<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
Commission file number: 001-12294
ARM FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 61-1244251
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 582-7900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/ Yes / / No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Date Class Shares Outstanding
- --------------------------------------------------------------------------------
<S> <C> <C>
August 12, 1999 A 23,829,596
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARM FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Carrying Amount Fair Value
------------------------------ ----------------------------
June 30, December 31, June 30, December 31,
(IN THOUSANDS) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Cash and investments:
Fixed maturities, available-for-sale, at fair
value
(amortized cost: June 30, 1999-$6,407,349;
December 31, 1998-$6,036,275) $6,264,509 $5,812,330 $6,264,509 $5,812,330
Equity securities, at fair value (cost: June 30,
1999 - $33,680; December 31, 1998 - $33,559) 37,213 31,745 37,213 31,745
Mortgage loans on real estate 13,395 14,554 13,395 14,554
Policy loans 131,353 129,163 131,353 129,163
Cash and cash equivalents 393,786 525,316 393,786 525,316
------------------------------ ----------------------------
Total cash and investments 6,840,256 6,513,108 6,840,256 6,513,108
Assets held in separate accounts:
Guaranteed 1,246,786 1,255,198 1,246,786 1,255,198
Nonguaranteed 1,897,367 1,641,005 1,897,367 1,641,005
Accrued investment income 68,281 59,099 68,281 59,099
Deferred policy acquisition costs 158,089 125,589 - -
Value of insurance in force 66,471 49,651 - -
Deferred federal income taxes 43,142 115,199 21,726 99,459
Receivable for investment securities sold 15,653 3,885 15,653 3,885
Goodwill 11,540 5,348 11,540 5,348
Other assets 23,491 18,182 23,491 18,182
--------------------------------------------------------------
Total assets $ 10,371,076 $9,786,264 $ 10,125,100 $9,595,284
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
2
<PAGE>
ARM FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
Carrying Amount Fair Value
------------------------------- -------------------------------
June 30, December 31, June 30, December 31,
(IN THOUSANDS) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Customer deposits $7,032,054 $6,600,498 $6,861,417 $6,463,082
Customer deposits in separate accounts:
Guaranteed 1,242,454 1,240,348 1,203,544 1,193,429
Nonguaranteed 1,897,367 1,641,005 1,810,455 1,565,080
Long-term debt 38,000 38,000 38,000 38,000
Accounts payable and accrued expenses 14,377 20,117 14,377 20,117
Payable to reinsurer 6,009 6,935 6,009 6,935
Other liabilities 32,799 28,928 32,799 28,928
------------------------------- --------------------------------
Total liabilities 10,263,060 9,575,831 9,966,601 9,315,571
Contingencies
Shareholders' equity:
Preferred stock: Series A fixed/adjustable
rate cumulative (5.575%) 75,000 75,000
Common stock: Class A; 23,829,596 and
23,704,411 shares issued and outstanding, respectively 238 237
Additional paid-in capital 219,790 218,268
Retained earnings (deficit) (108,222) 55,253
Accumulated other comprehensive income from net
unrealized losses on available-for-sale securities (78,790) (138,325)
------------------------------- --------------------------------
Total shareholders' equity 108,016 210,433 158,499 279,713
------------------------------- --------------------------------
Total liabilities and shareholders' equity $ 10,371,076 $9,786,264 $10,125,100 $9,595,284
------------------------------- --------------------------------
------------------------------- --------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
ARM FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- --------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income $ 141,694 $ 115,163 $ 278,162 $ 219,569
Interest credited on customer deposits (109,027) (92,657) (216,116) (174,337)
----------------------------- ---------------------------
Net investment spread 32,667 22,506 62,046 45,232
Fee income:
Variable annuity fees 6,717 5,029 12,838 9,455
Other fee income 611 385 1,142 617
----------------------------- ---------------------------
Total fee income 7,328 5,414 13,980 10,072
Other income and expenses:
Surrender charges 1,652 1,816 3,012 3,150
Operating expenses (9,797) (7,984) (20,341) (15,534)
Commissions, net of deferrals (356) (424) (774) (1,022)
Interest expense on debt (657) (661) (1,369) (1,278)
Amortization:
Deferred policy acquisition costs (4,816) (3,185) (9,180) (5,909)
Value of insurance in force (1,475) (1,401) (2,888) (2,932)
Acquisition-related deferred charges and
goodwill (224) (204) (376) (424)
Non-recurring charges:
Stock-based compensation - - - (2,036)
Other - (1,105) - (2,639)
