INVESTMENT MANAGEMENT AGREEMENT
This INVESTMENT MANAGEMENT AGREEMENT (as amended, supplemented or
otherwise modified and in effect from time to time, this "AGREEMENT"), dated
as of the 15th day of September, 1998, is made by and among 212 CERTIFICATE
COMPANY, a Delaware corporation (the "ISSUER"), INTEGRITY CAPITAL ADVISORS,
INC., a Delaware corporation (the "PORTFOLIO MANAGER"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, as Funding Agent (in such
capacity, the "FUNDING AGENT") for the benefit of the Certificateholders.
WHEREAS,
A. Pursuant to the Face-Amount Certificate Agreement, the
Purchaser, acting through the Funding Agent, has acquired the Face-Amount
Certificate for the benefit of the Certificateholders.
B. The proceeds of the sale of the Face-Amount Certificate will
be deposited by the Funding Agent, at the direction of the issuer, into the
Custodial Account 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 the Investment Guidelines.
C. The Issuer desires to appoint the Portfolio Manager to manage
the Portfolio, and has directed the Custodian to respond to the investment
instructions of the Portfolio Manager.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Issuer, the Portfolio
Manager and the Funding Agent do hereby agree as follows:
1. DEFINITIONS. Each capitalized term used herein and not
otherwise defined herein shall have the meaning given to such term in Annex X
to that certain Face-Amount Certificate Agreement, dated as of September 15,
1998 (the "FACE-AMOUNT CERTIFICATE AGREEMENT", by and between the Issuer, the
Funding Agent and Park Avenue Receivables Corporation, as the same may from
time to time be amended, supplemented or otherwise modified and in effect,
which Annex X is hereby incorporated by reference herein.
2. APPOINTMENT AND AUTHORITY OF THE PORTFOLIO MANAGER.
(a) APPOINTMENT. The issuer hereby appoints the Portfolio Manager,
the Funding 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 Funding 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 same time of any such purchase it will be an "accredited
investor" as such term is defined in Regulation D under the Securities Act
and a "qualified institutional buyer" as that term is defined in Rule 144A
and that the Issuer shall promptly inform the Portfolio Manager and the
Funding Agent 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 representations 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
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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.
(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 monitoring compliance with the terms of the Swap Agreement by the
Swap Provider thereunder;
(ii) recording, accounting for and enforcing payments 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
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(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 Funding Agent or the
Certificateholders under the Face-Amount Certificate Agreement).
(f) CASE 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.
(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 regulations applicable to it (ii) any
provision of the Certificate of Incorporation or Bylaws of the Issuer or
(iii) any provision of any of the Transaction Documents, (b) take any action
that would cause the Issuer to become subject to registration as an
"investment company" under the Investment Company Act, (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
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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, sue 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 Funding Agent, for the benefit of the
Certificateholders, 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 neither the Funding
Agent nor any Certificateholder shall have any 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
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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 (with copies to the
Funding Agent).
4. DELEGATION; APPOINTMENT OF ARM CAPITAL; CONFLICTS OF INTEREST.
(a) The Portfolio Manager shall be permitted to perform its services
hereunder through any of its officers, ARM Capital or through any other
agents selected by it; PROVIDED that any such other agents shall be approved
in writing by the Funding Agent, for the benefit of the Certificateholders,
from time to time. The Funding Agent, for the benefit of the
Certificateholders, hereby consents to the appointment of ARM Capital as
exclusive investment sub-Portfolio Manager to the Portfolio pursuant to
the terms of that certain Investment Services Agreement between the Portfolio
Manager and ARM Capital dated as of April 24, 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. 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.
(b) The Portfolio Manager shall not direct the Custodian to
acquire a security to be included in the Portfolio from the Portfolio Manager
or any of its affiliates as principal or to sell an obligation to the
Portfolio Manager or any of its affiliates as principal.
