform Commercial Code of the jurisdiction the law of which governs the
perfection of the security interest in such Security created by the Pledge
Agreement) therein (and in the proceeds thereof);
(x) which is not a Defaulted Security;
(xi) which will at all times be the bona fide, legal and assignable
payment obligation of the Obligor of such Security, and with respect to
which each instrument, document or agreement evidencing such Security will
at all times be the bona fide, legal and assignable obligation of the
Obligor (including any guarantor of the primary Obligor) of such Security,
in each case enforceable against such Obligor in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting creditors'
rights generally, and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in
equity);
(xii) which complies in all material respects with all material
requirements of the Investment Guidelines;
(xiii) which is either an "instrument", a "certificated security" or a
"security entitlement" (in each case within the meaning of Sections 9-105,
9-106 and/or 9-115 of the Uniform Commercial Code; and if an instrument or
a certificated security, only one original thereof exists, which has been
or will be delivered to the Custodian pursuant to the Pledge Agreement;
(xiv) which is not subject to any enforceable provision prohibiting
the transfer, sale or assignment to, or by, the Issuer of such payment
obligation;
(xv) as to which the Agent has not notified the Portfolio Manager that
the Agent has determined that such Security is not acceptable in its
reasonable judgment as an Eligible Security;
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(xvi) if such Security bears interest at a fixed per annum rate, as to
which, at the time of the Issuer's acquisition of such Security, will not
cause the aggregate Fair Market Value of all Securities owned by the Issuer
which bear interest at a fixed per annum rate to exceed 60.0% of the
aggregate Fair Market Value of all Securities owned by the Issuer; and
(xvii) which is not a leveraged future or other leveraged/speculative
derivative.
"EURODOLLAR PERPETUAL FLOATING RATE SECURITY" means a security which
pays interest and principal in U.S. Dollars held in banks outside the U.S. and
which either has no stated maturity or a maturity date so distant in the future
such that it effectively pays interest indefinitely and with respect to which
the coupon payments reset periodically typically as specified by a short-term
interest index plus a spread.
"FAIR MARKET VALUE" means, with respect to any Security or Short-Term
Investment, at any date, (i) if quotations are then available, the price of such
Security or Short-Term Investment on the preceding Business Day, as calculated
based on any regularly published reporting or quotation service, or (ii) if
quotations are not then available, the market value of such Security or
Short-Term Investment, as determined by the Portfolio Manager in good faith,
based on its standard valuation procedures acceptable to the Agent in its
reasonable discretion, but exclusive of the portion of such price or valuation
attributable to the accrued interest or discount with respect to such Security
or Short-Term Investment as of such date.
"INSOLVENCY EVENT" shall mean, with respect to a specified person or
entity, the occurrence of any of the following events: (a) such person or entity
is wound up or dissolved or there is appointed over it or a substantial part of
its assets a receiver, administrator, administrative receiver, trustee or
similar officer; or (b) such person or entity (i) ceases to be able to, or
admits in writing its inability to, pay its debts as they become due and
payable, or makes a general assignment for the benefit of, or enters into any
legal composition or arrangement with, its creditors generally; (ii) applies for
or consents (by admission of material allegations of a petition or otherwise) to
the appointment of a receiver, trustee, assignee (other than the Agent),
custodian (other than the Custodian), liquidator or sequestrator (or other
similar official) of such person or entity or of any substantial part of its
properties or assets, or authorizes such an application or consent, or
proceedings seeking such appointment are commenced without such authorization,
consent or application against such person or entity and continue undismissed
for 60 days or any such appointment is ordered by a court or regulatory body
having jurisdiction; (iii) authorizes or files a voluntary petition in
bankruptcy, or applies for or consents (by admission of material allegations of
a petition or otherwise) to the application of any bankruptcy, insolvency or
similar law, or authorizes such application or consent, or proceedings to such
end are instituted against such person or entity without such authorization,
application or consent and remain undismissed for 60 days or result in
adjudication of bankruptcy or insolvency or the issuance of an order for
relief; or (iv) permits or suffers all or any substantial part of its
properties or assets to be
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sequestered or attached by court order and the order (if contested in good
faith) remains undismissed for 60 days.
"INSTRUMENT" means an instrument (including, without limitation, a
promissory note) or certificated security, as each such term is defined in the
Uniform Commercial Code of any applicable jurisdiction.
"OBLIGOR" shall mean, with respect to any Security, each person or
entity which is obligated to make payments with respect to such Security,
including any guarantor of such person or entity's obligations.
"SECURITY" means indebtedness constituting a debenture, bond, note,
security entitlement, certificated security or other Instrument or evidence of
indebtedness issued by an Obligor or Obligors, other than a line of credit or a
loan.
"SHORT-TERM INVESTMENTS" means the short-term interest bearing and
short-term discount obligations held by the Issuer from time to time in the
Custodial Account pursuant to Section 6 of the Custodial Agreement.
"SHORTFALL AMOUNT" means, on any date, the positive difference, if
any, of (i) the outstanding Invested Amount on such date, MINUS (ii) the sum of
the aggregate Fair Market Value of all Securities and Short-Term Investments
owned by the Issuer on such date on deposit in the Custodial Account plus any
free cash balance in the Custodial Account on such date.
"SURPLUS AMOUNT" means, on any date, the positive difference, if any,
of (i) the sum of the aggregate Fair Market Value of all Securities and
Short-Term Investments owned by the Issuer on such date on deposit in the
Custodial Account plus any free cash balance in the Custodial Account on such
date, MINUS (ii) the outstanding Invested Amount on such date.
"SWAP EVENT" means the occurrence of any one or more of the following:
(a) the Swap Provider shall have voluntarily commenced any proceeding or filed
any petition under any bankruptcy, insolvency or similar law seeking the
dissolutions, liquidation or reorganization of the Swap Provider, (b)
involuntary proceedings or an involuntary petition shall have been commenced or
filed against the Swap Provider by any person or entity under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or reorganization
of the Swap Provider or an order of relief shall have been entered or such
proceeding or petition shall not have been dismissed within sixty (60) days, or
(c) the Swap Provider (i) shall fail to make any payment or deposit when due
under the Swap Agreement or (ii) shall fail to perform or shall breach any
covenant or any other agreement under the Swap Agreement and such failure to
perform or breach is not cured within five Business Days, such period to begin
at the time at which the Swap Provider knew, or reasonably should have known, of
such breach or failure to perform.
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2. APPOINTMENT AND AUTHORITY OF THE PORTFOLIO MANAGER.
(a) APPOINTMENT. The Issuer hereby appoints the Portfolio Manager,
the Agent hereby acknowledges and consents to such appointment, and the
Portfolio Manager hereby accepts its appointment, as the exclusive investment
manager with respect to the Portfolio. The Portfolio Manager shall at all times
manage the Portfolio in accordance with the Investment Guidelines. Except as
provided in Section 4 hereof, the Issuer represents and warrants that it has
appointed no other investment advisor or manager with respect to the Portfolio.
The Issuer agrees to provide (or to direct the Custodian to provide) the
Portfolio Manager with such additional information as may be requested by the
Portfolio Manager from time to time to assist it in managing the Portfolio. The
Portfolio Manager's appointment under this Agreement shall remain in effect
until changed or terminated by the Issuer and/or the Agent as provided herein.
(b) ACQUISITION OF SECURITIES. Except as otherwise provided herein,
the Portfolio Manager is authorized, on behalf of the Issuer, to subscribe for
and purchase Securities of issuers offered to the Issuer from time to time. The
Issuer represents and warrants to the Portfolio Manager that at the time of any
such purchase it will be an "accredited investor" as such term is defined in
Regulation D under the Securities Act of 1933, as amended, and a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act and that the Issuer shall promptly inform the Portfolio Manager in writing
should its status as such change in the future. In connection with any purchase
of Securities eligible for purchase hereunder and deemed acceptable by the
Portfolio Manager in accordance with the terms hereof, the Issuer authorizes the
Portfolio Manager to:
(i) commit to purchase such Securities for the account of the Issuer
on the terms and conditions under which Securities are offered and are
deemed acceptable to the Portfolio Manager in accordance with the terms
hereof; and
(ii) on behalf of the Issuer, execute such agreements, instruments and
documents, and make such commitments, as may be required by the issuer
and/or the seller of such securities, including, but not limited to, a
representation that the Issuer is an "accredited investor" and/or a
"qualified institutional buyer", and a commitment that such securities will
not be offered or sold by the Issuer except in compliance with the
registration requirements of the Securities Act or an exemption therefrom,
if so required in connection with the acquisition thereof.
The Issuer understands and agrees to be bound by the terms of any commitment
entered into in connection with the purchase of securities on behalf of the
Issuer pursuant to the authority granted to the Portfolio Manager by this
Agreement, notwithstanding a subsequent termination of this Agreement as
provided herein. Notwithstanding the foregoing, the Portfolio Manager shall not
under any circumstances make any commitment on behalf of the Issuer to acquire
or make payment under any Security in excess of the Issuer's ability to pay such
committed amounts from time to time.
