TERMINATION AND SALE AGREEMENT
This Termination and Sale Agreement ("AGREEMENT") is entered
into as of August 27, 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") and 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 and by a Forbearance Agreement dated as of August 11, 1999 (the
"FORBEARANCE AGREEMENT", and the Face Amount Certificate Agreement, as so
amended, the "FACE AMOUNT CERTIFICATE AGREEMENT");
WHEREAS, the Swap Provider has advised the Issuer and the
Agent that it is in the best interest of the Swap Provider to terminate the Swap
Agreement;
WHEREAS, the Issuer and the Agent have advised the Swap
Provider that ISC will consent to the termination of the Swap Agreement in
consideration for a termination payment from the Swap Provider;
WHEREAS, the Issuer has advised the Agent that it has received
an offer from Banc Once Capital Markets, Inc. (the "Securities Purchaser") for
the sale to, and the purchase by the Securities Purchaser (the "Securities
Sale") of the Securities described on Exhibit A attached hereto and made a part
hereof, and the Issuer has determined that it is in the best interest of the
Issuer to accept such offer and to consummate such Securities Sale;
WHEREAS, the Agent has advised the Issuer that the
Certificateholders have directed the Agent to release the security interest in
and lien on the Securities subject to the Securities Sale, which security
interest and lien have been granted pursuant to the Pledge Agreement, on
condition that such security interest and lien will remain on the cash proceeds
of the sale of such Securities, and that such cash proceeds will be applied as
described herein;
WHEREAS, the Issuer, the Portfolio Manager and the Swap
Provider have requested and, each of the other parties hereto, in the their
various capacities described above
have agreed, subject to the terms hereof, to terminate the Face Amount
Certificate Agreement and the other agreements related thereto.
NOW, THEREFORE, the Issuer, the Portfolio Manager, the Swap
Provider, the Agent and the Certificateholders party hereto hereby agree, for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. In consideration for the agreement of the Issuer and the
Agent (on behalf of the Certificateholders) to release the Swap Provider from
any further liability under the Swap Agreement, the Swap Provider hereby
agrees to pay to the Agent, (i) on the date hereof, in immediately available
funds, an amount equal to $6,000,000 and (ii) on the earlier of (x) March 31,
2000 or (y) the "PAYOUT DATE" (as defined below; the earlier of March 31,
2000 and the Payout Date being referred to herein as the "MATURITY DATE"), in
immediately available funds, an amount equal to $7,9000,000 plus (a) accrued
Certificate Yield and fees through the date of the Agent's receipt of the
"SALE PROCEEDS" (as defined below) and (b) all amounts owing pursuant to the
fee letter (the "FORBEARANCE FEE LETTER") dated as of August 11, 1999 (the
amount described in clause (i) of this sentence shall be referred to as the
"CASH AMOUNT" and the amount described in clause (ii) of this sentence shall
be referred to as the "DEFERRED AMOUNT", and the Cash Amount and the Deferred
Amount, exclusive of the amounts arising pursuant to the Forbearance Fee
Letter, shall be referred to in the aggregate as the "SWAP TERMINATION
AMOUNT"); provided, however that FNBC hereby agrees to forego the $500,000
set forth in the Forbearance Fee Letter which is due on the date which the
Proposed Transaction is consummated (as described in the Forbearance Fee
Letter) shall be due on the Payout Date. From the date hereof until the
Deferred Amount is paid in full to the Agent, the Swap Provider shall pay
interest on the amount of the Deferred Amount at the per annum interest rate
equal to the Base Rate plus 2%; provided, however, if the full amount of the
Deferred Amount is not paid to the Agent on or before the date due as
described above, then interest shall accrue on the Deferred Amount from such
due date until paid in full at the per anum interest rate equal to the Base
Rate plus 4%. All accrued interest shall be payable monthly on the last
business day of each calendar month, with the first such interest payment to
commence September 30, 1999. The Swap Provider agrees that its obligation to
pay the Deferred Amount and interest thereon pursuant to this Paragraph 1 is
unconditional and irrevocable, without any deduction for any set-offs,
counterclaims or defenses whatsoever. In consideration for the agreement of
the Agent (on behalf of the Certificateholders) to terminate the Face Amount
Certificate Agreement and the other Transaction Documents (other than this
Agreement), the Issuer hereby agrees that the Swap Termination Amount and the
interest thereon shall be paid to the Agent for application by the Agent in
such manner as shall be agreed to by the Agent and the Certificateholders.
