AMENDMENT NO. 1
TO
INVESTMENT MANAGEMENT AGREEMENT
This Amendment No. 1 (the "Amendment") is dated as of April 21, 1999
among 312 CERTIFICATE COMPANY, a Delaware corporation (the "Issuer"),
INTEGRITY CAPITAL ADVISORS, INC., a Delaware corporation (the "Portfolio
Manager"), and THE FIRST NATIONAL BANK OF CHICAGO, as Agent for the
Certificateholders (as such term is defined below).
WITNESSETH:
WHEREAS, the Issuer, the Portfolio Manager and the Agent are parties to
that certain Investment Management Agreement dated as of April 24, 1998 (as
amended from time to time, the "Agreement"); and
WHEREAS, the Issuer, the Portfolio Manager and the Agent desire to amend
the Agreement in certain respects more fully described hereinafter;
NOW, THEREFORE, in consideration of the premises herein contained, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
shall have their meanings as attributed to such terms in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1. Clauses (xvi) and (xvii) of the definition of "Eligible Security" in
Section 1 of the Agreement are amended to read in their entirety as follows:
"(xvi) if such Security bears interest at a fixed per annum rate,
as to which, at the time of the Issuer's acquisition of such
Security, will not cause the aggregate Fair Market Value of
all Securities owned by the Issuer which bear interest at a
fixed per annum rate (provided that such security is not
paired with one or more Permitted Hedging Transactions which
effectively convert the payment profile to that of a
floating-rate Security) to exceed 60.0% of the aggregate
Fair Market Value of all Securities owned by the Issuer; and
(xvii) which is not a leveraged future and is neither a
leveraged/speculative derivative nor a structured note
containing an imbedded leveraged/speculative derivative."
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2.2. The definition of "Fair Market Value" in Section 1 of the Agreement
shall be amended by the insertion of "(a)" in the first line thereof after the
word "means," and the insertion of the following at the end thereof in place of
the period:
"and (b) with respect to any hedging instruments, the mark-to-market
value thereof determined in accordance with the procedures set forth
in the Investment Guidelines under the section entitled
Non-speculative Hedging Instruments."
2.3. The definition of "Shortfall Amount" in Section 1 of the Agreement
shall be amended in its entirety to read as follows:
"'SHORTFALL AMOUNT" means, on any date, the amount necessary to
cause the Value Percentage (as defined in the Swap Transaction) to
equal 97%."
2.4. Section 1 of the Agreement shall be amended by the insertion of the
following definitions therein:
"'ADDITIONAL TRUE UP AMOUNT" means, on any date, the positive
difference, if any, of (i) the outstanding Invested Amount on such
date, MINUS (ii) the sum of the aggregate Fair Market Value of all
Securities and Short-Term investments owned by the Issuer on such date
on deposit in the Custodial Account PLUS any free cash balance in the
Custodial Account on such date.
'PERMITTED HEDGING TRANSACTION' means a non-leveraged cap, floor, swap
or similar transaction meeting the criterion set forth in the
Investment Guidelines attached hereto as Exhibit A."
'SECURED HEDGING TRANSACTION' means a Permitted Hedging Transaction
between the Issuer and a counterparty which, at the time of execution
of such transaction, was a Certificateholder."
2.5. Section 2(b) of the Agreement shall be amended by the insertion of
"(i)" immediately prior to the heading "ACQUISITION OF SECURITIES", the
renumbering of sub-clauses (i) and (ii) to (A) and (B), and by the insertion
of the following at the end thereof:
"(ii) PERMITTED HEDGING TRANSACTIONS. Except as otherwise provided
herein, the Portfolio Manager is authorized, on behalf of
the Issuer, to enter into, amend, extend, assign, cancel or
terminate Permitted Hedging Transactions from time to time.
The Issuer understands and agrees to be bound by the terms
of any such action taken with respect to a Permitted Hedging
Transaction pursuant to the authority granted to the
Portfolio Manager by
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this Agreement, not withstanding a subsequent termination of
this Agreement as provided herein."