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(c) GENERAL DUTIES. In addition, and not in limitation of, any other
obligations of the Portfolio Manager, the duties and responsibilities of the
Portfolio Manager shall include the following:
(i) monitoring and enforcing on behalf of the Issuer compliance with
the terms of the Issuer's Securities by the Obligors thereunder, and
compliance with the terms of the Swap Agreement by the Swap Provider
thereunder;
(ii) recording, accounting for and enforcing payment of amounts
distributable or payable to the Issuer in connection with each of the Swap
Agreement and any Security or Short-Term Investment acquired or held on
behalf and for the account of the Issuer, and arranging for payments on the
Swap Agreement from the Swap Provider and on Securities to be collected
from the Obligors in respect thereof on behalf of and for the account of
the Issuer in accordance with the terms of the Transaction Documents;
(iii) on the request of the Issuer, arranging for the sale or other
divestment of any Security in accordance with this Agreement and the other
Transaction Documents or for the termination, cancellation, offsetting or
assignment of the Swap Agreement;
(iv) holding, maintaining and preserving records with respect to
acquisitions of, or investments in, sales or divestitures of, and
distributions and payments in connection with, Securities and Short-Term
Investments and with respect to the Swap Agreement; and
(v) taking such other steps as may be necessary or appropriate to
enable the Issuer to perform its duties or exercise its rights under or in
connection with any Security, any Short-Term Investments or the Swap
Agreement.
(d) CALCULATIONS; NOTICE. The Portfolio Manager shall make all
calculations and determinations (which calculations and determinations shall be
conclusive and binding absent manifest error) and give all notices or other
information required of it or the Issuer under any Transaction Document to which
it and/or the Issuer is a party.
(e) BOOKS; RECORDS. The Portfolio Manager shall maintain proper books
of account and complete records of all transactions undertaken or performed by
it and shall render statements or copies thereof to the Issuer, prepare the tax
returns of the Issuer and shall cooperate in all audits of the Issuer (including
any audits required by the Agent or the Certificateholders under the Face Amount
Certificate Agreement).
(f) CASH MANAGEMENT. The Portfolio Manager shall direct any
acquisition and sale of Securities and Short-Term Investments under the
Custodial Agreement such that the Issuer has, or is likely to have, available
funds to pay any costs, fees, expenses, taxes and other amounts due under the
Transaction Documents when due.
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(g) DIRECTION BY THE ISSUER; CONFORMITY WITH LAW AND COVENANTS.
Notwithstanding anything herein to the contrary, the Portfolio Manager shall
perform its duties hereunder subject to the direction of the Issuer and in a
manner consistent with the Issuer's Certificate of Incorporation and Bylaws,
with any applicable resolutions of the board of directors of the Issuer in
effect from time to time and in accordance with the terms of the Transaction
Documents, with respect to which, in each case, the Portfolio Manager has
received a copy. The Portfolio Manager will not, in performing its obligations
hereunder, (a) take any action that would cause the Issuer to be in violation of
(i) any law, rule or regulation applicable to it or (ii) any provision of the
Certificate of Incorporation or Bylaws of the Issuer, (b) take any action that
would cause the Issuer to become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended, (c) cause the
Issuer to violate any of the Transaction Documents, or (d) cause the Issuer to
incur any obligation or to become bound by any agreement which, in the
reasonable judgment of the Portfolio Manager, the Issuer would not reasonably be
able to satisfy or perform.
(h) ATTORNEY-IN-FACT; LIMITATIONS ON AUTHORITY OF THE PORTFOLIO
MANAGER AS ATTORNEY-IN-FACT; AUTHORITY WITH RESPECT TO BANK ACCOUNTS; NATURE OF
SERVICES. (i) Subject to clause (ii) of this clause (h), the Issuer hereby
irrevocably appoints the Portfolio Manager as the Issuer's attorney-in-fact,
with full authority in the place and stead of the Issuer and in the name of the
Issuer or otherwise, from time to time in the Portfolio Manager's discretion,
but subject to the direction of the Issuer, to take such actions on behalf of
the Issuer as may be necessary or advisable for purposes of the administration
and management of the operations of the Issuer, and the right to ask, demand,
collect, xxx for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due in connection therewith and to receive,
endorse, and collect any drafts or other instruments, documents and chattel
paper in connection therewith, and to file any claims or take any action or
institute any proceedings which may be necessary or desirable for the collection
thereof or to enforce compliance with the terms and conditions of any of such
documents, instruments and agreements.
(ii) Anything in clause (i) of this clause (h) or elsewhere in this
Agreement to the contrary notwithstanding, the Portfolio Manager is not hereby
authorized to execute on behalf of or as attorney-in-fact for the Issuer any
Transaction Document, or any amendment, modification or waiver to or under any
Transaction Document.
(iii) The Issuer authorizes the Portfolio Manager to transfer and
deposit funds of the Issuer to and in such bank accounts including, without
limitation, the Custodial Account, as may be established in the name of the
Issuer.
3. CUSTODY. All transactions with respect to assets in the Portfolio
shall be carried out through the Custodian or such other custodian(s) as the
Issuer and the Agent shall jointly appoint and inform the Portfolio Manager of
in writing. The Issuer shall be solely responsible for paying all fees or
charges of the Custodian and the Portfolio Manager and the
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Agent shall have no responsibilities or liabilities with respect to custody
arrangements made by the Issuer, or with respect to any act, decision or other
conduct of any custodian or of any other person or entity having possession of
the Issuer's funds or other assets. The Issuer authorizes the Portfolio Manager
to give the Custodian instructions (and directs the Custodian to follow any such
instructions when given) for the purchase, sale, conversion, redemption,
exchange, retention or other transactions relating to any security, cash or cash
equivalent or other investment for the Portfolio. The Issuer also authorizes the
Portfolio Manager to instruct the Custodian (and directs the Custodian to follow
any such instructions when given) to provide the Portfolio Manager with copies
of all periodic statements and other reports relating to the Portfolio,
including, without limitation, any reports that the Custodian typically sends to
the Issuer.
4. DELEGATION; APPOINTMENT OF ARM CAPITAL ADVISORS, LLC. The
Portfolio Manager shall be permitted to perform its services hereunder through
any of its officers or through any agents selected by it, PROVIDED, that such
agents shall be approved in writing by the Agent from time to time. The services
of the Portfolio Manager to the Issuer under this Agreement are not to be deemed
exclusive, and the Portfolio Manager shall be free to render similar services to
others. The Agent hereby consents to the appointment of ARM Capital Advisors,
LLC, a Delaware limited liability company ("ARM Capital"), as exclusive
investment sub-Portfolio Manager to the Portfolio pursuant to the terms of that
certain Investment Portfolio Manager Agreement between the Portfolio Manager and
ARM Capital dated as of April 21, 1998, a copy of which is attached hereto as
EXHIBIT B. Notwithstanding any such delegation of its obligations hereunder by
the Portfolio Manager, the Portfolio Manager's rights and obligations under this
Agreement shall remain unchanged, and the Portfolio Manager shall remain solely
responsible for the performance of its obligations hereunder.
5. PRIORITY OF PAYMENTS.
(a) DAILY ALLOCATION OF CASHFLOW. On each Business Day, the Portfolio
Manager shall apply, or instruct the Custodian in writing to apply, Cashflow
received on the immediately preceding Business Day in the following order of
priority:
(1) FIRST, to the extent that any amounts payable under clauses
(1) through (4) of clause (b) below remain unpaid with respect to any
Settlement Date prior to such Business Day, such Cashflow shall be
paid to the persons or entities entitled thereto in the order of
priority set forth in clauses (1) through (4) of clause (b) below; and
(2) SECOND, all remaining Cashflow shall be retained in the
Custodial Account and, at the election of the Portfolio Manager, be
applied to the purchase of Eligible Securities or Short-Term
Investments to the extent permitted by and in accordance with the
terms of this Agreement, the Face Amount Certificate
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Agreement and the other Transaction Documents, unless such Business
Day is a Settlement Date, in which case such Cashflow shall be applied
in accordance with clause (b) below, PROVIDED, HOWEVER, that if such
Business Day occurs after the occurrence of (i) an Amortization Event
or (ii) the first anniversary of the commencement of the Amortization
Period, then upon the written request of the Agent, all remaining
Cashflow shall be applied as if such Business Day is a Settlement Date
in accordance with the terms of clause (b) below.
(b) ALLOCATION OF PAYMENTS ON SETTLEMENT DATES. On each Settlement
Date after application of Cashflow pursuant to clause (a) above, the Portfolio
Manager shall apply, or instruct the Custodian in writing to apply, all free
cash balances or other available cash in the Custodial Account in the following
order of priority:
(1) to the Issuer, for application by the Issuer against the
payment of accrued and unpaid franchise taxes payable by the Issuer;
(2) if Integrity Capital Advisors, Inc., the Parent or an
affiliate thereof is no longer the Portfolio Manager hereunder, to the
Portfolio Manager in payment of the accrued and unpaid Portfolio
Manager Fee due on such Settlement Date or any prior Settlement Date;
(3) to the Custodian, for the payment of accrued and unpaid fees
and expenses payable under the Custodial Agreement;
(4) to the Agent, for distribution to or for the account of the
Certificateholders and Letter of Credit Banks for the payment of the
accrued and unpaid Certificate Yield due on such Settlement Date or
any prior Settlement Date;
(5) if such Settlement Date shall occur during the Amortization
Period or following the Agent's receipt of a Partial Amortization
Notice, to the Agent, for distribution to or for the account of the
Certificateholders for the repayment of the Invested Amount with
respect to the Face Amount Certificate until, in the case of the
Amortization Period, the Invested Amount is repaid in full, and in the
case of such period following the receipt of a Partial Amortization
Notice, the Invested Amount is reduced by the amount indicated on the
applicable Partial Amortization Notice;
(6) to the Agent, for distribution to or for the account of the
Certificateholders with respect to the payment of any other accrued
and unpaid fees, expenses, indemnities, reimbursements and other
amounts (other than principal) not paid pursuant to clause (4) above
and payable to any
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Certificateholder under the Face Amount Certificate Agreement or the
Face Amount Certificate;
(7) [Intentionally Omitted];
(8) to the payment of any other accrued and unpaid out-of-pocket
operating expenses of the Issuer (including, but not limited to, a
management fee equal to the product of (i) 0.075% per annum times (ii)
the average daily outstanding Invested Amount during the most recently
ended Settlement Period);
(9) to the Portfolio Manager in payment of accrued and unpaid
Portfolio Manager Fee due on such Settlement Date or any prior
Settlement Date, but only to the extent not paid in full after
application of all available cash in the Custodial Account on such
Settlement Date as specified above in this clause (b) (and on each
previous Settlement Date);
(10) if no Swap Event has occurred and is continuing, to the Swap
Provider, in payment of accrued and unpaid amounts owing by the Issuer
under the Swap Agreement; and
(11) if on such Settlement Date, the Surplus Amount following the
application of funds as provided herein is greater than zero, then at
the election of the Issuer, an amount not greater than the Surplus
Amount may be withdrawn from the Custodial Account and deposited in
such account as the Issuer may direct and any remaining available cash
in the Custodial Account following such withdrawal shall be retained
therein.