Other, net (553) (455) (2,042) (1,048)
----------------------------- ---------------------------
Total other income and expenses (16,226) (13,603) (33,958) (29,672)
Realized investment gains (losses):
Termination of a reinsurance agreement (90,000) - (90,000) -
Other-than-temporary impairments (73,947) - (73,947) -
Other (primarily permanent impairments in 1999) (16,850) 1,786 (17,201) 6,951
----------------------------- ---------------------------
Income (loss) before income taxes (157,028) 16,103 (139,080) 32,583
Income tax expense (15,856) (4,208) (20,399) (9,707)
----------------------------- ---------------------------
Net income (loss) (172,884) 11,895 (159,479) 22,876
Dividends on preferred stock (1,045) (1,188) (2,090) (2,376)
----------------------------- ---------------------------
Net income (loss) applicable to common
shareholders $(173,929) $ 10,707 $ (161,569) $ 20,500
----------------------------- ---------------------------
----------------------------- ---------------------------
Net income (loss) per common share (basic) $ (7.30) $ 0.46 $ (6.78) $ 0.88
----------------------------- ---------------------------
----------------------------- ---------------------------
Net income (loss) per common and common
equivalent share (diluted) $ (7.30) $ 0.44 $ (6.78) $ 0.84
----------------------------- ---------------------------
----------------------------- ---------------------------
Cash dividends paid per common share $ 0.04 $ 0.04 $ 0.08 $ 0.06
----------------------------- ---------------------------
----------------------------- ---------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
ARM FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 173,235 $ 132,379
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Fixed maturity investments:
Purchases (1,766,950) (4,501,093)
Maturities and redemptions 484,381 360,266
Sales 731,663 2,788,703
Other investments:
Purchases (121) (9,950)
Maturities, redemptions and sales 1,391 8,315
Policy loans, net (2,190) 472
Transfers (to) from the separate accounts:
Purchase of assets held in separate accounts (199,980) (245,506)
Proceeds from sale of assets held in separate accounts 137,125 100,442
-----------------------------
Cash flows used in investing activities (614,681) (1,498,351)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Amounts received from customers 942,720 1,533,766
Amounts paid to customers (629,459) (338,387)
Net proceeds from issuance of common stock 1,577 927
Change in payable to reinsurer (926) (931)
Change in repurchase agreement liability - 150,910
Dividends on preferred stock (2,090) (2,376)
Dividends on common stock (1,906) (1,404)
-----------------------------
Cash flows provided by financing activities 309,916 1,342,505
-----------------------------
Net decrease in cash and cash equivalents (131,530) (23,467)
Cash and cash equivalents at beginning of period 525,316 228,206
-----------------------------
Cash and cash equivalents at end of period $ 393,786 $ 204,739
-----------------------------
-----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
ARM FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30, 1999 are
not necessarily indicative of those to be expected for the year ending December
31, 1999 (see Notes 3 and 4 below). For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report on Form 10-K of ARM Financial Group, Inc. (the "Company") for the year
ended December 31, 1998.
2. FAIR VALUE BALANCE SHEETS
The consolidated balance sheets include a dual presentation of carrying
amount and fair value balances. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," fixed maturities classified as available-for-sale
are reported at fair value in the carrying amount balance sheets; however,
corresponding customer deposits are reported at historical values. In contrast,
in the fair value balance sheets, both assets and liabilities are reported at
fair value. As permitted by SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments," the fair value balance sheets are presented as a
supplemental disclosure to provide additional information on the Company's
financial position.
SFAS No. 107 requires disclosure of fair value information about all
financial instruments, including insurance liabilities classified as investment
contracts, unless specifically exempted. The accompanying fair value balance
sheets reflect fair values for those financial instruments specifically covered
by SFAS No. 107, along with fair value amounts for other assets and liabilities
for which disclosure is permitted but not required.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Accordingly, the aggregate fair value amounts presented do not
necessarily represent the underlying value of the Company. The methods and
assumptions used in estimating fair value were consistently applied.
