FORBEARANCE AGREEMENT
This Forbearance Agreement ("FORBEARANCE AGREEMENT") is
entered into as of August 11, 1999 by and among 312 CERTIFICATE COMPANY, a
bankruptcy-remote Delaware corporation (the "ISSUER"), INTEGRITY CAPITAL
ADVISORS, INC., a Delaware corporation (the "PORTFOLIO MANAGER"), INTEGRITY
LIFE INSURANCE COMPANY, an Ohio stock insurance corporation (the "SWAP
PROVIDER"), INTERNATIONAL SECURITIZATION CORPORATION, a bankruptcy-remote
Delaware corporation ("ISC"), each of the LIQUIDITY BANKS whose names appear
on the signature pages hereto, THE FIRST NATIONAL BANK OF CHICAGO ("FNBC"),
as the sole "Letter of Credit Bank" party to the Letter of Credit Agreement
and as agent (the "AGENT") for the Certificateholders.
WITNESSETH:
WHEREAS, the Issuer, ISC and the Agent are parties to that certain
Face Amount Certificate Agreement dated as of April 24, 1998 among the
Issuer, ISC and the Agent, as amended by an Amendment No. 1, dated as of
April 21, 1999 (as amended, and as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "FACE AMOUNT
CERTIFICATE AGREEMENT");
WHEREAS, the senior short-term claims paying ability of the Swap
Provider has ceased to be rated A-1 or better by Standard & Poor's and D-1 or
better by Duff & Phelps Credit Rating Co., and such event constitutes an
Amortization Event and a Liquidation Event (the "SPECIFIED DEFAULT");
WHEREAS, as a result of such Specified Default and pursuant to the
Face Amount Certificate Agreement and the other Transaction Documents, the
Agent and the Certificateholders are entitled immediately to enforce certain
rights and remedies against the Issuer and with respect to the Portfolio,
including, without limitation, the right to require the liquidation of the
Portfolio; and
WHEREAS, the Issuer has requested that the Agent and the
Certificateholders agree and, subject to the terms and conditions of this
Forbearance Agreement, the Agent and the Certificateholders party hereto have
agreed to forbear from demanding immediate liquidation of the Portfolio and
enforcing their security interests in and liens against the Pledged
Collateral during the period commencing on the date hereof and ending on the
Forbearance Termination Date (the "FORBEARANCE PERIOD").
NOW, THEREFORE, the Issuer, the Portfolio Manager, the Swap
Provider, the Agent and the Certificateholders party hereto hereby agree as
follows:
1. Capitalized terms used in this Forbearance Agreement which
are not otherwise defined herein, shall have the meanings given such terms in
the Face Amount Certificate Agreement. For purposes of this Forbearance
Agreement, the following capitalized terms shall have the meanings set forth
below:
"FORBEARANCE TERMINATION DATE" means the earliest to occur of (i)
April 20, 2000; (ii) an Amortization Event other than the Specified Default;
(iii) the Swap Provider's failure to pay any indebtedness, including, without
limitation, net liabilities under interest rate swap, exchange or cap
agreements, in excess of $5,000,000, individually or in the aggregate, when
due, or default in the performance of any term, provision or condition
contained in any agreement under which any such indebtedness was created or
is governed, the effect of which is to cause, or to permit the holder or
holders of such Indebtedness to cause, such indebtedness to become due prior
to its stated maturity, or any indebtedness, including, without limitation,
net liabilities under interest rate swap, exchange or cap agreements, of the
Swap Provider in excess of the $5,000,000, individually or in the aggregate,
shall be declared to be due and payable or required to be prepaid (other than
by a regularly scheduled payment) prior to the date of maturity thereof; (iv)
the Issuer, the Portfolio Manager, the Swap Provider or any agent of any of
the foregoing fails to perform any obligation, or shall breach any covenant or
other agreement, under this Forbearance Agreement; (v) a Swap Guaranty,
executed by a Guaranty Party, shall not be delivered to the Agent on or
before August 25, 1999; (vi) a Replacement Total Return Swap, executed by a
counterparty which satisfies the definition of a Guaranty Party, shall not be
delivered to the Agent on or before September 30, 1999; (vii) the party to
the Swap Guaranty or the Replacement Total Return Swap shall fail, at any
time, to satisfy clause (i) of the definition of Guaranty Party; (viii) a
letter of intent to close the Proposed Transaction is not delivered by a
Proposed Purchaser to the Agent on or before August 25, 1999; or (ix) the
Proposed Transaction is not consummated by a Proposed Purchaser on or before
January 15, 2000.