6. REPRESENTATIONS AND WARRANTIES OF THE PORTFOLIO MANAGER. The
Portfolio Manager, hereby represents and warrants that:
(a) ORGANIZATION AND GOOD STANDING. The Portfolio Manager is a
corporation duly organized, validly existing and in good standing under the
applicable laws of the jurisdiction of its incorporation and has full corporate
power and authority to own its properties and conduct its business, as such
properties are presently owned and as such business is presently conducted and
as is proposed to be conducted under this Agreement, and to execute, deliver and
perform its obligations under this Agreement.
(b) DUE QUALIFICATION. The Portfolio Manager is duly qualified to do
business and is in good standing as a foreign corporation or enterprise (or is
exempt from such requirements), and has obtained all necessary licenses and
approvals, in each jurisdiction in which the investment, management and
servicing of the Securities in accordance with the terms of this Agreement
requires such qualification.
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(C) DUE AUTHORIZATION. The Portfolio Manager's execution, delivery
and performance of this Agreement and the other agreements and instruments
executed by the Portfolio Manager as contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Portfolio
Manager.
(d) ENFORCEABILITY. This Agreement constitutes a legal, valid and
binding obligation of the Portfolio Manager enforceable against it in accordance
with its terms except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws now and
hereafter in effect affecting creditors' rights generally, and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
(e) NO CONFLICT. The Portfolio Manager's execution and delivery of
this Agreement and performance of its obligations under this Agreement do not
(i) conflict with or violate in any material respects any law or regulation
applicable to the Portfolio Manager, or (ii) conflict with, result in any breach
of any of the terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under, any material indenture, contract,
agreement, mortgage, deed of trust or other instrument to which such Portfolio
Manager is a party or by which it or its properties are bound in any manner
which, in either case, would have a material adverse effect on the Portfolio
Manager's financial condition or operations or the Pledged Collateral or the
Portfolio Manager's ability to perform its obligations hereunder.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of the Portfolio Manager, threatened against
it before any governmental agency (i) asserting the illegality, invalidity or
unenforceability or seeking any determination or ruling that would affect the
legality, binding effect, validity or enforceability, of this Agreement, or (ii)
seeking to prevent the consummation of any of the transactions contemplated by
this Agreement, or (iii) seeking any determination or ruling that is likely to
have a material and adverse effect on the performance by the Portfolio Manager
of its obligations under this Agreement.
(g) CONSENTS. No authorization, consent, license, order or approval
of or registration or declaration with any governmental agency or other person
or entity is required to be obtained, effected or given by the Portfolio Manager
in connection with the execution and delivery of this Agreement by such
Portfolio Manager or the performance of its obligations hereunder.
(h) AMORTIZATION EVENT. To the best of its knowledge, no Amortization
Event has occurred or is continuing.
(i) YEAR 2000 COMPLIANCE. The Portfolio Manager has reviewed and
assessed all computer applications which are material to the Portfolio
Manager's, and its affiliates performing any of its duties hereunder, businesses
with respect to the ability of such applications
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to correctly recognize references to, and abbreviations of, the year 2000
(including, without limitation, references to "00" as the year 2000 and not the
year 1900). The Portfolio Manager reasonably believes, as a result of such
reviews, assessments and inquiries, that to the extent one or more of such
computer applications of the Portfolio Manager or its affiliates performing any
of its duties hereunder is unable to correctly recognize such references to, or
abbreviations of, the year 2000, that such deficiencies would not materially and
adversely affect its ability to perform its obligations hereunder.
The representations and warranties set forth in this Section 6 shall
survive the issuance of the Certificate and any liability of the Portfolio
Manager in respect of such representations and warranties as and when made shall
cease and be of no effect only upon repayment in full of the Certificate and all
the other obligations of the Issuer under the Face Amount Certificate Agreement.
Upon a discovery by the Issuer, the Portfolio Manager or the Agent of a breach
of any of the foregoing representations and warranties, the party discovering
such breach shall give prompt written notice to the other parties.
7. COVENANTS OF THE PORTFOLIO MANAGER. The Portfolio Manager hereby
covenants that, until the Termination Date:
(a) PRESERVATION OF EXISTENCE. The Portfolio Manager will preserve
and maintain its existence, rights, franchises and privileges in the
jurisdiction of its formation, and qualify and remain qualified in good standing
as a foreign enterprise in each jurisdiction where the failure to maintain such
qualification would materially and adversely affect (i) the collectibility of
the Securities or (ii) the ability of the Portfolio Manager to perform its
obligations hereunder.
(b) COLLECTIONS; CUSTODIAL ACCOUNT. On each Business Day that the
Portfolio Manager receives any collections, payments or other amounts required
pursuant to the terms of any Transaction Document to be deposited in the
Custodial Account, the Portfolio Manager agrees to hold all such collections,
payments and other amounts in trust and to deposit such collections, payments
and other amounts, in kind and in the form received, to the Custodial Account as
soon as practicable, but in no event later than the next succeeding Business
Day.
(c) REQUIREMENTS OF LAW. The Portfolio Manager will maintain in
effect all licenses, qualifications and franchises required under law or
regulation in order to direct the investment in, manage and service each
Security and will comply in all material respects with all other laws or
regulations in connection with investing in, managing and servicing each
Security, in each case except where the failure to perform such obligations or
maintain such qualifications would not be likely to have a material and adverse
effect on (i) the collectibility of any Security or (ii) the ability of the
Portfolio Manager to perform its obligations hereunder.
-13-
(d) DEFAULTED SECURITIES. Upon the Portfolio Manager becoming aware
that any Security is no longer an Eligible Security hereunder, the Portfolio
Manager shall within 30 days of such date, sell, assign or otherwise transfer
the Issuer's interest in such Security in accordance with its customary
procedures for the sale of such Securities.
(e) PROTECTION OF AGENT'S RIGHTS. The Portfolio Manager will take no
action pursuant hereto which would materially impair the rights of the Issuer or
the Agent in any Security or other Pledged Collateral. The Portfolio Manager
shall, on behalf of the Issuer prosecute and/or defend all claims, suits and
causes of actions which arise for or against the Issuer in connection with its
(or the Portfolio Manager's) performance of its obligations under this
Agreement.
(f) REPORTING REQUIREMENTS. The Portfolio Manager will furnish to the
Issuer and the Agent:
(i) within three Business Days after its knowledge of the
occurrence of any Amortization Event, notification of such occurrence;
(ii) within ten Business Days after its receipt thereof, copies
of any documents relating to any litigation, claim, counterclaim or
proceeding commenced against the Issuer, the Portfolio Manager or the Swap
Provider which could have a material adverse effect on (i) the financial
condition, business or operations of the Issuer, the Portfolio Manager or
the Swap Provider, (ii) the ability of each of the Issuer, the Portfolio
Manager or the Swap Provider to perform its respective obligations under
any Transaction Document, (iii) the legality, validity or enforceability of
this Agreement or any other Transaction Document, or (iv) the Issuer's
interest in the Pledged Collateral, or (v) the collectibility of the
Pledged Collateral generally or of any material portion of the Pledged
Collateral;
(iii) as soon as practicable and in any event within 60 days
after the end of each first three fiscal quarters of each fiscal year of
the Issuer, a balance sheet of the Issuer as of the end of such quarter,
and the related revenue and expense statements for the period commencing at
the end of the previous fiscal year and ending with the end of such
quarter, all of the foregoing to be certified by an officer of the
Portfolio Manager and prepared in accordance with generally accepted
accounting principles;
(iv) as soon as practicable and in any event within 120 days
after the end of each fiscal year of the Issuer and the Parent, the audited
financial statements of the Parent which include the Parent's consolidated
subsidiaries (including, without limitation, the Issuer and the Swap
Provider) prepared in accordance with generally accepted accounting
principles by certified public accountants of national standing reasonably
satisfactory to the Agent;
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(v) on the third Business Day of each calendar week, a "Weekly
Report" with respect to the Portfolio as of the last Business Day of the
preceding calendar week substantially in the form attached hereto as
EXHIBIT C, which report shall include a calculation of the Shortfall
Amount, if any, as of such date;
(vi) not less than two Business Days prior to each Settlement
Date, a "Settlement Report" with respect to the Portfolio for the most
recently ended calendar month substantially in the form attached hereto as
EXHIBIT D, which report shall include a calculation of the Shortfall
Amount, if any, as of the last Business Day of such calendar month;
(vii) on each Settlement Date, a "Monthly Compliance Report"
with respect to the Portfolio for the most recently ended calendar month
substantially in the form attached hereto as EXHIBIT E, which report shall
demonstrate the Issuer's and the Portfolio Manager's compliance with the
Investment Guidelines and certain other restrictions set forth herein, as
of the last Business Day of such calendar month;
(viii) within three Business Days after the placement on
watchlist for downgrade, or the withdrawal or reduction of the ratings of
any claims paying ability or debt obligations of any of the Parent, or any
of its affiliates, including, without limitation, the Swap Provider, notice
of such placement on the watchlist, withdrawal or reduction; and
(ix) promptly, from time to time, such other information,
documents, records or reports respecting the Pledged Collateral or the
condition or operations, financial or otherwise, of the Issuer or the
Portfolio Manager and its affiliates performing services hereunder as the
Agent may reasonably request.