2.6. Clauses (i) through (v) of Section 2(c) of the Agreement shall be
amended to read in their entirety as follows:
"(i) monitoring and enforcing on behalf of the Issuer compliance
with the terms of the Issuer's Securities by the Obligors
thereunder, compliance with the terms of the Permitted
Hedging Transactions with the counterparties thereto and
compliance with the terms of the Swap Agreement by the Swap
Provider thereunder;
(ii) recording, accounting for and enforcing payment of amounts
distributable or payable to the Issuer in connection with
each of the Swap Agreement, the Permitted Hedging
Transactions, 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, on the Permitted Hedging
Transactions from the counterparties thereto and on
Securities to be collected from the Obligors in respect
thereof on behalf of and for the account of the Issuer in
accordance with the terms of the Transaction Documents;
(iii) on the request of the Issuer, arranging for the sale or
other divestment of any Security in accordance with this
Agreement and the other Transaction Documents or for the
termination, cancellation, offsetting or assignment of
the Swap Agreement or any of the Permitted Hedging
Transactions;
(iv) holding, maintaining and preserving records with respect to
acquisitions of, or investments in, sales and divestitures
of, and distributions and payments in connection with,
Securities and Short-Term Investments and with respect to
the Swap Agreement and the Permitted Hedging Transactions;
and
(v) taking such other steps as may be necessary or appropriate
to enable the Issuer to perform its duties or exercise its
rights under or in connection with any Security, any
Short-Term Investment, the Swap Agreement or any Permitted
Hedging Transaction."
2.7. Section 4 of the Agreement shall be amended (i) by replacing the
name "ARM Capital Advisors, LLC" appearing in the heading thereof with the
name "BlackRock Financial Management, Inc.", (ii) by replacing the third
sentence thereof with the following:
"The Agent hereby consents to the appointment of BlackRock Financial
Management, Inc. ("BlackRock"), as exclusive investment sub-Portfolio
manager
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to the Portfolio pursuant to the terms of that certain Investment
Manager Agreement between ARM Financial Group, Inc. and BlackRock
dated as of March 9, 1999, a copy of which has been furnished to the
Agent."
And (iii) by replace the last sentence thereof with the following:
"Notwithstanding any such delegation of its obligations hereunder by
the Portfolio Manager, the Portfolio Manager may continue to exercise
all of its rights under this Agreement as if such delegation had not
occurred, 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."
2.8. Section 5(a)(2) of the Agreement shall be amended by the insertion of
the following in the third line thereof immediately following "Short-Term
Investments":
"or to the satisfaction of payment obligations arising under or in
connection with Permitted Hedging Transactions, in each case"
2.9. Section 5(b)(4) of the Agreement shall be amended to read in its
entirety as follows:
"(4) (a) to counterparties on Permitted Hedging Transactions for
the payment of any amounts due and payable thereunder or in
connection therewith and (b) to the Agent, for distribution to
or for the account of the Certificateholders and Letter of
Credit Banks for the payment of the accrued and unpaid
Certificate Yield due on such Settlement Date or any prior
Settlement Date;"
2.10. Section 7 of the Agreement shall be amended by the insertion therein
of a new Section 7(n) which shall read in its entirety as follows:
"PERMITTED HEDGING TRANSACTIONS. The Portfolio Manager agrees to
maintain in effect all licenses, qualifications and franchises
required under law or regulation in order to direct the investment in,
manage and service each Permitted Hedging Transaction and will comply
in all material respects with all other laws or regulations relating
to such activity, 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 Issuer's rights under
a Permitted Hedging Transaction or (ii) the ability of the Portfolio
Manager to perform its obligations under the Agreement. The Portfolio
Manager (acting on the Issuer's behalf) will, subject to compliance
with all laws and regulations, enforce the Issuer's rights under each
Permitted Hedging Transaction in accordance with its respective terms
and make to any counterparty thereto such reasonable demands and
requests for information and reports or for action as the
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Issuer is entitled to make thereunder. The Portfolio Manager shall
instruct counterparties to Permitted Hedging Transactions to direct
payments due to the Issuer from time to time thereunder (or in
connection therewith) directly to the Custodial Account and shall mark
its records with respect to such transactions with a legend that a
security interest in the payments due to the Issuer from time to time
thereunder (or in connection therewith) has been granted to the Agent,
pursuant to the Pledge Agreement for the benefit of the
Certificateholders. The Portfolio Manager agrees to update (in a
manner satisfactory to the Agent) the reporting practices performed
pursuant to Section 7(f) of the Agreement to account for the full and
proper inclusion of reporting relating to Permitted Hedging
Transactions (and counterparties thereto) in a manner consistent with
the reporting performed for Securities and the Obligors thereof."