"GUARANTY PARTY" means a corporation or other entity which (i) has
its senior long-term claims paying ability rated AA- or better by Standard &
Poor's and either (x) Aa3 or better by Moody's Investors Service, Inc. or (y)
A or better by A.M. Best & Co. and (ii) is otherwise acceptable to the Agent,
ISC and each of the Liquidity Banks.
"HOLDING COMPANY" means ARM Financial Group, Inc., a Delaware
corporation.
"PROPOSED PURCHASER" means a corporation or other entity which has
its senior long-term claims paying ability rated AA- or better by Standard &
Poor's and either (x) Aa3 or better by Moody's Investors Service, Inc. or (y)
A or better by A.M. Best & Co.
"PROPOSED TRANSACTION" means the purchase by a Proposed Purchaser of
one hundred percent (100%) of the capital stock of the Holding Company.
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"REPLACEMENT TOTAL RETURN SWAP" means a total return swap, executed
by a Guaranty Party, having terms and conditions substantially similar to the
Swap Agreement and otherwise acceptable to the Agent, ISC and each of the
Liquidity Banks.
"SWAP GUARANTY" means an unconditional and irrevocable guaranty,
executed by a Guaranty Party, of all obligations of the Swap Provider under
the Swap Agreement containing such waivers of defenses and other terms and
conditions as may be acceptable to the Agent.
2. The recitals set forth above by this reference hereto are
hereby incorporated into this Forbearance Agreement. Without limiting the
foregoing, the Issuer hereby acknowledges that (i) the Specified Default has
occurred and is continuing under the terms of the Face Amount Certificate
Agreement and has not been waived or cured, (ii) the Agent and the
Certificateholders have the right to enforce immediately their rights and
remedies under the Face Amount Certificate Agreement and the other
Transaction Documents, to refuse to make any further Installment Purchases
and to enforce immediately its security interests in and liens on the Pledged
Collateral and (iii) the Agent's and the Certificateholders' execution of
this Forbearance Agreement shall not constitute a novation, refinancing,
discharge, extinguishment or refunding nor is it to be construed as a
release, waiver or modification of any of the terms, conditions,
representations, warranties, covenants, rights or remedies set forth in the
Face Amount Certificate Agreement or any of the other Transaction Documents,
except as expressly provided herein.
3. The Agent and the Certificateholders will not, during the
Forbearance Period, exercise those rights afforded to the Agent and the
Certificateholders under the Face Amount Certificate Agreement, the
Transaction Documents and applicable law to: (a) remove the Portfolio
Manager pursuant to Section 13(b) of the Investment Management Agreement, (b)
other than as described in Section 4(a) below, increase the Earned Yield
payable with respect to the Invested Amount to a rate equal to the Base Rate
plus 2.0%, (c) deliver a "Notice of Exclusive Control" under and as defined
in the Control Agreement, or (d) immediately enforce its security interests
in or liens against the Pledged Collateral.
4. Notwithstanding the provisions of paragraph 3 above, during
the Forbearance Period:
(a) As additional Earned Yield payable under the Face Amount
Certificate Agreement, the Issuer shall pay to FNBC, in its capacity as
Letter of Credit Bank, those fees described in, and on the dates
provided for in, that certain fee letter executed by the Issuer and the
Swap Provider on the date hereof. Notwithstanding the provisions of
clause (ii) of the definition of Earned Yield, in the event that any
portion of the Invested Amount is held on the books and records of the
Agent by the Liquidity Banks (x) during the period beginning on the date
hereof and ending on the date a Replacement Total Return Swap, executed
by a counterparty which satisfies the definition of a Guaranty Party, is
delivered to the Agent or (y) on or after the occurrence of the
Forbearance Termination Date, the amount of Earned Yield payable
pursuant to such clause (ii) shall
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equal the product of (x) the average outstanding Invested Amount held on
the books and records of the Agent by the Liquidity Banks for the
applicable period during which Earned Yield accrues times (y) the Base
Rate, plus 2.0% per annum.