Without limiting the obligations of the Portfolio Manager and the
Issuer under clause (j) below, the Portfolio Manager shall provide to the Agent
access to the documentation in its possession or under its control regarding the
Securities and other Pledged Collateral serviced by it under or pursuant to this
Agreement.
(g) COMPLIANCE WITH INVESTMENT GUIDELINES. The Portfolio Manager will
comply with and perform its obligations in all material respects with respect to
the Investment Guidelines in accordance with terms thereof.
(h) ACQUISITION OF SECURITIES. The Portfolio Manager shall not
arrange for the Issuer acquire any Security, and the Issuer shall not enter
into, or become bound to acquire any Security (i) during the Amortization Period
or (ii) if such Security does not constitute an Eligible Security or a
Short-Term Investment.
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(i) OTHER AGREEMENTS. The Portfolio Manager (acting on the Issuer's
behalf) will, subject to compliance with all laws and regulations, enforce the
Issuer's rights under each Security in accordance with its respective terms, and
make to any Obligor, such reasonable demands and requests for information and
reports or for action as the Issuer is entitled to make thereunder.
(j) DELIVERY OF PLEDGED COLLATERAL. The Portfolio Manager shall
instruct the appropriate persons or entities to deliver each physical
instrument, chattel paper or certificated security evidencing any Pledged
Collateral (other than the Swap Agreement which, pursuant to the Pledge
Agreement, has been delivered, or will be delivered, to the Agent) to the
Custodian immediately upon the acquisition of the related Security, but in no
case later than ten (10) days after the receipt thereof.
(k) PAYMENT INSTRUCTIONS. The Portfolio Manager (on behalf of the
Issuer) will instruct (or cause to be instructed) all obligors and the Swap
Provider, to make all payments with respect to the Pledged Collateral to the
Custodial Account.
(l) REPORTING. Each Weekly Report and Monthly Report, and each other
report or certification, delivered by the Portfolio Manager pursuant to this
Agreement shall be true and correct in all material respects as of the date of
such report or certificate.
(m) MARKING OF RECORDS. The Portfolio Manager shall either indicate
in its computer records or otherwise segregate the records related to any
Securities, Short-Term Investments or other Pledged Collateral in its possession
and xxxx the files containing the same with a legend, that a security interest
in the Securities and other Pledged Collateral has been granted to the Agent,
pursuant to the Pledge Agreement for the benefit of the Certificateholders.
8. EXECUTION OF TRANSACTIONS. The Portfolio Manager shall arrange
for the execution of securities transactions for Issuer through brokers or
dealers that the Portfolio Manager reasonably believes will provide the best
execution. In selecting a broker or dealer, the Portfolio Manager may consider,
among other things, the broker or dealer's execution capabilities, financial
circumstances, reputation, access to the markets for the securities being
traded, as well as the experience and skill of the firm's securities traders.
The Portfolio Manager will endeavor to secure the best available price and
execution for the Issuer. The Portfolio Manager shall not be responsible for any
acts or omissions by any broker(s) or dealer(s) selected by the Portfolio
Manager, PROVIDED that the Portfolio Manager is not negligent in the selection
of such broker(s) or dealer(s). Transactions for each of the Portfolio Manager's
other accounts will be effected independently of those related to the Portfolio,
unless the Portfolio Manager decides to purchase or sell the same securities for
several persons or entities at approximately the same time. Nonetheless, the
Portfolio Manager may (but is not obligated to) combine such orders to take
advantage of economies of scale and/or to provide better execution. The Issuer
authorizes the Portfolio Manager to instruct all brokers and/or dealers
executing orders for the Issuer's account
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to forward duplicate confirmations of those transactions to the Portfolio
Manager at such place and in such manner as may be designated from time to time
by the Portfolio Manager (and directs any such brokers and/or dealers to follow
such instructions when given) and the Issuer shall provide to the Portfolio
Manager such evidence as the Portfolio Manager may require to confirm its
authority to act on behalf of the Issuer with respect to investment or
reinvestment of the Portfolio.
9. ALLOCATION OF INVESTMENT OPPORTUNITIES. The Issuer understands
and agrees that the Portfolio Manager performs investment management services
for various persons and entities and may take action with respect to any of such
persons or entities which may differ from any actions taken (or from the timing
or nature of actions taken) with respect to, or on behalf of, the Issuer. The
Portfolio Manager shall not be obligated to purchase or sell for the Issuer
securities which the Portfolio Manager may purchase or sell for itself or for
the portfolios of other persons and entities, if the Portfolio Manager in its
sole discretion deems that such investment or transaction appears unsuitable,
impractical, improper, ill-advised, or undesirable for the Issuer.
10. INVESTMENT INFORMATION. The Portfolio Manager, its affiliates,
and any of their respective officers directors, employees, agents and
representatives (the "Affiliated Persons"), may from time to time come into
possession of material, non-public or other confidential information that, if
disclosed, might affect an investor's decision to buy, sell or hold a Security.
Under applicable law, the Affiliated Persons cannot improperly disclose or use
this information for their personal benefit or for the benefit of any person or
entity, including the Portfolio Manager's other customers. If any Affiliated
Person obtains non-public or other confidential material information about any
issuer, the Issuer and the Agent acknowledges and agrees that such Affiliated
Person will have no obligation to disclose the information to the Issuer or the
Agent or use it for the Issuer or the Agent's benefit.
11. LIABILITY AND INDEMNIFICATION. (a) The Portfolio Manager cannot
and does not guarantee the future performance of the Portfolio, the success of
any investment decision or strategy that the Portfolio Manager may utilize with
respect to the Portfolio, or the success of the Portfolio Manager's overall
management of the Portfolio. The Issuer understands that the investment
decisions made by the Portfolio Manager with respect to the Portfolio are
potentially subject to various market, currency, economic, political and
business risks, and that such investment decisions may not always be profitable.
Except as may otherwise be provided by law, none of the Affiliated Persons shall
be liable to the Issuer or any other party in connection with, or for: (i) any
loss that the Issuer may suffer by reason of any investment decision made or
other action taken or omitted in good faith by the Portfolio Manager with that
degree of care, skill, prudence, and diligence under the circumstances that a
prudent person acting in a similar capacity would use; (ii) any loss arising
from the Portfolio Manager's adherence to the Issuer's instructions; or (iii)
any act or failure to act by the Custodian, any broker(s) or dealer(s)
engaging in
-17-
transactions for the Issuer's, or any other third party (other than its delegees
appointed in accordance with the terms of Section 4). The federal and state
securities laws impose liabilities under certain circumstances on persons who
act in good faith, and therefore nothing in this Agreement will waive or limit
any rights that the Issuer may have under those laws.
(b) Notwithstanding anything to the contrary set forth in clause (a)
above, the Portfolio Manager shall indemnify and hold harmless each Indemnified
Party and the Issuer from and against Indemnified Amounts arising out of or
resulting from (i) any breach by the Portfolio Manager of its representations
and warranties made in this Agreement, or otherwise made by an officer of the
Portfolio Manager pursuant to the terms hereof or thereof, (ii) the failure by
the Portfolio Manager to perform any of the duties specifically undertaken by it
under this Agreement, (iii) any lender liability claim, suit or action or other
similar claim or action arising out of or resulting from any action or omission
by the Portfolio Manager with respect to the Securities or the other Pledged
Collateral, (iv) any equitable subordination claim, suit or action or other
similar claim or action arising out of or resulting from any action or omission
by the Portfolio Manager, (v) any failure by the Portfolio Manager to deliver,
or cause the Issuer to deliver, in accordance with the Pledge Agreement, any
instrument, chattel paper or certificated security evidencing any Pledged
Collateral owned by the Issuer within ten (10) days of the acquisition thereof,
or (vi) the Portfolio Manager's gross negligence or willful misconduct,
EXCLUDING, HOWEVER, in each case, (1) Indemnified Amounts to the extent arising
out of or resulting from the willful misconduct or gross negligence by such
Indemnified Party or the Issuer of any of his, her or its obligations and duties
or (2) recourse for uncollectible Securities (unless such Securities are
uncollectible as a result of any breach, failure or claim described in clause
(i), (ii), (iii), (iv), (v) or (vi) above) or, (3) indemnification of the Issuer
or Indemnified Party for lost profits or for consequential, special or punitive
damages or (4) any income or franchise taxes (or any interest or penalties with
respect thereto) or other taxes on or measured by the gross or net income or
receipts of such Indemnified Party or the Issuer or any withholding taxes. The
agreements contained in this Section 11(b) shall survive the Termination Date
and the payment of all amounts due under any Transaction Document.
12. TERMINATION OR ASSIGNMENT. This Agreement shall be effective as
of the date that the Issuer transfers immediately available funds into the
Custodial Account for management hereunder. It shall remain in full force and
effect until such time that the Issuer's obligations under the Face Amount
Certificate have been paid in full and control over any remaining Securities in
the Portfolio has been transferred to the Issuer, or any successor thereto. No
assignment (as such term is defined in the Investment Company Act of 1940, as
amended) of this Agreement shall be made by the Portfolio Manager without the
prior written consent of the other parties to this Agreement or as otherwise
provided in Section 13 below.