2.11. The Investment Guidelines (attached to the Agreement as Exhibit A)
shall be amended as follows:
(a) The "Non-Speculative Hedging Instruments" line item appearing at the
bottom of the table on page one of the Investment Guidelines shall be
deleted together with footnote (5) relating thereto.
(b) Page three of the Investment Guidelines shall be amended by adding the
following to the end thereof
"5. Securities lending shall be permitted, PROVIDED that such
securities lending shall be subject to terms and conditions
satisfactory to the Agent, including, without limitation, satisfactory
documentation providing that the Agent will continue to have a first
priority perfected security interest in any such securities or in any
cash or cash equivalents collateralizing such securities lending
arrangements."
(c) The first paragraph under the heading "Aggregate Portfolio Risk
Parameters" on page three of the Investment Guidelines shall be
amended by the insertion of the following at the end thereof:
"The effective duration of each security will be measured after giving
effect to any Non-Speculative Hedging Instruments paired therewith;
PROVIDED that, for Non-Speculative Hedging Instruments that are
in-the-money at the time of measurement, the counterparty to such
Non-Speculative Hedging Instrument must be rated at least A3/A-."
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(d) The second sentence of the second paragraph under the heading
"Aggregate Portfolio Risk Parameters" on page three of the Investment
Guidelines shall be deleted and replaced with the following:
"The average credit quality is calculated as the weighted average of
the credit quality of the individual securities and Non-Speculative
Hedging Instruments within the portfolio, with securities being
weighted by their respective book values or market values as
appropriate per the custodial arrangement and Non-Speculative Hedging
Instruments being weighted as set forth below under the section
entitled, 'Non-Speculative Hedging Instruments.'"
(e) The following sentence shall be inserted immediately following the
third sentence of the third paragraph under the heading "Aggregate
Portfolio Risk Parameters" on page three of the Investment Guidelines:
"If an individual security or counterparty has an NAIC rating but no
Moody's or S&P rating, then the following numerical values shall
correspond to its NAIC rating: NAIC1-8, NAIC2-12, NAIC3-15."
(f) The section entitled "Non-Speculative Hedging Instruments" on page
five of the Investment Guidelines shall be amended to read in its
entirety as follows:
"Caps, floors, swaps and similar transactions (or combinations
thereof) may only be used as part of a hedging program to explicitly
manage the interest rate risk profile of the Portfolio, may only be
written if covered by specified securities (i.e., caps/floors at
lifetime maximums/minimums for ARMs), may only otherwise be executed
if they directly correspond to an unhedged fixed-rate security held in
the Portfolio and will be sold, assigned or terminated prior to
maturity as close as practicable to the time, if any, at which the
corresponding security is sold from the Portfolio. There is no
independent requirement to hedge the securities contained within the
Portfolio, but no derivatives may be entered into for speculative
purposes.