(b) Notwithstanding the provisions of Section 9(a) of the Face
Amount Certificate Agreement, all Cashflow shall, on each Business Day,
be paid to, held and applied by the Custodian, for the benefit of the
Certificateholders in the manner described in paragraph 4(c), to reduce
the Invested Amount in accordance with the payment priorities set forth
in the Investment Management Agreement until such Invested Amount and the
other obligations hereunder are reduced to zero, and no Installment
Purchases shall be made on or after the date hereof.
(c) Notwithstanding the provisions of Section 5(a) of the
Investment Management Agreement, on the second Business Day of each
week, the Portfolio Manager shall apply, or instruct the Custodian in
writing to apply, all Cashflow received during the previous week as if
such Business Day is a Settlement Date occurring during the Amortization
Period in accordance with the terms of clause (b) of such Section 5;
PROVIDED, HOWEVER, that if such Cashflow not previously remitted to the
Agent exceeds $500,000 at any time, then all such Cashflow shall be
immediately remitted to the Agent. In addition, all payments made to
the Agent pursuant to Sections 5(b)(4), (5) and (6) shall be made no
later than 11:00 a.m. (Chicago time) on the applicable Business Day, and
any payments received thereafter shall be deemed to be received by the
Agent on the next succeeding Business Day.
(d) Notwithstanding the provisions of Section 7(h) of the
Investment Management Agreement, the Portfolio Manager shall not arrange
for the Issuer to acquire any Security, and the Issuer shall not enter
into, or become bound to acquire any Security on or after the date
hereof.
(e) On the first Business Day of each week, the Portfolio
Manager shall deliver, or cause to be delivered by BlackRock Financial
Management, Inc. (for so long as BlackRock Financial Management, Inc.
is acting as the investment sub-Portfolio Manager pursuant to the terms
of that certain Investment Manager Agreement between ARM Financial
Group, Inc. and BlackRock Financial Management, Inc. dated as of March
9, 1999, as amended), to the Agent a report listing the Securities in
the Portfolio and their Fair Market Value as of the close of business on
the Business Day immediately preceding the last Business Day of the week
preceding the delivery of such report; PROVIDED, HOWEVER, that such
report shall be delivered more frequently if so reasonably requested by
the Agent.
5. Upon the occurrence of the Forbearance Termination Date, a
Liquidation Event shall be deemed to have occurred and the Amortization
Period shall immediately commence without notice of any kind from the Agent
and the Certificateholders, and the Agent
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and the Certificateholders shall have the right to immediately commence
enforcement of all of their rights and remedies under the Face Amount
Certificate Agreement, the other Transaction Documents and applicable law. The
parties hereto agree that after the deemed occurrence of a Liquidation Event or
the commencement of an Amortization Period in accordance with this Section 5, no
amendment, waiver, forbearance or similar agreement by or on behalf of ISC, the
Certificateholders, the Agent for the Certificateholders or the Liquidity Agent
shall be effected without the consent of each of those Liquidity Banks then
holding an interest in a Certificate or obligated to make a purchase under the
Liquidity Agreement, if the result is to rescind such Liquidation Event or
Amortization Period or otherwise modify the terms of the Transaction Documents
relating to Liquidation Events or the Amortization Period or the consequences
thereof.
6. Effective as of the date hereof,
(a) The definition of "Party A Floating Amount" set forth in Section
2.B. of the confirmation to the Swap Agreement is hereby amended and
restated in its entirety as follows:
Party A Floating Amount: (a) If the ratio, expressed as a
percentage and determined as of the
preceding Business Day (such percentage,
the "Value Percentage"), of (i) the sum
of the aggregate Fair Market Value of the
Portfolio on such date plus any free
cash balances on deposit in the Custodial
Account on such date, to (ii) the
outstanding "Invested Amount" under and
as defined in the Face Amount Certificate
Agreement on such date, is less than
100%, then an amount equal to the
"Shortfall Amount" under and as defined
in the Investment Management Agreement,
or (b) if the Value Percentage is greater
than or equal to 100%, then zero;
PROVIDED, HOWEVER, that the references
to "100%" in this definition shall be
"98.5%" until the earlier to occur of (i)
a Forbearance Termination Date or (ii)
the delivery of a Replacement Total
Return Swap to the Agent executed by a
counterparty that satisfies the
definition of a Guaranty Party.