13. ASSIGNMENT; RESIGNATION AND REMOVAL OF PORTFOLIO MANAGER.
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(a) RESIGNATION OF PORTFOLIO MANAGER. The Portfolio Manager may at
any time resign from the obligations and duties imposed on it hereunder upon not
less than 180 days' written notice to the Agent and the Issuer. No such
resignation shall become effective until the Agent or a Successor Portfolio
Manager shall have assumed the responsibilities and obligations of the resigning
Portfolio Manager in accordance with this Section 13.
(b) REMOVAL OF PORTFOLIO MANAGER. The Portfolio Manager may be
removed by the Agent upon the occurrence of (i) a Liquidation Event or (ii)
the first anniversary of the commencement of the Amortization Period. Any
notice delivered pursuant to the preceding sentence is referred to as a
"Removal Notice". No such removal shall become effective until the Agent or a
Successor Portfolio Manager shall have assumed the responsibilities and
obligations of the resigning Portfolio Manager in accordance with this
Section 13.
(c) SUCCESSOR PORTFOLIO MANAGER. (i) On and after the receipt by the
Portfolio Manager of a Removal Notice pursuant to clause (b) above or upon a
resignation by the Portfolio Manager pursuant to clause (a) above, the Portfolio
Manager shall continue to perform all advisory, servicing and administrative
functions applicable to the Portfolio Manager under this Agreement and be
entitled to receipt of all compensation payable to the Portfolio Manager until
(i) in the case of the receipt of a Removal Notice, the date specified in such
Removal Notice or otherwise specified by the Agent in writing or, if no such
date is specified in such Removal Notice or otherwise specified by the Agent,
until the earlier of a date agreed upon by the Portfolio Manager and the Agent
or a date specified by the Agent in a written notice to the Portfolio Manager,
and (ii) in the case of the resignation of the Portfolio Manager, until the
Agent or a Successor Portfolio Manager shall have assumed the responsibilities
and obligations of the Portfolio Manager pursuant to this Section 13. The Agent
shall as promptly as practicable after the giving of a Removal Notice or such a
resignation appoint another person or entity (which may be the Agent, at its
option, or such other person or entity as it may appoint) as a successor
Portfolio Manager (the "Successor Portfolio Manager"). Such Successor Portfolio
Manager shall accept its appointment by a written assumption in a form
acceptable to the Agent. In the event that a Successor Portfolio Manager has not
been appointed or has not accepted its appointment or the applicable consents
have not been received by the Agent by the earlier of 30 days after the date of
such Removal Notice or at the time when the Portfolio Manager ceases to act, the
Agent without further action shall automatically be appointed the Successor
Portfolio Manager. At any time after such appointment, the Agent may (x)
delegate any of its administrative or other obligations as Successor Portfolio
Manager to an affiliate or agent in accordance with the terms of this Agreement
(all compensation to such affiliate or agent being paid by, and being the sole
responsibility of, the Agent), or (y) resign as Portfolio Manager upon its
appointment of, and the acceptance of such appointment by, a Successor Portfolio
Manager pursuant to the terms hereof. Notwithstanding the foregoing, the Agent
shall, if it is legally unable so to act as Successor Portfolio Manager,
petition a court of competent jurisdiction to appoint any established
institution (other than the Agent) as the Successor Portfolio Manager hereunder.
The Portfolio Manager shall be entitled to be paid all amounts accrued and
unpaid hereunder at the time such removal or
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resignation becomes effective pursuant hereto in accordance with the priorities
set forth in Section 5.
(d) PORTFOLIO MANAGERY TRANSFER. After receipt by the Portfolio
Manager of a Removal Notice, and on the date that a Successor Portfolio Manager
shall have accepted its appointment and all related consents shall have been
received by the Agent pursuant to clause (a) above, all authority and power of
the predecessor Portfolio Manager under this Agreement shall pass to and be
vested in such Successor Portfolio Manager (a "Portfolio Managery Transfer"),
and thereupon (I) such Successor Portfolio Manager shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the
Portfolio Manager by the terms and provisions hereof (excluding any liabilities
incurred by the predecessor Portfolio Manager or which arose from the actions or
omissions of the predecessor Portfolio Manager), (II) all references in this
Agreement to the Portfolio Manager shall be deemed to refer to such Successor
Portfolio Manager, and (III) such Successor Portfolio Manager (including, to the
extent applicable, the Agent) shall be entitled to receive such fees and other
compensation to which the Portfolio Manager is entitled hereunder. The
predecessor Portfolio Manager agrees to cooperate, at its expense, with the
Agent and such Successor Portfolio Manager in (i) effecting the termination of
the responsibilities and rights of the Portfolio Manager hereunder, including,
without limitation, the transfer to such Successor Portfolio Manager of all
authority of the Portfolio Manager to administer the Securities as provided
under this Agreement, including all authority over all Cashflow which shall on
the date of such Portfolio Managery Transfer be held by the Portfolio Manager
for deposit to the Custodial Account, or which have been deposited by the
Portfolio Manager to the Custodial Account, or which shall thereafter be
received with respect to the Securities, and (ii) assisting the Successor
Portfolio Manager until all servicing, management and administrative activities
have been transferred to such Successor Portfolio Manager, such assistance to
include, without limitation, (x) assisting any accountants selected by the
Successor Portfolio Manager to verify collection records and reports made prior
to the Portfolio Managery Transfer and (y) assisting the Successor Portfolio
Manager in making the computer systems of the Portfolio Manager and the
Successor Portfolio Manager compatible to the extent necessary to effect the
Portfolio Managery Transfer. The Portfolio Manager shall, at its expense, within
five Business Days of such Portfolio Managery Transfer, assemble each of the
documents, instruments and other records (including computer tapes and discs)
available to it or in its possession, which evidence the Securities and the
other Pledged CollateraL and which are necessary or desirable to collect the
Securities and the other Pledged Collateral and shall make the same available to
the Successor Portfolio Manager or the Agent or its designee at a place selected
by the Successor Portfolio Manager and in such form as the Successor Portfolio
Manager or the Agent may reasonably request.
(e) RELEASE. In no event shall the appointment and acceptance of a
Successor Portfolio Manager (including the succession of the Agent to the role
of the Portfolio Manager pursuant to clause (c) above) release the predecessor
Portfolio Manager from any liabilities (including without limitation, any
indemnification obligation arising under Section 11) incurred by it or otherwise
arising prior to, or arising from acts or omissions on it part occurring prior
to, the
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effective date of the resignation or removal of such predecessor Portfolio
Manager, or otherwise relating to the basis for any such removal. Except to the
extent arising from a failure to perform its own obligations under the
Transaction Documents, the Agent shall not be liable for any acts or omissions
of any Portfolio Manager (including, without limitation, any Successor Portfolio
Manager appointed by the Agent pursuant to this Section 11) other than acts or
omissions of the Agent to the extent acting as Portfolio Manager hereunder.
14. COMPENSATION OF PORTFOLIO MANAGER. The Portfolio Manager shall be
entitled to receive as compensation for services rendered hereunder a fee equal
to the product of (i) 0.25% per annum, times (ii) the average of the outstanding
Invested Amount on the first and last day of the most recently ended Settlement
Period assuming an actual over 360 day year. Such fee shall be paid in arrears
on each Settlement Date with respect to the Settlement Period most recently
ended. The Issuer acknowledges its understanding and agreement that any amounts
invested in Short-Term Investments will be included in calculating the value of
the Portfolio for purposes of computing the Portfolio Manager's fees as
described above, and that such assets may also be subject to separate advisory
and other fees and expenses charged by such funds which fees and expenses may be
additional to any fees charged by the Portfolio Manager hereunder. Except as (a)
set forth above or otherwise agreed upon by the parties and (b) permissible
under applicable law, the Portfolio Manager shall not be compensated on the
basis of a share of the capital gains on, or the capital appreciation of, the
Securities in the Issuer's account or any portion thereof
15. ISSUER BROCHURE. The Issuer and the Agent each acknowledge
receipt of the Portfolio Manager's current disclosure brochure, Form ADV Part
II.
16. MISCELLANEOUS
(a) GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws applicable to contracts made
and to be performed entirely within the State of Illinois.
(b) NOTICES. All communications and notices provided for hereunder
shall be in writing (including bank wire, telecopy or electronic facsimile
transmission or similar writing) and shall be given to the other parties
hereto at their respective addresses or telecopy numbers set forth on the
signature pages hereof. All such communications and notices shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when
received through the mails, transmitted by telecopy, delivered to the
telegraph company, confirmed by telex answerback or delivered to the cable
company, respectively.
(c) SEPARABILITY. In case one or more of the provisions contained in
this Agreement shall be found to be invalid, illegal or unenforceable in any
respect, the validity,
-21-
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(e) INTEGRATION; AMENDMENT. This Agreement and the other Transaction
Documents referenced to herein is the entire agreement between the parties
hereto and supersedes and replaces any previous discussions or agreements,
written or oral, between the parties hereto. No term or provision of this
Agreement may be amended, supplemented, waived or modified, except pursuant to
an instrument in writing signed by the party or other person against whom
enforcement of such amendment, supplement, waiver or modification is sought.
(f) REMEDIES CUMULATIVE; NO WAIVER. No right, power or remedy granted
or reserved herein is intended to be exclusive of any other right, power or
remedy, but each and every such right, power and remedy shall be cumulative and
concurrent and in addition to any other right, remedy or power hereunder or
under law. No delay or omission by either party to exercise any right, power or
remedy in connection with a default shall exhaust or impair any such right,
power or remedy or shall be construed to be a waiver of such default or
acquiescence therein. The Issuer or the Agent's forbearance in any particular
case shall not be a waiver as to action that may be taken by the Issuer or the
Agent with regard to any future non-compliance.