The credit quality of acceptable counterparties (determined by
reference to their long-term, unsecured debt rating), at the time of
execution of each transaction, will be Aa3/AA- or better (unless
otherwise approved by the Agent). If the credit quality of an existing
counterparty shall fall below A3/A-, then any outstanding in-the-money
hedging transactions with such counterparty will be sold, assigned or
terminated prior to maturity as soon as is reasonably practicable.
Notwithstanding the foregoing, if and to the extent a master netting
agreement has been executed with such counterparty (and the Agent
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determines the netting provisions therein to be enforceable upon a
counterparty insolvency), then corrective action will only be required
if and as necessary from time to time to eliminate any net
in-the-money exposure with respect to the master netting agreement as
a whole.
Hedging instruments will be valued on an ongoing basis at their
mark-to-market value (at the most disadvantageous side of the
bid/offer spread) with out-of-the-money transactions being assigned a
negative value and in-the-money transactions a positive value.
Notwithstanding the foregoing, an in-the-money transaction (or, as
appropriate, master netting agreement exposure) with a counterparty
whose credit rating is below A3/A- shall be valued at zero. For
purposes of calculating the average credit quality of the Portfolio,
the only hedging instruments which shall be included are those which
are in-the-money and with counterparties rated at least A3/A-.
Aggregate exposure to any given counterparty (measured as the sum of
in-the-money derivatives exposure plus the fair market value of any
and all securities issued by such counterparty and held in the
Portfolio) shall not be allowed to exceed 5% of the total value of the
Portfolio from time to time."
3. REFERENCES TO PORTFOLIO. For purposes of clarification, all references
in the Agreement to the term "Portfolio" shall be deemed to include any and all
Permitted Hedging Transactions entered into by or on behalf of the Issuer.
4. CONSENT TO APPOINTMENT OF NEW SUB-PORTFOLIO MANAGER. By signing
below, the Agent hereby consents to the appointment of BlackRock Financial
Management, Inc. ("BlackRock"), as exclusive investment sub-Portfolio Manager
to the Portfolio pursuant to the terms of that certain Investment Manager
Agreement dated as of March 9, 1999, a copy of which has been provided to
Agent.
5. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent to enter
into this Amendment, the Issuer and Portfolio Manager make the following
representations and warranties:
5.1. The Portfolio Manager represents and warrants that the representations
and warranties set forth in Section 6 of the Agreement are true, correct and
complete on the date hereof as if made on and as of the date hereof.
5.2. The Issuer represents and warrants that the execution and delivery of
this Amendment have been duly authorized by proper corporate proceedings and
that this Amendment and the Agreement (as amended by this Amendment) constitute
its valid and binding obligations.
6. EFFECTIVE DATE. This Amendment shall become effective as of the date
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above first written upon receipt by the Agent of (i) counterparts of this
Amendment duly executed by the Issuer and Portfolio Manager and (ii) duly
executed counterparts of the documents described in Section 5 of that certain
Amendment No. 1 to Face Amount Certificate Agreement dated as of the date hereof
among 312 Certificate Company, International Securitization Corporation and The
First National Bank of Chicago, as Agent.
7. RATIFICATION. The Agreement, as amended hereby, is hereby ratified,
approved and confirmed in all respects.
8. REFERENCE TO AGREEMENT. From and after the effective date hereof,
each reference in the Agreement to "this Agreement", "hereof", or "hereunder"
or words of like import, and all references to the Agreement in any and all
agreements, instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Agreement, as amended by
this Amendment.
9. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.
10. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the Issuer, the Portfolio Manager and the Agent have
executed this Amendment as of the date first above written.
312 CERTIFICATE COMPANY
By: /s/ William D. Morris
----------------------------
Name: William D. Morris
Title: CEO
INTEGRITY CAPITAL ADVISORS, INC.
By: /s/ John R. McGeeney
----------------------------
Name: John R. McGeeney
Title: General Counsel and Chief Compliance
Officer
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THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: /s/ Stephanie Wolf
----------------------------
Name: Stephanie Wolf
Title: First Vice President
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