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:
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(1) FIRST, to the extent that any amounts payable under
clauses (1) through (4) and (9) of clause (b) below remain unpaid or
to the extent that any swap payments (other than payments due and
owing under the Swap Agreement) are due and owing by the Issuer 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) and (9)
of clause (b) below or to any swap counterparties (other than
Integrity Life); 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 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 270th
day following the commencement of the Amortization Period, then upon
the written request of the Funding 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, 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;
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(3) to the Custodian, for the payment of accrued and unpaid
fees and expenses payable under the Custodial Agreement;
(4) to the Funding Agent, for distribution to or for the
account of the Certificateholders 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 Funding Agent's receipt of a
Partial Amortization Notice, to the Funding 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 Funding 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 Certificateholder under the Face-Amount
Certificate Agreement or the Face-Amount Certificate;
(7) 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);
(8) 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);
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(9) if no Swap Event has occurred and is continuing,
on a PRO RATA basis, to the Swap Provider, in payment of accrued
and unpaid amounts owing by the Issuer under the Swap Agreement; and
(10) 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 the Surplus Amount may be withdrawn from the
Custodial Account (to the extent of immediately available funds in
cash) 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 the
other Transaction Documents to which it is a party, and to execute, deliver
and perform its obligations under this Agreement and such other Transaction
Documents.
(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 and the other Transaction Documents requires such
qualification.
(c) DUE AUTHORIZATION. The Portfolio Manager's execution, delivery
and performance of this Agreement and the other Transaction Documents to
which it is a party and the other agreements and instruments executed by the
Portfolio Manager as contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Portfolio
Manager.
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(d) ENFORCEABILITY. This Agreement and each other Transaction
Document to which the Portfolio Manager is a party 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 the other Transaction Documents to which it is a party,
and performance of its obligations hereunder and thereunder do not (i)
conflict with or violate in any material respect any law, rule 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 the
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 or under any other Transaction Document.
(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 any other Transaction Document, or (ii) seeking to prevent
the consummation of any of the transactions contemplated by this Agreement or
any other Transaction Document, 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 or any other
Transaction Document to which it is a party.
(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 or any other Transaction Document to which it is a party.
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(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 to correctly
recognize references to, and abbreviations of, the year 2000 and after
(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 and after, that such
deficiencies would not materially and adversely affect its ability to perform
its obligations hereunder or under any other Transaction Document.
(j) INVESTMENT ADVISERS ACT; ERISA. The Portfolio Manager is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended and, to the extent necessary to comply with the terms of the United
States Department of Labor Prohibited Transaction Exemption 84-14 relating to
transactions negotiated by qualified professional asset managers on behalf of
employee benefit plans subject to Title I of ERISA, or Section 4975 of the
Code, the Portfolio Manager is a fiduciary with respect to each such plan
solely with respect to those assets of the Issuer that are treated as assets
of such plan for purposes of Title I of ERISA or Section 4975 of the Code.
The representations and warranties set forth in this Section 6(i)
shall survive the issuance of the Face-Amount Certificate (ii) 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 Face-Amount Certificate and all the other obligations of the Issuer under
the Face-Amount Certificate Agreement and the other Transaction Documents and
(iii) shall be deemed to be reaffirmed on each Business Day on which (A)
Securities are purchased or sold by the Issuer and (B) the Issuer receives
funds from the Certificateholders pursuant to the Face-Amount Certificate.
Upon a discovery by the Issuer, the Portfolio Manager or the Funding Agent,
for the benefit of the Certificateholders, 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.
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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 or under any
other Transaction Document.
(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 FUNDING AGENT'S RIGHTS. The Portfolio Manager
will take no action pursuant hereto which would materially impair the rights
of the Issuer or the Funding Agent, for the benefit of the
Certificateholders, 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
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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,
or will cause to have furnished, to the Issuer and the Funding Agent:
(i) within one (1) Business Day after its knowledge
(or after it reasonably should have known) of the occurrence
of any Amortization Event, notification of such occurrence;
(ii) as promptly as possible, but in no event later
than the fifth(5th) Business Day 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, prepared in accordance with
generally accepted accounting principles
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by certified public accountants of national standing
reasonably satisfactory to the Funding Agent;
(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 (2) 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) 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 (3) Business Days after the placement
on watchlist for a downgrade, or within one (1) Business Day
following 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, notice of such placement on
the watchlist, withdrawal or reduction;
(ix) on each Business Day following the occurrence of
an Amortization Event specified in clause (xi) of the
definition thereof, a report certifying as to the Fair
Market Value of all Securities and Short-Term Investments
owned by the Issuer as of the close of business on the
immediately preceding Business Day; and
(x) 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
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Portfolio Manager and its affiliates performing services
hereunder as the Funding Agent, for the benefit of the
Certificateholders, 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 Funding
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 to 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.