(g) CONFIDENTIALITY. (i) The Portfolio Manager shall maintain and
shall cause each of its employees and officers to maintain the confidentiality
of this Agreement and the other confidential proprietary information with
respect to the Agent and ISC and their respective businesses obtained by it or
them in connection with the structuring, negotiating and execution of the
transactions contemplated herein, except that the Portfolio Manager and its
officers and employees may disclose such information to the Portfolio Manager's
external accountants and attorneys and as required by any applicable law or
order of any judicial or administrative proceeding. In addition, the Portfolio
Manager may disclose any such nonpublic information pursuant to any law, rule,
regulation, direction, request or order of any judicial, administrative or
regulatory authority or proceedings (whether or not having the force or effect
of law) and in connection with any publication permitted under Section 14(i) of
the Face Amount Certificate Agreement.
(ii) Anything herein to the contrary notwithstanding, the Portfolio
Manager hereby consents to the disclosure of any nonpublic information with
respect to it (x) to the Agent or the Certificateholders by each other, (y) by
the Agent or the Certificateholders to any prospective or actual assignee or
participant of any of them or (z) by the Agent to any rating agency, commercial
paper dealer or provider of a surety, guaranty or credit or liquidity
enhancement to ISC or any entity organized for the purpose of purchasing, or
making loans secured by, financial assets for which FNBC acts as the
administrative agent and to any officers,
-22-
directors, employees, outside accountants and attorneys of any of the foregoing,
provided each such Person is informed of the confidential nature of such
information in a manner consistent with the practice of the Agent for the making
of such disclosures generally to persons of such type. In addition, the
Certificateholders and the Agent may disclose any such nonpublic information
pursuant to any law, rule, regulation, direction, request or order of any
judicial, administrative or regulatory authority or proceedings (whether or not
having the force or effect of law) and to any person or entity in connection
with the enforcement of this Agreement, the other Transaction Documents and the
other documents delivered in connection therewith and in connection with any
restructuring or workout related to the Face Amount Certificate Agreement, the
Transaction Documents or such other documents following an Amortization Event.
(h) BANKRUPTCY PETITION. (i) The Portfolio Manager hereby covenants
and agrees that, prior to the date which is one year and one day after the
payment in full of all outstanding senior indebtedness of ISC, it will not
institute against, or join any other person or entity in instituting against,
ISC any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States.
(ii) The Portfolio Manager hereby covenants and agrees that, prior
to the date which is one year and one day after the Termination Date, it will
not institute against, or join any other person or entity in instituting
against, the Issuer any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings or other similar proceeding under the laws of the
United States or any state of the United States.
(i) JURISDICTION. THE PORTFOLIO MANAGER HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN XXXX COUNTY, CITY OF CHICAGO,
ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN THE ISSUER, THE PORTFOLIO MANAGER AND THE AGENT
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO
ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS, PROVIDED, THAT THE ISSUER, THE PORTFOLIO MANAGER AND
THE AGENT ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF XXXX COUNTY, CITY OF CHICAGO, ILLINOIS, AND,
PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE
TO PRECLUDE THE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
OTHER JURISDICTION TO REALIZE ON THE PLEDGED COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS OF THE ISSUER, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE AGENT. THE PORTFOLIO MANAGER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND THE PORTFOLIO MANAGER HEREBY WAIVES ANY OBJECTION WHICH
IT MAY
-23-
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT. THE PORTFOLIO MANAGER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE PORTFOLIO
MANAGER AT THE ADDRESS SET FORTH IN SECTION 15(D) AND THAT SERVICE SO MADE SHALL
BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(j) WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE AGENT AND THE
PORTFOLIO MANAGER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE
OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.
(k) HEADINGS. The headings and subheadings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
(l) AUTHORIZATION. Each party hereto represents and warrants that
this Agreement and its execution has been duly authorized by any necessary and
appropriate corporate or other action. In addition, the Issuer shall inform the
Portfolio Manager of any event or occurrence that might affect the authority or
the propriety of this Agreement.
-24-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be entered into on the day and year first above written.
INTEGRITY CAPITAL ADVISORS, INC.
By /s/ ILLEGIBLE
--------------------------------
Title: General Counsel & Secretary
000 Xxxx Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxx
312 CERTIFICATE COMPANY
By /s/ Xxxxxxx X. Xxxxxx CEO
-------------------------------- -----
Title: Chief Executive Officer
000 Xxxx Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx, President
-25-
THE FIRST NATIONAL BANK OF
CHICAGO, AS AGENT
By /s/ Xxxxxxx X. Xxxxxxxxx
--------------------------
Title: Authorized Agent
One First Xxxxxxxx Xxxxx
Xxxx Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxx Xxxxx Xxxxxx
Facsimile No.: (000) 000-0000
-26-
EXHIBIT A
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
MIN./MAX/ MAX. PER MAX. PER
ASSET CLASS EXP. ISSUE ISSUER
----------- --------- -------- --------
U.S. Government & Agencies 0/100% unlimited unlimited
Mortgage-backed Securities
Agency CMOs 0/50% 5% 9.5%
Non-agency CMOs (residential) 0/50% 5% 9.5%
Non-agency CMOs (commercial) (1) 0/10% 5% 9.5%
Agency Pass Throughs 0/50% 5% 9.5%
Support Tranches 0/10% 5% 9.5%
Asset-backed Securities 0/30% 5% 9.5%
Auto Loans
Credit Card Receivables
Home Equity
Manufactured Housing
Corporate Debt (2) 0/60% 5% 5%
Industrials
Telecommunications
Utilities
Banks
Finance Companies
144A Private Placements (3) 0/30% 2.5% 2.5%
Foreign Debt 0/20% 2.5% 2.5%
(U.S. Dollar Denominated only)
Non-Investment Grade Securities (4) 0/5% 1% 1%
(No lower than BB/NAIC "3" rated)
Cash and Cash Equivalents (6) 0/100% 5% 5%
Non-Speculative Hedging Instruments (5) 0/3% 1% 1%
(1) Investment grade securities only.
(2) No industry can exceed 35% of the portfolio.
(3) There cannot be any prohibition of sale on any Private Placement
security purchased.
(4) Can also include non-investment grade, U.S. dollar denominated foreign
debt. Foreign debt must be issued by OECD countries.
(5) Caps, floors, swaps only. Counterparties must be AA rated. Caps &
Floors: the lesser of purchase cost or market value. Swaps: Absolute
Value of the Market Value. Any derivative position must be used for
hedging only, and must result in the portfolio still being in
compliance with all other investment guidelines.
(6) 10% Maximum Issue/Issuer during 90 day ramp up period for A1/P1
Securities or better.
Short-term Portfolio Guidelines
Page Two
GENERAL
1. The average effective duration of the portfolio cannot exceed 1.75 years.
2. The average credit quality of the portfolio cannot be less than AA/NAIC
"1".
3. The portfolio cannot contain investments in real estate, direct commercial
mortgages, common stocks, leveraged futures or other leveraged/speculative
derivatives.
4. Any derivative position must be used for hedging only and must result in
the portfolio still being in compliance with all other investment
guidelines.
PORTFOLIO OBJECTIVE
Maintain a high quality, liquid, short duration portfolio which generates a
consistent and stable return in excess of the liability cost of funds.
AGGREGATE PORTFOLIO RISK PARAMETERS
The average effective duration of the portfolio cannot exceed 1.75 years. The
average effective duration is calculated as the weighted average of the
effective duration of the individual securities within the portfolio weighted by
their respective market values. Effective duration measures the price
sensitivity of a security for a given change in interest rates, incorporating
any projected variability in the security's cashflows for the stated change in
interest rates.
The average credit quality of the portfolio cannot be less than AA/NAIC "1".
The average credit quality is calculated as the weighted average of the credit
quality of the individual securities within the portfolio weighted by either
their respective book values, or market values as appropriate per the custodial
arrangement. The individual security credit quality will be as currently
evaluated by either Xxxxx'x or Standard & Poor's.
The average credit quality is calculated by assigning a numeric value of each
rating. For example, the highest quality category of Governments is assigned
a value of 2, Agency securities receive a value of 3, Aaa/AAA 4, Xx0/XXx0,
Xx0/XX 0, Xx0/XX-0 and so on. If an individual security is evaluated by both
Xxxxx'x and Standard & Poor's, the lower rating will be used in computing the
average. The weighted average numerical value is rounded and translated back
to an average credit quality rating, i.e. an average rating of 6.4 would
translate to an AA rating, and an average rating of 6.6 would equate to AA-.
Based on the above, the average numerical value must be less than or equal to
6.5 to be in compliance with the stated investment guidelines.
PERMITTED ASSET CLASSES
U.S. GOVERNMENT AND AGENCY SECURITIES
A debt security issued by the United States Treasury Department or an agency
created and sponsored by the United States government.
MORTGAGE-BACKED SECURITIES
Ownership claim in a pool of mortgages or an obligation that is secured by such
a pool.
AGENCY CMOs
Securitization of a pool of first liens on residential properties backed by
GNMA, FNMA or FHLMC into at least two classes or tranches.
NON-AGENCY CMOs
Securitization of a pool of first liens on residential mortgages which do
not conform to agency (GNMA, FNMA or FHLMC) underwriting guidelines, or a
pool of commercial loans into at least two classes or tranches.
AGENCY PASS THROUGHS
Securitization of a pool of first liens on residential properties backed by
GNMA, FNMA
or FHLMC into one class, which pays monthly interest and principal passed
directly from the debtor to the investor through an intermediary.
SUPPORT TRANCHES
CMO classes that receive principal payments only after scheduled payments
have been made on specified PAC, TAC and/or Scheduled bonds for each
payment date.
ASSET-BACKED SECURITIES
Securitization of a pool of collateral into at least two classes or tranches.