The Company's management of interest rate risk aims to reduce its exposure
to changing interest rates by managing the duration, convexity and cash flow
characteristics of both assets
6
<PAGE>
and liabilities while attempting to maintain liquidity redundancies (i.e.,
sources of liquidity in excess of projected liquidity needs). Pursuant to this
methodology, fair values of assets and liabilities should tend to respond
similarly to changes in interest rates.
3. SUBSEQUENT EVENTS
On July 29, 1999, the Company announced that it is restructuring its
institutional business and positioning its retail business and technology
operations for the sale of the Company. The Company's efforts to find a buyer
have been unsuccessful. As a result, the Company has sought protection with
respect to its insurance subsidiary, Integrity Life Insurance Company
("Integrity"), from the Ohio Department of Insurance. Integrity is domiciled in
Ohio. On August 20, 1999, Integrity consented to a Supervision Order issued by
the Ohio Department of Insurance. The Supervision Order will remain in effect
for 60 days. Unless the Ohio Department of Insurance begins proceedings for the
appointment of a rehabilitator or liquidator, the Supervision Order may
automatically be extended for successive 60-day periods until written notice is
given to Integrity ending the supervision.
This regulatory action is intended to ensure an orderly process for
addressing the financial obligations of Integrity and to protect the interests
of its individual policyholders. The Company believes that Integrity has
adequate assets to meet its obligations to individual retail policyholders.
Integrity will continue payments of death benefits, previously scheduled
systematic withdrawals, previously scheduled immediate annuity payments, and
agent commissions, but must receive written consent from the Ohio Department of
Insurance for other payments including dividends to the company. In
particular, the Supervision Order also suspends the processing of surrenders
of policies except in cases of approved hardship.
The possibility exists that National Integrity Life Insurance Company
("National Integrity") could be placed under rehabilitation by the New York
Department of Insurance if the New York Department believes that such action is
necessary or appropriate to protect the interests of policyholders. New York is
the domiciliary state of National Integrity.
The Board of Directors of the Company is continuing to explore all
strategic alternatives, including the sale of the Company's subsidiaries or its
businesses. There can be no assurance that a transaction for the sale of the
Company's insurance subsidiaries or its businesses will be developed or
consummated or as to the price or value that might be obtained.
If the Company is unable to find a suitable buyer for its subsidiaries or
its businesses or receive a significant infusion of capital from an investor or
investors, then the Company's ability to continue as a going concern is in
substantial doubt. Without the financial strength of a buyer or investor, the
Company will likely not have adequate levels of capital to service its
obligations, including the $38 million debt referred to below and $75 million
of preferred stock. There can be no assurance that the Company will be able
to obtain sufficient capital to meet its liquidity needs. Accordingly, the
Company is considering all of the options available to it, including a
possible bankruptcy filing at the holding company level.
As part of the institutional restructuring, on August 3, 1999, the Company
and General American Life Insurance Company ("General American") completed a
transaction whereby General American recaptured approximately $3.4 billion of
assets and related liabilities
7
<PAGE>
previously ceded through a reinsurance agreement to one of the Company's
insurance subsidiaries, Integrity (the "Transaction"). The Transaction, which
terminated the reinsurance and related agreements, including a marketing
partnership agreement, was effective as of July 26, 1999. These assets and
related liabilities were part of a joint product development, marketing and
reinsurance relationship with General American involving funding agreements and
guaranteed investment contracts. As a result of the Transaction, the Company
recorded a charge of $90 million during the second quarter of 1999 primarily due
to interest rate related decreases in the fair value of investment securities
recaptured by General American. The Company does not intend to pursue additional
institutional spread or institutional fee business.
Assuming the Transaction occurred on June 30, 1999, total assets and total
liabilities would have been $6.9 billion and $6.8 billion, respectively.
Shareholders' equity would have remained as stated because the $90 million
charge is already reflected on the June 30, 1999 balance sheet.
Following the reinsurance recapture by General American, the Company had
approximately $1.8 billion of institutional customer deposits remaining related
to institutional funding agreements and certificates. In anticipation of further
actions to reduce the risk profile of this remaining institutional business, the
Company recorded a second quarter charge of $73.9 million. This charge was a
result of writing down the book value of the Company's remaining institutional
invested assets, due to interest rate related other-than-temporary declines in
asset fair values.