(i) OTHER AGREEMENTS. the Portfolio Manager (acting on the
Issuer's behalf) will, subject to compliance with all applicable laws and
regulations and the terms of this Agreement and the other Transaction
Documents, 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, have been delivered, or will be delivered, to the Funding Agent)
to the Custodian immediately upon the acquisition of the related Security,
but in no case later than five (5) Business 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 directly
to the Custodial Account.
15
(l) REPORTING. Each Weekly Report and Monthly Compliance 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 mark the files containing the same with a legend substantially
to the effect that a security interest in the Securities and other Pledged
Collateral has been granted to the Funding Agent for the benefit of the
Certificateholders pursuant to the Pledge Agreement.
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 market for the securities
being traded, as well as the experience and skill of the firm's securities
traders. The Portfolio Manager will make all commercially reasonable efforts
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 to forward duplicate
confirmations of those transactions to the Portfolio Manager and the
Custodian at such place and in such manner as may be designated from time to
time by the Portfolio Manager or the Custodian (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. Copies of any such
confirmations shall be forwarded by the Portfolio Manager to the Custodian
promptly after receipt thereof.
16
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 of 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 and any Affiliated
Person 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 Funding Agent acknowledges and agrees that such Affiliated
Person will have no obligation to disclose the information to the Issuer or
the Funding Agent or use it for the Issuer or the Funding 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 (or, if applicable, the Funding Agent's)
instructions; or (iii) any act or failure to act by the Custodian, any
broker(s) or dealers(s) engaging in transactions for the Issuer or any other
third
17
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 five (5) Business Days following the acquisition thereof, (vi)
the failure to cause the Issuer to be registered as a "broker" or a "dealer",
if required, within the meaning of the Exchange Act, or (vii) 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.
18
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 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.
(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 Funding Agent, the
Custodian and the Issuer. No such resignation shall become effective until
the Funding 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 Funding Agent, for the benefit of the Certificateholders, 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 Funding 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. 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
Funding Agent in writing or, if no such date is specified in such Removal
Notice or otherwise specified by the Funding Agent, until the earlier of a
date agreed upon by the Portfolio Manager and the Funding Agent or a date
specified by the Funding Agent in a written notice to the Portfolio Manager,
and (ii)
19
in the case of the resignation of the Portfolio Manager, until the Funding
Agent or a Successor Portfolio Manager shall have assumed the
responsibilities and obligations of the Portfolio Manager pursuant to this
Section 13. The Funding 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 Funding 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 Funding 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 Funding 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 Funding
Agent without further action shall automatically be appointed the Successor
Portfolio Manager. At any time after such appointment, the Funding Agent,
for the benefit of the Certificateholders, 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 Funding 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 Funding 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 Funding 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 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 Funding 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
20
Portfolio Manager (including, to the extent applicable, the Funding 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 Funding 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 Funding Agent or its designee at a place selected by the
Successor Portfolio Manager and in such form as the Successor Portfolio
Manager or the Funding Agent may reasonably request.
(e) RELEASE. In no event shall the appointment and acceptance of a
Successor Portfolio manager (including the succession of the Funding 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 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 Funding Agent shall not
be liable for any acts or omission of any Portfolio Manager (including,
without limitation, any Successor Portfolio Manager appointed by the Funding
Agent
21
pursuant to this Section 11) other than acts or omissions of the Funding
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 Funding 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 laws of the State of New York.
(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 below. 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.
IF TO THE ISSUER:
22
212 CERTIFICATE COMPANY
515 West Market Street, 8th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Telephone: (502) 540-2014
Telecopy: (502) 582-7903
IF TO THE PORTFOLIO MANAGER:
INTEGRITY CAPITAL ADVISORS, INC.