Acceptable collateral includes auto loans, credit card receivables, home-equity
loans or manufactured housing loans.
CORPORATE, DEBT
Debt which is registered with the SEC and issued by either a corporation or a
public utility.
144A PRIVATE PLACEMENTS
Private unregistered security issued under SEC Rule 144A.
PRIVATE PLACEMENTS
Privately negotiated debt transactions between an issuer and buyer. Not
permitted.
FOREIGN DEBT
Debt issued by a legal entity incorporated outside of the United States. Only
U.S. dollar denominated securities are permitted.
NON-INVESTMENT GRADE SECURITIES
A security with a credit quality rating of BB+ or lower. Only securities
currently rated at least BB/NAIC "3" are permitted.
CASH AND CASH EQUIVALENTS
Short-term debt such as listed below, with a stated maturity within 270 days
from date of purchase, rated at least A-1/P-1 or the equivalent:
- U.S. Government or agency securities
- Certificates of deposit
- Commercial paper
- Bankers acceptances
- Repurchase agreements
- Corporate debt rated AA or better
- Money market funds
- Loan participation notes; provided the notes are issued by A1/P1
companies and administered through A1/P1 banks.
- Bank One Money Market Deposit Account
During the 90 day ramp up period after closing, these investments can be made in
A2/P2 securities as long as the overall portfolio credit quality and duration
requirements are met.
NON-SPECULATIVE HEDGING INSTRUMENTS
Caps, floors or swaps may only be used as part of a hedging program to
explicitly manage the risk profile of the portfolio, and will only be written
against specified securities (i.e. caps/floors at lifetime maximums/minimums for
ARMs). They may not be used for speculative purposes. This does not imply that
all such security structures in the portfolio will be hedged at all times.
Credit quality of acceptable counterparties will be AA or better. Caps and
floors exposure will be calculated as the lesser of cost or market value. Swap
exposure for determining compliance with investment guideline limitations will
be calculated as the absolute value of the swap market value. Any such
derivative position will be included in the portfolio when determining
compliance with all other investment guidelines.
ADDITIONAL DEFINITIONS
Newly issued and TBA securities as well as extended settlement on purchases of
permitted securities are explicitly allowed as long as the securities involved
otherwise comply with these stated investment guidelines. Such transactions are
not considered to be forward contacts.
PROHIBITED ASSET CLASSES
The following asset classes are prohibited investments:
Interest only CMO class
Principal only CMO class
Inverse floater CMO class
Forwards*
Futures*
Options*
*Except as explicitly discussed under Permitted Asset Classes.
EXHIBIT B
INVESTMENT SERVICES AGREEMENT
This is an INVESTMENT SERVICES AGREEMENT (this "Agreement") made effective
as of the 24th day of April, 1998, by and between INTEGRITY CAPITAL ADVISORS,
INC., a Delaware corporation ("Company"), and ARM CAPITAL ADVISORS, LLC, a
Delaware limited liability company ("Advisor") which is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act").
RECITALS
WHEREAS, certain subsidiaries (the "Subsidiaries") of ARM Financial Group,
Inc. ("ARM"), as identified on Appendix A hereto (as such Appendix A may be
revised by Company from time to time), have allocated all or a portion of their
assets to one or more segregated custodial accounts with account numbers as
designated by ARM in writing from time to time (the "Accounts") maintained with
Chase Manhattan Bank and/or such other banks as designated by ARM in writing
from time to time (the "Custodians"); and
WHEREAS, Company has agreed to provide investment services with respect to
the assets in the Accounts, but has reserved the right to sub-contract such
investment services to an affiliate or third party; and
WHEREAS, Advisor's management has extensive experience in asset/liability
and investment portfolio management and supervision; and
WHEREAS, in order to achieve certain operating economies and improve the
investment services to the benefit of the Subsidiaries and the Subsidiaries'
policyholders and/or face amount certificateholders, Company desires to retain
Advisor to supervise and manage the assets now or hereafter contained in the
Accounts; and
WHEREAS, Company and Advisor wish to assure that all charges incurred
hereunder are reasonable and in accordance with the requirements of the Advisers
Act, the Investment Company Act of 1940, the appropriate investment provisions
of the applicable state of domicile for each of the Subsidiaries, and all other
applicable laws, rules and regulations (collectively, "Laws"); and
WHEREAS, Company and Advisor wish to identify the investment advisory
services to be rendered by Advisor, and to provide a method for determining the
fees to be paid by Company in connection with such services;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises set forth herein, the adequacy and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, Company and Advisor
agree as follows:
1. PERFORMANCE OF SERVICES. Subject to the terms, conditions, and
limitations of this Agreement, Advisor agrees, to the extent requested by
Company, to perform diligently and in a manner consistent with past practice the
investment advisory services as set forth in Appendix B attached hereto and made
a part of this Agreement (collectively, the "Services") with respect to the
assets now or hereafter contained in the Accounts. All charges for services
incurred hereunder shall be reasonable and in accordance with or as required by
any Laws. Advisor agrees to maintain sufficient facilities and trained personnel
of the kind necessary to perform this Agreement.
(a) CAPACITY OF PERSONNEL AND STATUS OF FACILITIES. Whenever Advisor
utilizes its personnel to perform the services pursuant to this Agreement,
such personnel shall be subject to Advisor's direction and control, and
Company shall have no liability to such personnel for their welfare,
salaries, fringe benefits, legally required employer contributions, tax
obligations or other obligations. No facility of Advisor used in performing
services for Company shall be deemed to be transferred, assigned, conveyed,
or leased by performance or use pursuant to this Agreement.
(b) EXERCISE OF JUDGMENT IN RENDERING SERVICES. In providing any
services hereunder which require the exercise of judgment by Advisor,
Advisor shall perform such services in accordance with any standards and
guidelines which Company develops and communicates to Advisor in writing.
In performing any services hereunder, Advisor shall at all times act in a
manner reasonably calculated to be in or not opposed to the best interests
of Company and the Subsidiaries.
(c) CONTROL. The performance of services by Advisor for Company
pursuant to this Agreement shall in no way impair the absolute control of
the business and operations of Company or Advisor by their respective
Boards of Directors. Advisor shall act hereunder
2
so as to assure the maintenance of the operational controls and the
separate operating identity of Company.
2. CHARGES. Company agrees to pay to Advisor for services provided by
Advisor pursuant to this Agreement the fees set forth on Appendix C attached
hereto (as such Appendix may be revised by the parties hereto from time to
time).
3. PAYMENT. Advisor shall periodically submit to Company a written
statement of the amount owed by Company for services rendered pursuant to this
Agreement for the appropriate period, and Company shall pay such amount to
Advisor within thirty (30) days of such written statement.
4. RIGHT TO CONTRACT WITH THIRD PARTIES. Nothing herein shall be deemed to
grant Advisor an exclusive right to provide services to Company, and Company
retains the right to contract with any third party, affiliated or unaffiliated,
for the performance of services as are available to or have been requested by
Company pursuant to this Agreement. It is also understood and agreed that
Advisor's services are not exclusively for Company. Advisor shall remain free to
provide services to other persons, pursuant to objectives which may or may not
be similar to the strategy adopted as appropriate for Company.
5. CONFIDENTIALITY. In rendering its services hereunder, Advisor may be
furnished with information concerning the Company's businesses and affairs
("Confidential Information"). Advisor agrees (a) except as required by law, to
keep all Confidential Information confidential and not to disclose or reveal any
Confidential Information and (b) not to use Confidential Information for any
purpose other than rendering services hereunder.
6. CONTACT PERSONS. Company and Advisor each shall appoint one or more
individuals who shall serve as contact persons for the purpose of carrying out
this Agreement. Such contact persons shall be authorized to act on behalf of
their respective parties as to the matters pertaining to this Agreement.
Effective upon execution of this Agreement, the initial contact persons
3
shall be those set forth in Section 11 of this Agreement. Each party shall
notify the other, in writing, as to the name, address, and telephone number of
any replacement for any such designated contact person.
7. TERMINATION. This Agreement may be terminated by either party hereto at
any time, upon 180 days' or more advance written notice. No penalty shall be
charged to Company upon termination of this Agreement, and following any such
termination Advisor shall promptly deliver to Company all books and records that
are, or are deemed by this Agreement to be, the property of Company and/or the
Subsidiaries.
8. NO ASSIGNMENT. This Agreement and any rights pursuant hereto shall not
be assignable by either party hereto. Except as and to the extent specifically
provided in this Agreement or as required by applicable Laws, nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto, or their respective legal successors, any rights, remedies,
obligations, or liabilities, or to relieve any person other than the parties
hereto, or their respective legal successors, from any obligations or
liabilities that would otherwise be applicable; and the representations,
warranties, covenants, and agreements contained in this Agreement shall be
binding upon, extend to and inure to the benefit of, the parties hereto, their,
and each of their, successors respectively.
9. INDEPENDENT CONTRACTOR. In rendering its services hereunder, Advisor
shall act as an independent contractor, and any duties of Advisor arising
hereunder shall be owed exclusively to Company.
10. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York
applicable to contracts made and to be performed entirely within that State.
11. NOTICE. All notices, statements or requests provided for hereunder
shall be deemed to have been duly given when actually given (orally or in
writing) or when delivered by hand to an
4
officer of the other party, or when deposited with the U.S. Postal Service, as
first class certified or registered mail, postage prepaid, overnight courier
services, telex or telecopier, addressed:
(a) If to Company to:
ARM Financial Group, Inc.
000 Xxxx Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Telecopier: (000) 000-0000
Attention: Xxxxxx X. Xxxxx
(b) If to Advisor to:
ARM Capital Advisors, LLC
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxx X. Xxxxx
or to such other persons or places as each party may from time to time designate
by written notice sent as aforesaid.
