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 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
representation that the Issuer is an "accredited investor" and/or a
"qualified institutional buyer", and a commitment that such securities will
not be offered or sold by the Issuer except in compliance with the
registration requirements
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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 payment of amounts
distributable or payable to the Issuer in connection with each of the Swap
Agreement and any Security or Short-Term Investment acquired or held on
behalf and for the account of the Issuer, and arranging for payments on the
Swap Agreement from the Swap Provider and on Securities to be collected
from the Obligors in respect thereof on behalf of and for the account of
the Issuer in accordance with the terms of the Transaction Documents;
(iii) on the request of the Issuer, arranging for the sale or other
divestment of any Security on 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) CASH MANAGEMENT. The Portfolio Manager shall direct any
acquisition and sale of Securities and Short-Term Investments under the
Custodial Agreement such that the Issuer has, or is likely to have, available
funds to pay any costs, fees, expenses, taxes and other amounts due under the
Transaction Documents when due.
(g) DIRECTION BY THE ISSUER; CONFORMITY WITH LAW AND COVENANTS.
Notwithstanding anything herein to the contrary, the Portfolio Manager shall
perform its duties hereunder subject to the direction of the Issuer and in a
manner consistent with the Issuer's Certificate of Incorporation and Bylaws,
with any applicable resolutions of the board of directors of the Issuer in
effect from time to time and in accordance with the terms of the Transaction
Documents, with respect to which, in each case, the Portfolio Manager has
received a copy. The Portfolio Manager will not, in performing its obligations
hereunder, (a) take any action that would cause the Issuer to be in violation of
(i) any law, rule or regulation applicable to it (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 and 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 or 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 Investment 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 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 under any
other Transaction Document to which it is a party.
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(h) AMORTIZATION EVENT. To the best of its knowledge, no Amorti-
zation 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, business
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 purpose 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 Man-
ager'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 markets 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 or 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 action taken (or from the timing
or nature of actions taken) with respect to, or on behalf of, the Issuer. The
Portfolio Manager shall not be obligated to purchase or sell for the Issuer
securities which the Portfolio Manager may purchase or sell for itself or for
the portfolios of other persons and entities if the Portfolio Manager, in its
sole discretion, deems that such investment or transaction appears unsuitable,
impractical, improper, ill-advised, or undesirable for the Issuer.
10. INVESTMENT INFORMATION. The Portfolio Manager 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 dealer(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) indemnificaion 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 omissions 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 this Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning thereof.
(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 the 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
the 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 to 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: /s/ Andrew Taylor
-------------------------------------
Name: Andrew Taylor
Title: Vice President
EXHIBIT A
INVESTMENT GUIDELINES
A-1
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
- --------------------------------------------------------------------------------
MIN./MAX/ MAX. PER MAX. PER
CLASS EXP. ISSUE ISSUER
- --------------------------------------------------------------------------------
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.
[ILLEGIBLE]
Term Portfolio Guidelines
Two
GENERAL
The average effective duration of the portfolio cannot exceed 1.75 years.
The average credit quality of the portfolio cannot be less than AA/NAIC
"1". The portfolio cannot contain investments in real estate, direct
commercial mortgages, common stocks, leveraged futures or other
leveraged/speculative derivatives. 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 are 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 judgment by Advisor,
Advisor shall perform such services in accordance with any standards and
guidelines which Company develops and communicates to Advisor in writing.
In performing any services hereunder, Advisor shall at all times act in a
manner reasonably calculated to be in or not opposed to the best interests
of Company and the Subsidiaries.
(c) CONTROL. The performance of services by Advisor for Company
pursuant to this Agreement shall in no way impair the absolute control of
the business and operations of Company or Advisor by their respective
Boards of Directors. Advisor shall act hereunder
2
so as to assure the maintenance of the operational controls and the
separate operating identity of Company.
2. CHARGES. Company agrees to pay to Advisor for services provided by
Advisor pursuant to this Agreement the fees set forth on Appendix C attached
hereto (as such Appendix may be revised by the parties hereto from time to
time).