The decision to restructure the Company's institutional business was driven
by the need to improve the Company's statutory capitalization ratios and due to
the interest rate related decline in the fair value of investment securities in
the Company's institutional spread products segment. In addition, management
believes that the restructuring was necessary in order to position the Company
for sale. Statutory capitalization ratios reflect the Company's surplus, or
assets held in excess of customer deposits and other liabilities, as a
percentage of the Company's assets. The declining fair values were, and continue
to be, substantially affected by the effect of credit spread widening on market
interest rates and bond market illiquidity, following a period of rapid growth
in institutional deposits.
Following the Company's July 29, 1999 announcement, the Company's and its
insurance subsidiaries' ratings were lowered by four significant rating
agencies. Following the publication of the lower ratings, the Company complied
with withdrawal requests of $160.3 million during August 1999 from institutional
customers, which lowered institutional customer deposits to $1.6 billion.
The Company is engaged in discussions with its three remaining
institutional clients that have, or may have, the right to withdraw their
deposits due to the Company's lower ratings and/or the Supervision Order from
the Ohio Department of Insurance. Two of these clients bought institutional
certificate products issued by two special purpose vehicles ("SPVs"), through
the Company's subsidiaries, 312 Certificate Company and 212 Certificate Company
("312 CC" and "212 CC", respectively). The Company has approached these clients
to attempt to negotiate an orderly process for managing the associated
investment portfolios. In addition, the Company has had general discussions with
the third client regarding a possible orderly unwinding of an Integrity separate
account funding agreement that the client holds. The Company
8
<PAGE>
continues to negotiate with its three institutional clients and is evaluating
opportunities to reduce outstanding liabilities under these structures on an
orderly basis. The Company can give no assurance that agreements will be reached
with its institutional clients, what the terms of such agreements might be, or
the effect such terms could have on the Company or its subsidiaries (see Note 4
below).
Integrity is the counterparty in total yield swaps with 312 CC and 212 CC.
The swaps generally provide that Integrity guarantees certain levels of book
yield and asset fair values in 312 CC and 212 CC, and if those levels are not
maintained, Integrity would be required to make payments under the swaps to 312
CC and 212 CC. As a result of the Supervision Order from the Ohio Department of
Insurance to Integrity, 312 CC and 212 CC are in default. The Ohio Department of
Insurance has instructed the Company that Integrity is not to provide funds to
312 CC or 212 CC without its prior approval.
The Company was subject to a covenant in its bank credit agreement (a
restriction on transferring more than 15% of the Company's assets) that required
the Company to pay off, renegotiate or obtain a waiver with respect to its $38
million long-term debt prior to completing the General American transaction. On
August 3, 1999, the Company secured new debt financing of $38 million from
General American, paid in full its outstanding long-term bank debt, and
terminated its revolving line of credit associated with the bank credit
agreement.
The agreement for the new debt financing provides that the debt will
mature on the later November 2, 1999, or if a definitive agreement to
transfer control of the stock or substantially all of the assets of the
Company. Integrity or National Integrity is executed on or prior to such
date, upon the closing date of such transaction. Maturity of the debt may be
accelerated by General American in the event of a default by the Company in
connection with insolvency or certain other events, involving the company or
its subsidiaries upon written notice. At maturity the unpaid principal and
all accrued interest is payable, unless the parties agree to extend the date.
The Company does not intend to pursue additional institutional spread or
institutional fee business. The Company believes that its capability to
market retail products and the persistency of existing retail business have
been or are likely to be materially and adversely impacted by the lower
ratings. Accordingly, management believes that the Company's ability to
generate earnings has been substantially impaired.
No quarterly cash dividend will be paid on the Company's common stock or
preferred stock during the third quarter of 1999. The declaration and payment of
dividends is subject to the discretion of the Company's Board of Directors based
on the Company's results of operations, financial condition, capital
requirements, and investment opportunities, but subject to legal and regulatory
restrictions on the payment of dividends to the Company by its insurance
subsidiaries.