PROVIDED, HOWEVER, that the Party A
Floating Payment Dates and the Party A
Floating Amount described above are
subject to Section 3 below.
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(b) The definition of "Shortfall Amount" set forth in Section 1 of
the Investment Management Agreement is hereby amended and restated in its
entirety as follows:
"SHORTFALL AMOUNT" means, on any date, the positive difference,
if any, of (i) the product of 100% times 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; PROVIDED,
HOWEVER, that the reference herein to "100%" in this definition shall
be "98.5%" until the earlier to occur of (i) a Forbearance
Termination Date or (ii) the delivery of a Replacement Total Return
Swap to the Agent executed by a counterparty that satisfies the
definition of a Guaranty Party.
(c) Each of ISC, the Liquidity Banks, FNBC and the Agent are express
third party beneficiaries of the Swap Agreement.
(d) Capitalized terms defined herein and used in paragraph 6(a) and
6(b) shall have the meanings described herein.
7. THIS FORBEARANCE 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, WITHOUT REGARD TO ANY
CONFLICT OF LAW PRINCIPLES.
8. Except as specifically set forth in this Forbearance Agreement,
the Face Amount Certificate Agreement and the other Transaction Documents, shall
remain in full force and effect and are hereby ratified and confirmed. Nothing
herein shall constitute a waiver by the Agent or any Certificateholder, or
otherwise entitle the Issuer, the Portfolio Manager or the Swap Provider to a
waiver, of any existing or hereafter arising Amortization Event (including,
without limitation, the Specified Default) nor shall the Agent's or any
Certificateholder's execution and delivery of this Forbearance Agreement
establish a course of dealing among the Agent or any Certificateholder and the
Issuer, the Portfolio Manager or the Swap Provider or in any other way obligate
the Agent or any Certificateholder to hereafter provide any waiver or further
time for payment prior to the enforcement of their security or to provide any
other financial accommodations to or on behalf of the Issuer, the Portfolio
Manager or the Swap Provider.
9. This Forbearance Agreement shall become effective and be deemed
effective as of the date hereof, if and only if:
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(a) the Agent shall have received two (2) copies of this Forbearance
Agreement executed by the Issuer, the Portfolio Manager, the Swap Provider, the
Agent, ISC, the Letter of Credit Bank and all of the Liquidity Banks together
with opinions of counsel for the Issuer, the Portfolio Manager and the Swap
Provider in form and substance acceptable to the Agent;
(b) other than the Specified Default, no Amortization Event or any
other event which, with the passage of time or the giving of notice, or both,
would constitute an Amortization Event shall have occurred and be continuing
or shall result from the execution of this Forbearance Agreement;
(c) the legal fees and expenses referred to in paragraph 12 below
that have accrued through the date of this Agreement shall be paid to the
Agent; and
(d) any Shortfall Amount, calculated as of the date of this
Agreement, shall be paid to the Agent for reduction of the Invested Amount.
10. This Forbearance Agreement may be executed in one or more
counterparts, each of which shall be considered an original counterpart, and
shall become a binding agreement when the Issuer, the Portfolio Manager, the
Swap Provider, the Agent, ISC, the sole Letter of Credit Bank and the Required
Liquidity Providers have each executed one counterpart. Each of the parties
hereto agrees that a signature transmitted to the Agent or its counsel by
facsimile transmission shall be effective to bind the party so transmitting its
signature.
11. This Forbearance Agreement contains the entire understanding of
the parties hereto with regard to the subject matter contained herein. This
Forbearance Agreement supersedes all prior or contemporaneous negotiations,
promises, covenants, agreements and representations of every nature whatsoever
with respect to the matters referred to in this Forbearance Agreement, all of
which have become merged and finally integrated into this Forbearance Agreement.