The Issuer further agrees that it shall have no right, title or interest in
or to the Swap Termination Amount or interest thereon, and the Agent (on
behalf of the Certificateholders) shall own all of the right, title and
interest in and to such Swap Termination Amount and interest thereon. Upon
the effectiveness of this Agreement, the Swap Agreement shall terminate, and
neither the Issuer nor the Swap Provider shall be required to make any
additional payments thereunder at any time thereafter, but such termination
shall not affect the Swap Provider's obligation to make the payments required
pursuant to this Paragraph 1. Subject
-2-
to the provisions of paragraph 4 and 5 of this Agreement, the remittance by
the Swap Provider to the Agent of all the payments required pursuant to this
Paragraph 1 shall constitute payment in full of all of the Swap Provider's
liability arising from the termination of the Swap Agreement. The "PAYOUT
DATE" shall mean the date on which either the capital stock of the Swap
Provider or substantially all of the assets of the Swap Provider (excluding
those assets that relate to the Swap Provider's business commonly referred to
as its "institutional business") are sold to any person or other entity,
whether effected through cash purchase or a reinsurance transaction. The Swap
Provider further agrees that if, prior to the Maturity Date, any financial
institution which has provided financing to the Swap Provider in connection
with its "institutional business" prior to the date hereof (including
off-balance sheet financing in a form similar to that evidenced by the Face
Amount Certificate Agreement), whether directly to the Swap Provider or
through a subsidiary or an affiliate of the Swap Provider, is paid an amount
on account of any unsecured claim, including, without limitation, any
deficiency claim, with legal priority not senior to the Deferred Amount but
excluding interest rate swaps, caps, swaptions or options used in a bona fide
interest rate hedging transaction in a general or separate account of the
Swap Provider (an "Other Claim"), then to the extent that the aggregate
percentage recovery on account of such Other Claim from and after August 20,
1999 (the "SUPERVISION DATE") is greater than 43.2% then the Swap Provider
shall accelerate payment to the Agent of a portion of the Deferred Amount
(and thereby reduce the Deferred Amount by the amount of the True-Up Amount
(as defined below)) so that, contemporaneously with the payment on account of
such Other Claim, the Agent is paid an amount (the "TRUE-UP AMOUNT") such
that the Agent's percentage recovery computed as the sum of the Cash Amount
plus all True-Up Amount payments divided by the sum of the Cash Amount plus
the Deferred Amount is no less than the aggregate percentage recovery
received after the Supervision Date on account of such Other Claim.
2. The Agent, on behalf of the Certificateholders, hereby
consents to the Securities Sale subject to the satisfaction of each of the
following conditions: (i) the cash proceeds from such Securities Sale
(collectively, the "Sale Proceeds") shall equal at least $195,304,351_____,
(ii) such Sale Proceeds shall be remitted to the Agent, in immediately
available funds, for application in accordance with the terms of Paragraph 3
below and (iii) such Sale Proceeds shall be subject to the lien and security
interest of the Agent arising under the Pledge Agreement. Upon the receipt
by the Agent of the Sale Proceeds in the amount and manner described in the
preceding sentence, the Agent's lien on and security interest in the
Securities subject to the Securities Sale (but not including the Sale
Proceeds) shall be automatically released. The Agent agrees to apply the Sale
Proceeds it so receives pursuant to Paragraph 3 below. The Issuer and the
Agent hereby acknowledge and agree, after consultation with, in the case of
the Issuer, Blackrock Financial Management, Inc., that the Sale Proceeds
reflect the fair market value of the Securities subject to the Securities
Sale. The Issuer further represents and warrants to the Securities Purchaser
that upon the effectiveness of the release described in the second preceding
sentence, the Securities subject to the Securities Sale shall be owned by the
Securities Purchaser free and clear of any lien, security interest, option or
other charge or encumbrance. Promptly after the Securities Sale and the
satisfaction of the conditions described in this Paragraph 2, the Agent will
execute and deliver to the Securities Purchaser UCC-3 Termination Statements
terminating
-3-
the Agent's lien on, and security interest in the Securities subject to the
Securities Sale and the Sale Proceeds related thereto.
3. The Sale Proceeds shall be applied by the Agent in such
manner as shall be agreed to by the Agent and the Certificateholders.
4. Each of the parties hereto hereby agrees that following
(i) the receipt of the Cash Amount by the Agent, (ii) the receipt by the
Agent of the Sale Proceeds in the amount required by Paragraph 2, (iii) the
receipt by the Agent from the Custodian of $74,263,099.71, representing the
cash proceeds from the sales of or otherwise related to Securities but which
cash proceeds have not yet been paid to the Agent as of the execution of this
Agreement and (iv) the effectiveness of this Agreement as described in
Paragraph 8, each of the Face Amount Certificate Agreement, the Certificate,
the Pledge Agreement, the Investment Management Agreement, the Liquidity
Agreement, the Swap Agreement, the Letter of Credit Agreement, the
Forbearance Agreement, the Forbearance Fee Letter and the Liquidity Fee
Letter (each a "TERMINATED AGREEMENT", and collectively, the "TERMINATED
AGREEMENTS") shall automatically terminate and none of the parties thereto
shall have any further obligations or liabilities thereunder other than any
obligations which expressly survive the termination thereof. Notwithstanding
the preceding sentence, (i) the Swap Provider on behalf of itself and its
successors and assigns, agrees that to the extent any payment previously paid
to ISC, FNBC, the Agent or any of the Liquidity Banks is required to be
repaid by any such party for any reason, including without limitation, as a
preference under any bankruptcy or other insolvency law, then the party
making such repayment shall have a claim against the Swap Provider and its
successors and assigns for the amount so repaid and (ii) to the extent that
the Custodian, the Issuer or the Swap Provider receives, after 10:00 A.M. on
August 31, 1999, cash proceeds in excess of the amount described in clause
(iii) of the first sentence of this Paragraph 4, from the sales of Securities
that occurred prior to the date hereof, the Issuer and the Swap Provider
shall, and shall direct the Custodian to, promptly remit such proceeds to the
Agent, and the Agent shall apply any such proceeds against the unpaid
principal amount of the Deferred Amount.