By correspondence dated August 5, 1999, Fidelity's Variable Insurance
Products Fund and Variable Insurance Products Fund II (the "VIP Funds"), managed
by Fidelity Management and Research Company, advised the Company's insurance
subsidiaries of their intent to terminate,
9
<PAGE>
effective October 4, 1999, the various participation agreements between the VIP
Funds and the insurance subsidiaries. Contractholders of variable annuities in
effect on October 4, 1999 will continue to be permitted to reallocate
investments in the VIP Funds, redeem investments in the VIP Funds and/or invest
in the VIP Funds. Shares of the VIP Funds will not be made available to variable
annuity contractholders who purchase variable annuities offered by the
Company's insurance subsidiaries after October 4, 1999.
The VIP Funds indicated that the decision to terminate the various
participation agreements resulted from the determination that a material
adverse change in the business or financial condition of the Company's
insurance subsidiaries had occurred. The VIP Funds further stated that if
they determined that sufficient improvement in the financial condition of the
Company's insurance subsidiaries occurred, the notice would be withdrawn.
4. EFFECTS OF RATING AGENCY DOWNGRADES AND SUPERVISION ORDER ON ESTIMATES AND
ASSUMPTIONS
The preparation of financial statements in conformity with GAAP requires
management of the Company to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. The lowering of the Company's insurance subsidiaries' ratings, any future
downgrades, and the Supervision Order could cause actual results to be
significantly adversely different from those estimates. These estimates are
outlined below.
Investments related to the three remaining institutional structures were
written down to fair value as of June 30, 1999. If these structures were
unwound in the near term and the related investment portfolios were immediately
liquidated, the amount of losses that the Company would ultimately realize
could differ materially from the amounts already realized during the second
quarter (see Note 3 above). Realized losses incurred during a liquidation sale
could be substantially higher than if the investment portfolios were sold over
a longer period.
Customers and distributors of an insurer's annuity products tend to focus
on the ratings of the insurer to determine whether to buy or market such
products. The ability of the Company to distribute its products and the
persistency of its existing business are likely to be materially adversely
affected by the lower ratings and the Supervision Order. Each of the rating
agencies continues to assess the Company, and there can be no assurance that
the Company's current ratings will be maintained in the future. Accelerated
withdrawals of retail customer deposits could materially adversely affect
management estimates currently used for certain intangible assets including
value of insurance in force and deferred policy acquisition costs.
The Company's insurance subsidiaries held an intangible asset of $66.5
million for value of insurance in force and $158.1 million for deferred policy
acquisition costs as of June 30, 1999. Value of insurance in force and deferred
policy acquisition costs are amortized in proportion to the emergence of gross
profits, including realized investment gains and losses, over the estimated term
of the underlying policies. As noted above, the lowering of the Company's
insurance subsidiaries' ratings and the Supervision Order could have a
significant adverse impact on the persistency of its existing business. A
significant increase in surrenders will cause these intangible assets to be
amortized more quickly than current estimates because gross
10
<PAGE>
margin estimates used to actuarially determine the amortization of the assets,
could be adversely affected by the acceleration of retail withdrawals.
5. SEGMENT INFORMATION
Through June 30, 1999, the Company had four reportable segments: retail
spread products and options (fixed and indexed annuities and face-amount
certificates); institutional spread products (funding agreements, guaranteed
investment contracts ("GICs") and certificates); retail variable fund options
(fee-based variable annuity mutual fund options); and corporate and other. The
Company's corporate and other segment includes earnings on surplus assets of the
Company's subsidiaries and holding company cash and investments, fee income from
marketing partnerships and broker-dealer operations, unallocated amortization
expenses, and various corporate expenditures that are not allocated to retail
and institutional products. Income tax expense and preferred stock dividends are
not allocated to any segment.
The Company's reportable segments are based on the earnings characteristics
of the product or service and the markets through which the product or service
was sold. The reportable segments are each managed separately because the impact
of fluctuating interest rates and changes in the equity market environment
affects each segment's products and services differently. The Company evaluates
performance based on operating earnings. Operating earnings represents net
income or loss applicable to common shareholders excluding realized investment
gains and losses, net of tax, and a tax charge related to prior year unrealized
losses for 1999 and non-recurring charges for 1998.