12. COMPLIANCE WITH LAWS. Advisor shall at all times comply with the terms
of this Agreement and all applicable Laws.
13. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of Advisor or Company under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom; and (d) in lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid, and enforceable provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible.
5
14. SECTION HEADINGS. Section headings contained herein are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
15. COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
16. INTEGRATION. This Agreement is the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
written or oral agreements related to the matters referenced herein.
6
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate by their respective officers duly authorized so to do, as of the
date and year first above written.
INTEGRITY CAPITAL ADVISORS, INC.
By: /s/ Xxxxxx X. Xxxxx
-------------------------
Name: Xxxxxx X. Xxxxx
Title: General Counsel
ARM CAPITAL ADVISORS, LLC
By: /s/ Xxxxxxxxxxx X. Xxxxxx
--------------------------
Name: Xxxxxxxxxxx X. Xxxxxx
Title: Chief Financial Officer
7
EXHIBIT C
312 Certificate Company Weekly Report
SUMMARY INFORMATION:
Purchase Limit: $ 500,000,000 Liquidity Termination Date: 4/22/99
------------------- ----------
Weekly Period Ended: (Date] Payment Due Date, if any, to Issuer: [Date + 5
------------------- ----------
Date Due to Agent [Date + 3 Bus. Days] Bus. Days]
------------------- ----------
--------------------------------------------------------------------------------
I. Reconciliation of Invested Amount
--------------------------------------------------------------------------------
A. Beginning Period Invested Amount $0.00
B. Installment Purchases During Period $0.00
C. Partial Amortizations $0.00
D. Ending Period Invested Amount (A+B-C) $0.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
II. Reconciliation of the Portfolio's Fair Market Value (FMV)
--------------------------------------------------------------------------------
A. Beginning Period FMV of Securities and Short-Term Investments $0.00
B. Ending Period FMV of Securities and Short-Term Investments $0.00
C. Ending Period Free Cash Balance in Custodial Account $0.00
D. Ending Period Total Portfolio FMV (B+C) $0.00
E. Change in FMV of Securities and Short-Term Investments (A-B) $0.00
F. Ending Portfolio FMV/Ending Invested Amount (D/I.D) 0.00%
G. Shortfall Amount (I.D-D, if difference >3%); Due from Swap
Provider to Issuer $0.00
--------------------------------------------------------------------------------
[COMPLIANCE PARAGRAPH]
The First National Bank of Chicago Page 1
EXHIBIT D
312 Certificate Company Settlement Report
SUMMARY INFORMATION:
Purchase Limit: $ 500,000,000 Liquidity Termination Date: 4/22/99
------------------- ----------
Settlement Period Ended: 31-May-98 Applicable LIBOR Rate:
------------------- ----------
Date Due to Agent: [Settlement Date] Blended LIBOR Rate:
------------------- ----------
--------------------------------------------------------------------------------
1. Reconciliation of Invested Amount
--------------------------------------------------------------------------------
A. Beginning Period Invested Amount $0.00
B. Installment Purchases During Period $0.00
C. Partial Amortizations $0.00
D. Ending Period Invested Amount (A+B-C) $0.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
II. Reconciliation of the Portfolio's Fair Market Value (FMV)
--------------------------------------------------------------------------------
A. Beginning Period FMV of Securities and Short-Term Investments $0.00
B. Ending Period FMV of Securities and Short-Term Investments $0.00
C. Ending Period Free Cash Balance in Custodial Account $0.00
D. Ending Period Total Portfolio FMV (B+C) $0.00
E. Change in FMV of Securities and Short-Term Investments (A-B) $0.00
F. Ending Portfolio FMV/Ending Invested Amount (D/I.D) 0.00%
G. Shortfall Amount (I.D-D, if difference > 3%); Due from Swap
Provider $0.00
H. Surplus Amount (I.D-D, if FMV > Inv. Amt.) $0.00
--------------------------------------------------------------------------------
Surplus Amount can be paid to either the Issuer or the Parent, at the Issuer's
discretion.
--------------------------------------------------------------------------------
III. Settlement Period Portfolio Book Income Determination
--------------------------------------------------------------------------------
A. Interest Income Received $0.00
B. Less: Accrued Interest Paid $0.00
C. Plus: Accrued Income on Portfolio at End of Period $0.00
D. Less: Accrued Income on Portfolio at Beginning of Period $0.00
E. Plus: Accretion of Discount $0.00
F. Less: Amortization of Premiums $0.00
G. Book Income (A-B+C-D+E-F) $0.00
H. Book Income Blended LIBOR Equivalent (Blended LIBOR + ___ bps)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
IV. Priority Of Payments
--------------------------------------------------------------------------------
A. To Issuer, for Accrued and Unpaid Franchise Taxes Payable $0.00
B. If Applicable, to Alternate Portfolio Manager $0.00
C. To Custodian, for Accrued and Unpaid Fees $0.00
D. To Agent, for Payment of Certificate Yield $0.00
E. To, Agent, for Reimbursement of Other Accrued Fees $0.00
F. To Issuer, for Accrued and Unpaid Operating Expenses $0.00
G. Program Cost Subtotal $0.00
H. Program Cost LIBOR Equivalent (Blended LIBOR + _bps) 0.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
V. Required Swap Payment (if any) by Swap Provider:
--------------------------------------------------------------------------------
Program Cost Subtotal - Book Income (IV.G-III.G) $0.00
Approximate LIBOR Spread (bps) (IV.H-III.H) 0.00
--------------------------------------------------------------------------------
The First National Bank of Chicago Page 1
312 Certificate Company Settlement Report
--------------------------------------------------------------------------------
VI. Book Income Available for Distributions
--------------------------------------------------------------------------------
A. Book Income (III.G) $0.00
B. Less: Program Cost Subtotal (IV.G) $0.00
C. Less: Portfolio Manager Fee (.0025/12*((I.A+I.D)/2)) $0.00
D. Book Income Available to Swap Provider $0.00
(Provided FMV > Inv. Amt.)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VII. Portfolio Monitoring
--------------------------------------------------------------------------------
Termination
Actual Trigger
------ -------
A. Portfolio Weighted Average Credit Quality < AA
B. Portfolio Average Effective Duration > 1.75
C. Percentage Fixed Rate Coupons in Portfolio > 60%
D. In Compliance? Yes
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VIII. Payment Summary Section:
--------------------------------------------------------------------------------
A. To Issuer (IV.A+IV.F): $0.00
B. To Custodian (IV.C): $0.00
C. To Agent (IV.D+IV.E): $0.00
D. To Portfolio Manager (VI.C): $0.00
E. To Swap Provider (VI.D): $0.00
F. To Issuer or Parent, if available, at Issuer's Discretion (II.H): $0.00
--------------------------------------------------------------------------------
This Compliance Certificate is furnished pursuant to that certain Face Amount
Certificate Agreement (the "Agreement") dated as of April 24, 1998, among 312
Certificate Company (the "Issuer"), ISC (the "Certificateholder") and The
First National Bank of Chicago, as agent for such Certificateholder.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected officer of the Issuer.
2. I have reviewed the terms of the Agreement and I have made, or have caused
to be made under m supervision, a detailed review of the transactions and
conditions of the Issuer during the Settlement Period covered by this
Settlement Report.
3. The examinations described in paragraph 2 did not disclose, and I have no
knowledge of, the existence of any condition or event which constitutes an
Amortization Event or a Material Adverse Effect, as each such term is
defined under the Agreement, during or at the end of the Settlement Period
covered by this Settlement Report or as of the date of my signature, except
as set below; and
4. This Settlement Report sets forth financial data and computations
evidencing the compliance with certain covenants of the Agreement, all of
which data and computations are true, complete, and correct.
5. Described on an attached sheet are the exceptions, if any, to paragraph 3
by listing, in detail, the nature of the condition or event, the period
during which it has existed and the action which the Issuer has taken, is
taking, or proposes to take with respect to each such condition or event;
The foregoing certifications, together with the computations set forth in
this Settlement Report are made and delivered this ____ day
of _______, 19__.
-----------------------
The First National Bank of Chicago Page 2
312 Certificate Company Monthly Compliance Report
SUMMARY INFORMATION:
Purchase Limit: $500,000,000 Liquidity Termination Date: 4/22/99
------------- -------
As of Last Day of Settlement Period: [Date]
-------------
Due to Agent on Settlement Date: [Date]
-------------
MAXIMUM ACTUAL MAXIMUM ACTUAL
MAXIMUM ACTUAL PER ISSUE PER ISSUE PER ISSUER PER ISSUER
ASSET CLASS EXPOSURE EXPOSURE EXPOSURE EXPOSURE EXPOSURE EXPOSURE
----------- -------- -------- --------- --------- ---------- ---------
U.S. Government & Agencies 100% n/a n/a
Mortgage-backed Securities 5% 9.5%
Agency CMOs 50%
Non-Agency CMOs (residential) 50% 5% 9.5%
Non-Agency CMOs (commercial) 10% 5% 9.5%
Agency Pass Throughs 50% 5% 9.5%
Support Tranches 10% 5% 9.5%
Asset-backed Securities 30% 5% 9.5%
Auto Loans
Credit Card Receivables
Home Equity
Manufactured Housing
Corporate Debt 60% 5% 5%
Industrials
Telecommunications
Utilities
Banks
Finance Companies
144A Private Placements 30% 2.5% 2.5%
Foreign Debt 20% 2.5% 2.5%
Non-Investment Grade Securities 5% 1% 1%
Cash & Cash Equivalents 100% 5% 5%
Non-Speculative Hedging Instruments 3% 1% 1%
(COMPLIANCE PARAGRAPH]
The First National Bank of Chicago Page l