3. PAYMENT. Advisor shall periodically submit to Company a written
statement of the amount owed by Company for services rendered pursuant to
this Agreement for the appropriate period, and Company shall pay such amount
to Advisor within thirty (30) days of such written statement.
4. RIGHT TO CONTRACT WITH THIRD PARTIES. Nothing herein shall be deemed to
grant Advisor an exclusive right to provide services to Company, and Company
retains the right to contract with any third party, affiliated or unaffiliated,
for the performance of services as are available to or have been requested by
Company pursuant to this Agreement. It is also understood and agreed that
Advisor's services are not exclusively for Company. Advisor shall remain free to
provide services to other persons, pursuant to objectives which may or may not
be similar to the strategy adopted as appropriate for Company.
5. CONFIDENTIALITY. In rendering its services hereunder, Advisor may be
furnished with information concerning the Company's businesses and affairs
("Confidential Information"). Advisor agrees (a) except as required by law, to
keep all Confidential Information confidential and not to disclose or reveal any
Confidential Information and (b) not to use Confidential Information for any
purpose other than rendering services hereunder.
6. CONTACT PERSONS. Company and Advisor each shall appoint one or more
individuals who shall serve as contact persons for the purpose of carrying out
this Agreement. Such contact persons shall be authorized to act on behalf of
their respective parties as to the matters pertaining to this Agreement.
Effective upon execution of this Agreement, the initial contact persons
3
shall be those set forth in Section 11 of this Agreement. Each party shall
notify the other, in writing, as to the name, address, and telephone number of
any replacement for any such designated contact person.
7. TERMINATION. This Agreement may be terminated by either party hereto at
any time, upon 180 days' or more advance written notice. No penalty shall be
charged to Company upon termination of this Agreement, and following any such
termination Advisor shall promptly deliver to Company all books and records that
are, or are deemed by this Agreement to be, the property of Company and/or the
Subsidiaries.
8. NO ASSIGNMENT. This Agreement and any rights pursuant hereto shall
not be assignable by either party hereto. Except as and to the extent
specifically provided in this Agreement or as required by applicable Laws,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto, or their respective legal successors,
any rights, remedies, obligations, or liabilities, or to relieve any person
other than the parties hereto, or their respective legal successors, from any
obligations or liabilities that would otherwise be applicable; and the
representations, warranties, covenants, and agreements contained in this
Agreement shall be binding upon, extend to and inure to the benefit of, the
parties hereto, their, and each of their, successors respectively.
9. INDEPENDENT CONTRACTOR. In rendering its services hereunder, Advisor
shall act as an independent contractor, and any duties of Advisor arising
hereunder shall be owed exclusively to Company.
10. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York
applicable to contracts made and to be performed entirely within that State.
11. NOTICE. All notices, statements or requests provided for hereunder
shall be deemed to have been duly given when actually given (orally or in
writing) or when delivered by hand to an
4
officer of the other party, or when deposited with the U.S. Postal Service, as
first class certified or registered mail, postage prepaid, overnight courier
services, telex or telecopier, addressed:
(a) If to Company to:
ARM Financial Group, Inc.
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: /s/ 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 Directors 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 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 all 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. Reconciliation of Invested Amount
- --------------------------------------------------------------------------------
A. Beginning Period Invested Amount $0.00
B. Installment Purchases During Period $0.00
C. Partial Amortizations $0.00
D. Ending Period Invested Amount (A+B-C) $0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
II. Reconciliation of the Portfolio's Fair Market Value (FMV)
- --------------------------------------------------------------------------------
A. Beginning Period FMV of Securities and Short-Term Investments $0.00
B. Ending Period FMV of Securities and Short-Term Investments $0.00
C. Ending Period Free Cash Balance in Custodial Account $0.00
D. Ending Period Total Portfolio FMV (B+C) $0.00
E. Change in FMV of Securities and Short-Term Investments (A-B) $0.00
F. Ending Portfolio FMV/Ending Invested Amount (D/I.D) 0.00%
G. Shortfall Amount (I.D-D, if difference > 3%); Due from Swap
Provider to Issuer $0.00
- --------------------------------------------------------------------------------
[COMPLIANCE PARAGRAPH]
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 > 3%); Due from Swap
Provider $0.00
H. Surplus Amount (I.D-D, if FMV > Inv. Amt.) $0.00
- --------------------------------------------------------------------------------
Surplus Amount can be paid to either the Issuer or the Parent, at the
Issuer's discretion.