11
<PAGE>
Revenues and earnings by segment for the three and six months ended June
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Retail spread products and options $ 58,839 $ 54,180
Institutional spread products 79,315 58,829
Retail variable fund options 6,717 5,029
Corporate and other 4,151 2,539
------------------------
Total revenues (investment income and fee income) $ 149,022 $ 120,577
------------------------
------------------------
EARNINGS
Retail spread products and options $ 10,786 $ 9,502
Institutional spread products 10,362 4,336
Retail variable fund options 2,365 2,094
Corporate and other 256 (510)
------------------------
Pretax operating earnings (before preferred stock dividends) 23,769 15,422
Income taxes on operations (6,712) (3,583)
Preferred stock dividends (1,045) (1,188)
------------------------
Operating earnings 16,012 10,651
Realized investment gains (losses), net of tax (178,667) 1,161
Tax charge related to prior year unrealized losses (11,274) -
Non-recurring charges - (1,105)
------------------------
Net income (loss) applicable to common shareholders $(173,929) $ 10,707
------------------------
------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Retail spread products and options $ 113,185 $ 109,688
Institutional spread products 159,286 105,795
Retail variable fund options 12,838 9,455
Corporate and other 6,833 4,703
------------------------
Total revenues (investment income and fee income) $ 292,142 $ 229,641
------------------------
------------------------
EARNINGS
Retail spread products and options $ 19,118 $ 20,019
Institutional spread products 20,874 8,518
Retail variable fund options 4,390 3,695
Corporate and other (2,314) (1,925)
------------------------
Pretax operating earnings (before preferred stock dividends) 42,068 30,307
Income taxes on operations (11,378) (7,274)
Preferred stock dividends (2,090) (2,376)
------------------------
Operating earnings 28,600 20,657
Realized investment gains (losses), net of tax (178,895) 4,518
Tax charge related to prior year unrealized losses (11,274) -
Non-recurring charges - (4,675)
------------------------
Net income (loss) applicable to common shareholders $(161,569) $ 20,500
------------------------
------------------------
</TABLE>
6. INCOME TAXES
Income tax expense differs from that computed using the expected federal
income tax rate of 35%. The difference is primarily attributable to (1) net
increases in valuation allowances relating to existing deferred tax assets as of
December 31, 1998 and (2) the Company not recording a tax benefit for realized
capital losses, partially offset by (3) the Company's utilization of net
operating loss carry forwards for which a valuation allowance was previously
provided.
The following table progresses the Company's valuation allowance on
deferred tax assets from December 31, 1998 through June 30, 1999 (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1998 $ 28,033
Realized investment losses 85,821
Unrealized investment losses 25,845
Utilization of net operating loss carry forward (18,025)
Other (2,389)
---------
Balance at June 30, 1999 $ 119,285
---------
---------
</TABLE>
For 1999, due to limited capital loss carry back potential, a full
valuation allowance was provided against capital loss carry forwards generated
in excess of amounts available for
13
<PAGE>
capital loss carry back. In addition, a valuation allowance of $25.8 million was
established on deferred tax assets related to SFAS No. 115 unrealized losses on
available-for-sale securities. Finally, the Company utilized net operating loss
carry forwards for which a valuation allowance was previously provided.
The portion of the SFAS No. 115 related valuation allowance related to
unrealized losses existing at December 31, 1998 was recorded as a charge to
income tax expense pursuant to the requirements of SFAS No. 109, "Accounting for
Income Taxes". This charge increased income tax expense by $11.3 million for the
second quarter of 1999. The portion of this valuation allowance related to
unrealized losses that have emerged subsequent to December 31, 1998 was recorded
as a component of other comprehensive income in shareholders' equity.
At June 30, 1999, the Company had a deferred tax asset, net of deferred tax
liabilities, of $162.4 million. The net deferred tax asset consisted of $49.2
million of operating items (ordinary gains and losses) and $113.2 million of
capital items (capital gains and losses). The valuation allowance of $119.3
million has been recorded against the deferred tax asset. Substantially all of
the valuation allowance was provided against deferred tax assets related to
the capital items. Management's estimate that a valuation allowance is not
needed against net deferred tax assets related to operating items may be
materially and adversely affected by the rating agency downgrades and
Supervsion Order (see note 4).. Management's judgment related to operating
items is based upon a history of operating profits, carry back potential in
the event of net operating losses, and projections of future operating income.