5. The Swap Provider, on behalf of itself and its
successors and assigns, hereby fully and forever releases and discharges ISC,
FNBC, the Certificateholders, the Liquidity Banks and the Agent from, and
covenants not to sue them with respect to, any and all claims, rights,
remedies, obligations or liabilities either of them may have under contract or
applicable law, including without limitation, under any voidable preference
statute that relate to or arise from the transactions evidenced by the Face
Amount Certificate Agreement and the other Transaction Documents.
6. 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, WITHOUT REGARD TO
ANY CONFLICT OF LAW PRINCIPLES.
-4-
7. ISC, as the sole Certificateholder, hereby directs the Agent
to take the action described in this Agreement, and the Liquidity Banks and FNBC
hereby consent and agree to the terms and conditions described in this
Agreement.
8. This Agreement shall become effective and be deemed effective
as of the date hereof, if and only if the Agent shall have received (i) two (2)
copies of this Agreement executed by the Issuer, the Portfolio Manager, the Swap
Provider, the Agent, ISC, and the Letter of Credit Bank together with an opinion
of counsel for the Swap Provider and a certificate of the Secretary or Assistant
Secretary of the Issuer certifying the accuracy of copies of Board of Director
resolutions and the Issuer's Articles of Incorporation and By-laws attached
thereto, each in form and substance acceptable to the Agent, and (ii) a written
consent to this transaction from the State of Ohio Department of Insurance
Superintendent which consent is in form and substance acceptable to the Agent,
(iii) the entire cash amount of the Sale Proceeds and the Cash Amount and the
cash amount described in clause (iii) of Paragraph 4, and (iv) an amount equal
to $40,000 representing the accrued legal fees and expenses of counsel for the
Agent; provided, however that if the Agent has not received all of the foregoing
by 10:00 A.M. on Tuesday, August 31, 1999, then the Agent may, in its sole
discretion, declare this Agreement null and void and without effect.
9. This 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, and the sole Letter of Credit Bank 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. Capitalized terms used herein and not
otherwise defined herein shall have the meanings given to such terms in the
Face Amount Certificate Agreement.
10. This Agreement contains the entire understanding of the parties
hereto with regard to the subject matter contained herein. This 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 Agreement, all of which have become merged and
finally integrated into this 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 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 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
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 Agreement whatsoever shall be valid unless in
writing signed by the Agent, FNBC and the Cerificateholders party hereto, and
then only to the extent in such writing specifically set forth.
-5-
11. In addition to the legal fees and expenses to be paid pursuant
to Paragraph 8, the Swap Provider 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 (i) the enforcement of this
Agreement, (ii) any bankruptcy, insolvency or receivership proceeding involving
the Swap Provider or any of its affiliates, (iii) any regulatory proceeding
involving the Swap Provider, (iv) or any other proceeding or controversy in
which the enforceability of this Agreement is challenged; provided that the Swap
Provider will not be obligated to pay any legal fees under this Paragraph 11
that arise from income tax proceedings or disputes.
12. This 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.
Each of the parties hereto agrees that ISC may assign all or any portion of its
rights hereunder, including without limitation the rights with respect to the
Swap Termination Amount, to any other person or entity, and upon any such
assignment in full of all of ISC's rights hereunder, ISC shall have no further
rights or obligations under this Agreement. None of the other parties hereto
may assign their rights or obligations under this Agreement.
-6-
IN WITNESS WHEREOF, this Termination and Sale Agreement has been duly
executed as of the date first above-written.
312 CERTIFICATE COMPANY
By: /s/ Craig A. Hawley
--------------------------------------
Name: Craig A. Hawley
Title: General Counsel CFO
INTEGRITY CAPITAL ADVISORS, INC.
By: /s/ John R. McGeeney
--------------------------------------
Name: John R. McGeeney
Title: General Counsel and Chief Compliance Officer
INTEGRITY LIFE INSURANCE COMPANY
By: /s/ John R. McGeeney
--------------------------------------
Name: John R. McGeeney
Title: Exec. V.P. and General Counsel
INTERNATIONAL SECURITIZATION
CORPORATION
By: /s/ Kirk D. Farney
--------------------------------------
Name: Kirk D. Farney
Title: Authorized Signatory
SIGNATURE PAGE TO TERMINATION AND SALE AGREEMENT
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent, Liquidity Provider and
Letter of Credit Bank
By: /s/ Kirk D. Farney
--------------------------------------
Name: Kirk D. Farney
Title: SVP
SIGNATURE PAGE TO TERMINATION AND SALE AGREEMENT