Each of the parties understands that in the event of any subsequent litigation,
controversy or dispute concerning any of the terms, conditions or provisions of
this Forbearance Agreement, no party shall be entitled to offer or introduce
into evidence any oral promises or oral agreements between the parties relating
to the subject matter of this Forbearance Agreement not included or referred to
herein and not reflected by a writing included or referred to herein. Any
single or partial exercise of any right under this Forbearance Agreement shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of this Forbearance Agreement whatsoever shall be valid unless in
writing signed by the Agent and the Certificateholders party hereto, and then
only to the extent in such writing specifically set forth. All remedies
contained in this Forbearance Agreement or by law afforded shall be cumulative
and all shall be available to the Agent and the Certificateholders until the
Invested Amount and the other obligations under the Face Amount Certificate
Agreement have been reduced to zero. The failure of any party to enforce at any
time any provision of this Forbearance Agreement
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shall not be construed to be a waiver of such provisions, nor in any way to
affect the validity of this Forbearance Agreement or any part hereof or the
right of such party thereafter to enforce each and every such provision. No
waiver of any breach of this Forbearance Agreement shall be held to constitute
a waiver of any other or subsequent breach.
12. Without limiting any provisions of the Face Amount
Certificate Agreement and the other Transaction Documents, the Issuer agrees to
pay on demand all reasonable costs and out-of-pocket legal fees and expenses of
FNBC, individually and as Agent (including without limitation such fees and
expenses of Sidley & Austin and internal lawyers for FNBC), in connection with
the negotiation, preparation, execution, delivery and enforcement of this
Forbearance Agreement.
13. This Forbearance Agreement is solely for the benefit of the
parties hereto and is not intended to confer upon any other third party any
rights or benefits.
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IN WITNESS WHEREOF, this Forbearance Agreement has been duly executed
as of the date first above-written.
312 CERTIFICATE COMPANY
By: /s/ Craig A. Hawley
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Name: Craig A. Hawley
Title: General Counsel
INTEGRITY CAPITAL ADVISORS, INC.
By: /s/
--------------------------------------------
Name:
Title:
INTEGRITY LIFE INSURANCE COMPANY
By: /s/
--------------------------------------------
Name:
Title:
INTERNATIONAL SECURITIZATION
CORPORATION
By:
--------------------------------------------
Name:
Title:
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
IN WITNESS WHEREOF, this Forbearance Agreement has been duly executed
as of the date first above-written.
312 CERTIFICATE COMPANY
By:
--------------------------------------------
Name:
Title:
INTEGRITY CAPITAL ADVISORS, INC.
By:
--------------------------------------------
Name:
Title:
INTEGRITY LIFE INSURANCE COMPANY
By:
--------------------------------------------
Name:
Title:
INTERNATIONAL SECURITIZATION
CORPORATION
By: /s/ Stephanie Wolf
--------------------------------------------
Name: Stephanie Wolf
Title: Authorized Signatory
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent, Liquidity
Provider and Letter of Credit Bank
By: /s/ Stephanie Wolf
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Name: Stephanie Wolf
Title: First Vice President
DEUTSCHE BANK AG, NEW YORK AND
CAYMAN ISLANDS BRANCHES,
as a Liquidity Provider
By:
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Name:
Title:
FIRSTAR BANK, N.A.,
as a Liquidity Provider
By:
--------------------------------------------
Name:
Title:
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent, Liquidity
Provider and Letter of Credit Bank
By:
--------------------------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND
CAYMAN ISLANDS BRANCHES,
as a Liquidity Provider
By: /s/ Alan Krouk /s/ John S. McGill
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Name: Alan Krouk John S. McGill
Title: Assistant Vice President Director
FIRSTAR BANK, N.A.,
as a Liquidity Provider
By:
--------------------------------------------
Name:
Title:
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent, Liquidity Provider and
Letter of Credit Bank
By:
--------------------------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND
CAYMAN ISLANDS BRANCHES,
as a Liquidity Provider
By:
--------------------------------------------
Name:
Title:
FIRSTAR BANK, N.A.,
as a Liquidity Provider
By: /s/ Toby B. Raw
--------------------------------------------
Name: Toby B. Raw
Title: AVP
SIGNATURE PAGE TO FORBEARANCE AGREEMENT