It is also management's best estimate that as of June 30, 1999, a valuation
allowance of approximately 50% is necessary on the Company's SFAS No. 115
unrealized investment losses, which relate to its retail and capital and surplus
investment portfolios. Depending upon changes in interest rates and the outcome
of efforts to restructure and sell the Company or its subsidiaries or
businesses, there is some possibility that the entire deferred tax asset
related to these unrealized investment losses should be offset with a full
valuation allowance. As of December 31, 1998 and March 31, 1999, it was
management's estimate that no valuation allowance was necessary on unrealized
investment losses. This estimate changed during the second quarter of 1999,
as reflected by realized investment losses on the termination of a
reinsurance agreement and realized investment losses on investment securities
associated with the Company's remaining institutional line of business.
7. EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," requires companies to present basic
and, if applicable, diluted earnings per share ("EPS"), instead of primary and
fully diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income applicable to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if options to issue common stock were exercised into
common stock.
14
<PAGE>
The following is a reconciliation of the number of shares used in the basic
and diluted EPS computations:
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
Weighted Average Per Share Weighted Average Per Share
(SHARES IN THOUSANDS) Shares Amount Shares Amount
- ------------------------------------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Basic EPS 23,828 $ (7.30) 23,408 $ 0.46
Effect of dilutive stock options - - 929 (0.02)
--------------------------------- ---------------------------------
Diluted EPS 23,828 $ (7.30) 24,337 $ 0.44
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
Weighted Average Per Share Weighted Average Per Share
(SHARES IN THOUSANDS) Shares Amount Shares Amount
- ------------------------------------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Basic EPS 23,820 $ (6.78) 23,365 $ 0.88
Effect of dilutive stock options - - 981 (0.04)
--------------------------------- ---------------------------------
Diluted EPS 23,820 $ (6.78) 24,346 $ 0.84
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
</TABLE>
8. COMPREHENSIVE INCOME
The components of comprehensive income (loss), net of related tax, for the
three and six months ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (172,884) $ 11,895
Change in net unrealized gains and losses on available-for-sale securities 104,250 (7,774)
-----------------------------------
Comprehensive income (loss) $ (68,634) $ 4,121
-----------------------------------
-----------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (159,479) $ 22,876
Change in net unrealized gains and losses on available-for-sale securities 59,535 (27,248)
-----------------------------------
Comprehensive income (loss) $ (99,944) $ (4,372)
-----------------------------------
-----------------------------------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On July 29, 1999, the Company announced that it is restructuring its
institutional business and positioning its retail business and technology
operations for the sale of the Company. The Company's efforts to find a buyer
have been unsuccessful. As a result, the Company has sought protection with
respect to its insurance subsidiary, Integrity Life Insurance Company
("Integrity"), from the Ohio Department of Insurance. Integrity is domiciled in
Ohio. On August 20, 1999, Integrity consented to a Supervision Order issued by
the Ohio Department of Insurance. The Supervision Order will remain in effect
for 60 days. Unless the Ohio Department of Insurance begins proceedings for the
appointment of a rehabilitator or liquidator, the Supervision Order may
automatically be extended for successive 60-day periods until written notice is
given to Integrity ending the supervision.
This regulatory action is intended to ensure an orderly process for
addressing the financial obligations of Integrity and to protect the interests
of its individual policyholders. The Company believes that Integrity has
adequate assets to meet its obligations to individual retail policyholders.
Integrity will continue payments of death benefits, previously scheduled
systematic withdrawals, previously scheduled immediate annuity payments, and
agent commissions, but must receive written consent from the Ohio Department
of Insurance for other payments including dividends to the company. The
Supervision Order also suspends the processing of surrenders of policies
except in cases of approved hardship.
The possibility exists that National Integrity Life Insurance Company
("National Integrity") could be placed under rehabilitation by the New York
Department of Insurance if the New York Department believes that such action is
necessary or appropriate to protect the interests of policyholders. New York is
the domiciliary state of National Integrity.
The Board of Directors of the Company is continuing to explore all
strategic alternatives, including the sale of the Company's subsidiaries or its
businesses. There can be no assurance that a transaction for the sale of the
Company's insurance subsidiaries or its businesses will be developed or
consummated or as to the price or value that might be obtained.