- --------------------------------------------------------------------------------
III. Settlement Period Portfolio Book Income Determination
- --------------------------------------------------------------------------------
A. Interest Income Received $0.00
B. Less: Accrued Interest Paid $0.00
C. Plus: Accrued Income on Portfolio at End of Period $0.00
D. Less: Accrued Income on Portfolio at Beginning of Period $0.00
E. Plus: Accretion of Discount $0.00
F. Less: Amortization of Premiums $0.00
G. Book Income (A-B+C-D+E-F) $0.00
H. Book Income Blended LIBOR Equivalent (Blended LIBOR + __bps)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IV. Priority Of Payments
- --------------------------------------------------------------------------------
A. To Issuer, for Accrued and Unpaid Franchise Taxes Payable $0.00
B. If Applicable, to Alternate Portfolio Manager $0.00
C. To Custodian, for Accrued and Unpaid Fees $0.00
D. To Agent, for Payment of Certificate Yield $0.00
E. To, Agent, for Reimbursement of Other Accrued Fees $0.00
F. To Issuer, for Accrued and Unpaid Operating Expenses $0.00
G. Program Cost Subtotal $0.00
H. Program Cost LIBOR Equivalent (Blended LIBOR + __bps) 0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
V. Required Swap Payment (if any) by Swap Provider:
- --------------------------------------------------------------------------------
Program Cost Subtotal - Book Income (IV.G-III.G) $0.00
Approximate LIBOR Spread (bps) (IV.H-III.H) 0.00
- --------------------------------------------------------------------------------
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 > Inv. Amt.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VII. Portfolio Monitoring
- --------------------------------------------------------------------------------
Termination
Actual Trigger
------ -------
A. Portfolio Weighted Average Credit Quality < AA
B. Portfolio Average Effective Duration > 1.75
C. Percentage Fixed Rate Coupons in Portfolio > 60%
D. In Compliance? Yes
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VIII. Payment Summary Section:
- --------------------------------------------------------------------------------
A. To Issuer (IV.A+IV.F): $0.00
B. To Custodian ([V.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 m supervision, a detailed review of the transactions and
conditions of the Issuer during the Settlement Period covered by this
Settlement Report.
3. The examinations described in paragraph 2 did not disclose, and I have no
knowledge of, the existence of any condition or event which constitutes an
Amortization Event or a Material Adverse Effect, as each such term is
defined under the Agreement, during or at the end of the Settlement Period
covered by this Settlement Report or as of the date of my signature, except
as set below; and
4. This Settlement Report sets forth financial data and computations
evidencing the compliance with certain covenants of the Agreement, all of
which data and computations are true, complete, and correct.
5. Described on an attached sheet are the exceptions, if any, to paragraph 3
by listing, in detail, the nature of the condition or event, the period
during which it has existed and the action which the Issuer has taken, is
taking, or proposes to take with respect to each such condition or event;
The foregoing certifications, together with the computations set forth in
this Settlement Report are made and delivered this ____ day of
_______, 19__.
-----------------------
Page 2
EXHIBIT E
FORM OF MONTHLY COMPLIANCE REPORT
E-1
Monthly Compliance Report
Summary Information:
Purchase Limit: $500,000,000 Liquidity Termination Date:
------------- -------
On 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 Tranches 10% 5% 9.5%
Asset-backed Securities 30% 5% 9.5%
Auto Loans
Credit Card Receivables
Home Equity
Manufactured Housing
Corporate Debt 60% 5% 5%
Industrials
Telecommunications
Utilities
Banks
Finance Companies
144A Private Placements 30% 2.5% 2.5%
Foreign Debt 20% 2.5% 2.5%
Non-Investment Grade Securities 5% 1% 1%
Cash & Cash Equivalents 100% 5% 5%
Non-Speculative Hedging Instruments 3% 1% 1%
[COMPLIANCE PARAGRAPH]
Page l