515 West Market Street, 8th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox
Telephone: (502) 540-2014
Telecopy: (502) 582-7903
IF TO THE FUNDING AGENT OR ANY CERTIFICATEHOLDER:
THE CHASE MANHATTAN BANK
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Andrew Taylor
Telephone: (212) 946-7861
Telecopy: (212) 946-7776
IF TO THE CUSTODIAN:
THE CHASE MANHATTAN BANK
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Andrew Taylor
Telephone: (212) 946-7861
Telecopy: (212) 946-7776
(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, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
23
(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; PROVIDED that, until the Termination Date, no such
amendment, supplement, waiver or modification shall be effective without the
prior written consent of the Funding Agent.
(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 Funding Agent's
forbearance in any particular case shall not be a waiver as to action that
may be taken by the Issuer or the Funding 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 Funding Agent and the Purchaser 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.
24
(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 Funding Agent or the Certificateholders by
each other, (y) by the Funding Agent or the Certificateholders to any
prospective or actual assignee or participant of any of them or (z) by
the Funding Agent to any rating agency, commercial paper dealer or
provider of a surety, guaranty or credit or liquidity enhancement to the
Purchaser or any entity organized for the purpose of purchasing, or
making loans secured by, financial assets for which the Funding Agent
acts as the administrative agent and to any officers, 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 Funding
Agent for the making of such disclosures generally to persons of such
type. In addition, the Certificateholders and the Funding 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 the
Purchaser, it will not institute against, or join any other person or entity
in instituting against, the Purchaser 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.
25
(i) HEADINGS. The headings and subheadings in the Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) 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.
(k) SUBMISSION TO JURISDICTION. Each of the parties hereto hereby
submits to the nonexclusive jurisdiction of the United States District Court
for the Southern District of New York and of any New York state court sitting
in The City of New York for purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. Each
of the parties hereto hereby irrevocably waives, to the fullest extent it may
effectively do so, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum. Nothing in this Agreement shall affect the right of the
Funding Agent or any Certificateholder to bring any action or proceeding
against the Issuer, the Portfolio Manager or their respective properties in
the courts of other jurisdictions to realize upon the Pledged Collateral or
any other security for the obligations hereunder, or to enforce a judgment or
other court order in favor of the Funding Agent or the Certificateholders.
(l) WAIVER OF JURY TRIAL. Each of the parties hereto hereby
waives any right to have a jury participate in resolving any dispute,
whether sounding in contract, tort or otherwise among any of them arising out
of, connected with, relating to or incidental to the relationship between
them in connection with this Agreement or other Transaction Documents.
(m) SERVICE OF PROCESS. The Issuer and the Portfolio Manager each
hereby appoint CT Corporation located at 1633 Broadway, New York, New York
10019 as the authorized agent upon whom process may be served in any action
arising out of or based upon this Agreement, the other Transaction Documents
to which such Person is a party or the transactions contemplated hereby or
thereby that may be instituted in the United States District Court for the
Southern District of New York and of any New York State court sitting in The
City of New York by the Funding Agent, any Certificateholder or any assignee
of any of them.
26
(n) FUNDING AGENT. (i) Chase acts as Funding Agent and as
administrative agent for the Purchaser, as issuing and paying agent for the
Purchaser's commercial paper notes, as provider of other backup facilities
for the Purchaser, and may provide other services or facilities from time to
time. Each of the parties hereto hereby acknowledges and consents to any and
all Chase Roles, waives any objections it may have to any actual or
potential conflict of interest caused by Chase's acting as the Funding Agent
or as an APA Bank under the Asset Purchase Agreement and acting as or
maintaining any of the Chase Roles, and agrees that in connection with any
Chase Role (other than an actual conflict of interest arising from Chase's
activities as custodian which has a material adverse effect on the Issuer),
Chase may take, or refrain from taking, any action which it in its discretion
deems appropriate.
(ii) Notwithstanding any provision of this Agreement: (i) the
parties to this Agreement shall not have any obligations under this Agreement
other than those specifically set forth herein, and no implied obligations of
any party hereto shall be read into this Agreement; and (ii) in no event shall
any party hereto be liable under or in connection with this Agreement for
indirect, special, or consequential losses or damages of any kind, including
lost profits, even if advised of the possibility thereof and regardless of
the form of action by which such losses or damages may be claimed. No party
to this Agreement, nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken in good faith by
it or them under or in connection with this Agreement, except for its or
their own gross negligence or willful misconduct. Without limiting the
foregoing, the Funding Agent (a) may consult with legal counsel (including
counsel for the Certificateholders), independent public accountants and other
experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts, (b) shall not be responsible to the
Certificateholders, the Issuer, the Custodian or the Portfolio Manager for
any statements, warranties or representations made in or in connection with
this Agreement or the other Transaction Documents (except with respect to
itself), (c) shall not be responsible to the Certificateholders, the Issuer
or the Portfolio Manager for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or the
other Transaction Documents (except with respect to itself), (d) shall incur
no liability under or in respect of any of the Purchaser's obligations under
this Agreement or the other Transaction Documents and (e) shall incur no
liability under or in respect of this Agreement or the other Transaction
Documents by acting upon any notice (including notice by telephone), consent,
certificate or other instrument or writing (which may be by facsimile)
27
believed by it to be genuine and signed or sent by the proper party or
parties. Notwithstanding anything else herein or in the other Transaction
Documents, it is agreed that where the Funding Agent may be required under
this Agreement or the other Transaction Documents to give notice of any event
or condition or to take any action as a result of the occurrence of any event
or the existence of any condition, the Funding Agent agrees to give such
notice or take such action only to the extent that it has actual knowledge of
the occurrence of such event or the existence of such condition, and shall
incur no liability for any failure to give such notice or take such action in
the absence of such knowledge.
28
IN WITNESS WHEREOF, the parties hereto have caused this Investment
Management Agreement to be entered into on the day and year first above
written.
INTEGRITY CAPITAL ADVISORS, INC.,
as Portfolio Manager
By: /s/ Barry G. Ward
------------------------------
Name:
Title: Controller
212 CERTIFICATE COMPANY, as Issuer
By: /s/ Robert L. Maddox
--------------------------------
Name: Robert L. Maddox
Title: President
THE CHASE MANHATTAN BANK,
as Funding Agent for the benefit of
the Certificateholders
By:
----------------------------------
Name:
Title:
29
IN WITNESS WHEREOF, the parties hereto have caused this Investment
Management Agreement to be entered into on the day and year first above
written.
INTEGRITY CAPITAL ADVISORS, INC.,
as Portfolio Manager
By:
------------------------------
Name:
Title:
212 CERTIFICATE COMPANY, as Issuer
By:
--------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Funding Agent for the benefit of
the Certificateholders
By: /s/ Andrew Taylor
----------------------------------
Name: Andrew Taylor
Title: Vice President
29
EXHIBIT A
INVESTMENT GUIDELINES
A-1
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 Moody's 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, Aa1/AA+5,
Aa2/AA 6, Aa3/AA-7 and so on. If an individual security is evaluated by both
Moody's 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 met.
EXHIBIT B
INVESTMENT PORTFOLIO MANAGER AGREEMENT
B-1
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 judgement 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.
515 West Market Street, 4th Floor
Louisville, KY 40202-3271
Telecopier: (502) 582-7995
Attention: Robert H. Scott
(b) If to Advisor to:
ARM Capital Advisors, LLC
200 Park Avenue, 20th Floor
New York, New York 10166
Telecopier: (212) 973-2201
Attention: Emad A. Zikry
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/ Robert H. Scott
--------------------------------
Name: Robert H. Scott
Title: General Counsel
ARM CAPITAL ADVISORS, LLC
By: Christopher T. Kracke
-------------------------------
Name: Christopher T. Kracke
Title: Chief Financial Officer
7
APPENDIX A
SUBSIDIARIES
312 Certificate Company
APPENDIX B
INVESTMENT ADVISORY SERVICES
Subject to the terms, conditions and limitations of this Agreement and
the supervision by the Subsidiaries' Boards of Directories of the assets now
or hereafter contained in the respective Accounts, Advisor shall provide the
following services:
1. Except as otherwise expressly provided herein, Advisor shall be free
to buy, sell, exchange, convert, or otherwise trade the assets now or
hereafter contained in the Accounts in the exercise of its sole discretion,
provided Advisor acts in a manner consistent with any and all written
direction received from Company as to each of the Investment Policies adopted
by the Board of Directors of the respective Subsidiaries, as the same may be
modified from time to time. Advisor shall acquire or dispose of any specific
investment if so directed by the Company and/or the Board of Directors of the
applicable Subsidiaries.
2. All investments made by Advisor shall be in those classes of
investments as permitted or required by any Laws; PROVIDED, HOWEVER, that
nothing contained herein shall authorize Advisor to purchase or dispose of,
without the applicable Subsidiaries' prior written approval, any interest in
real property or mortgages.
3. In the course of its investment advisory services activity, Advisor
MAY NOT pledge, mortgage or hypothecate the assets in the Accounts, or enter
into any investment which would violate any Laws.
4. Advisor shall not at any time have custody or possession of any of
the assets in the Accounts. Custody and possession of any and all assets in
the Accounts shall at times be maintained in one or more segregated custodial
accounts maintained with the Custodians and held on behalf of and in the name
of the respective Subsidiaries. All transactions authorized by this Agreement
shall be carried out through such custodial accounts maintained with the
Custodians. Advisor shall not be responsible for any act or omission of the
Custodians thereunder.
APPENDIX C
SCHEDULE OF FEES
COMPUTATION OF FEES. Company shall have the right to engage Advisor to
perform the above described investment management services at an annualized
cost of (A) twenty basis points (.0020) times the first $100 million of the
average market value of assets under management, (B) seven basis points
(.0007) times the average market value of assets under management in excess
of $100 million and up to $2 billion, (C) six basis points (.0006) times the
average market value of assets under management in excess of $2 billion and
up to $3 billion, and (D) five basis points (.0005) times the average market
value of assets under management in excess of $3 billion. Such fee to be
calculated and payable on the average of the market value of all assets in
the Accounts on the first and last days of each calendar month.
EXHIBIT C
FORM OF WEEKLY REPORT
C-1
Weekly Report
SUMMARY INFORMATION:
Purchase Limit $ 500,000,000 Liquidity Termination Date:
------------------- ----------
Weekly Period Ended: (Date) Payment Due Date, if any, to Issuer: (Date + 5
------------------- ----------
Date Due to Agent (Date + 3 Bus. Days) Bus. Days)
-------------------
- -----------------------------------------------------------------------------------------------------
I. RECONCELLATION 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. RECONCILLATION 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
- -----------------------------------------------------------------------------------------------------
Exhibit D
---------
FORM OF SETTLEMENT REPORT
D-1
Settlement Report
SUMMARY INFORMATION:
Purchase Limit: $ 500,000,000 Liquidity Termination Date:
------------------- ----------
Settlement Period Ended: 31-May-98 Applicable LIBOR Rate:
------------------- ----------
Date Due to Agent: (Settlement Date) Blended LIBOR Rate:
------------------- ----------
- -------------------------------------------------------------------------------------------------------
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 GREATER THAN 3%); DUE FROM SWAP PROVIDER $0.00
H. SURPLUS AMOUNT (I.D-D, IF FMV GREATER THAN 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 FRANCHISES 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
- -------------------------------------------------------------------------------------------------------
Page 1
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 GREATER THAN INV. AMT.)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
VII. PORTFOLIO MONITORING
- -------------------------------------------------------------------------------------------------------
Termination
Actual Trigger
------ -----------
A. PORTFOLIO WEIGHTED AVERAGE CREDIT QUALITY LESS THAN AA
B. PORTFOLIO AVERAGE EFFECTIVE DURATION GREATER THAN 1.75
C. PERCENTAGE FIXED RATE COUPONS IN PORTFOLIO GREATER THAN 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 , 1998, among
, (the "Issuer"), (the "Certificateholder")
and , 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 my 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__.
--------------------------------
Page 2
Exhibit E
---------
FORM OF MONTHLY COMPLIANCE REPORT
E-1
Monthly Compliance Report
SUMMARY INFORMATION:
Purchase Limit: $500,000,000 Liquidity Termination Date:
------------ ---------------------
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
Agency CMOs 50% 5% 9.5%
Non-Agency CMOs (residential) 50% 5% 9.5%
Non-Agency CMOs (commercial) 10% 5% 9.5%
Agency Pass Throughs 50% 5% 9.5%
Support Tranchee 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%
Industries
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]
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