If the Company is unable to find a suitable buyer for its subsidiaries or
its businesses or receive a significant infusion of capital from an investor or
investors, then the Company's
16
<PAGE>
ability to continue as a going concern is in substantial doubt (see "Insurance
Regulation"). Without the financial strength of a buyer or investor, the Company
will likely not have adequate levels of capital to service its obligations,
including its $38 million debt to General American and $75 million of
preferred stock. There can be no assurance that the Company will be able to
obtain sufficient capital to meet its liquidity needs. Accordingly, the
Company is considering all of the options available to it, including a
possible bankruptcy filing at the holding company level.
As part of the institutional restructuring, on August 3, 1999, the Company
and General American completed a transaction whereby General American recaptured
approximately $3.4 billion of assets and related liabilities previously ceded
through a reinsurance agreement to one of the Company's insurance subsidiaries,
Integrity (the "Transaction"). The Transaction, which terminated the reinsurance
and related agreements, including a marketing partnership agreement, was
effective as of July 26, 1999. These assets and related liabilities were part of
a joint product development, marketing and reinsurance relationship with General
American involving funding agreements and guaranteed investment contracts. As a
result of the Transaction, the Company recorded a charge of $90 million during
the second quarter of 1999 primarily due to interest rate related decreases in
the fair value of investment securities recaptured by General American. The
Company does not intend to pursue additional institutional spread or
institutional fee business.
Following the reinsurance recapture by General American, the Company had
approximately $1.8 billion of institutional customer deposits remaining related
to institutional funding agreements and certificates. In anticipation of further
actions to reduce the risk profile of this remaining institutional business, the
Company recorded a second quarter charge of $73.9 million. This charge was a
result of writing down the book value of the Company's remaining institutional
invested assets, due to interest rate related other-than-temporary declines in
asset fair values.
The decision to restructure the Company's institutional business was driven
by the need to improve the Company's statutory capitalization ratios and due to
the interest rate related decline in the fair value of investment securities in
the Company's institutional spread products segment. In addition, management
believes that the restructuring was necessary in order to position the Company
for sale. Statutory capitalization ratios reflect the Company's surplus, or
assets held in excess of customer deposits and other liabilities, as a
percentage of the Company's assets. The declining fair values were, and continue
to be, substantially affected by the effect of credit spread widening on market
interest rates and bond market illiquidity, following a period of rapid growth
in institutional deposits.
17
<PAGE>
Following the Company's July 29, 1999 announcement, the Company's and its
insurance subsidiaries' ratings were lowered. The ratings of the Company's
insurance subsidiaries before and after the downgrades are as follows:
<TABLE>
<CAPTION>
Rating
----------------------------------------------------------
Rating Agency From To
--------------------------- ----------------------------------------------------------
<S> <C> <C>
Financial Strength and Claims-Paying Ability:
A.M. Best Company A (Excellent) E- (Under Regulatory Supervision)
Duff & Phelps A+ (High) DD (Under Regulatory Intervention)
Moody's Investors Service Baa1 (Adequate) B3 (Poor)
Standard & Poor's Corp. (Integrity) A (Strong) R (Regulatory Action)
Standard & Poor's Corp. (National Integrity) A (Strong) B (Weak)
Short-Term Claims-Paying Ability:
Duff & Phelps D-1 D-5
Standard & Poor's Corp. A-1 C
</TABLE>
Customers and distributors of an insurer's annuity products tend to focus
on the ratings of the insurer to determine whether to buy or market such
products. The ability of the Company to distribute its products and the
persistency of its existing business are likely to be materially adversely
affected by the lower ratings and Supervision Order. Each of the rating agencies
listed above continues to assess the Company, and there can be no assurance that
the Company's current ratings will be maintained in the future.
Following publication of the lower ratings, the Company complied with
withdrawal requests of $160.3 million during August 1999 from institutional
customers, which lowered institutional customer deposits to $1.6 billion.
The Company is engaged in discussions with its three remaining
institutional clients that have, or may have, the right to withdraw their
deposits due to the Company's lower ratings and/or the Supervision Order from
the Ohio Department of Insurance. Two of these clients bought institutional
certificate products issued by two special purpose vehicles ("SPVs"), through
the Company's subsidiaries, 312 Certificate Company and 212 Certificate Company
("312 CC" and "212 CC", respectively). The Company has approached these clients
to attempt to negotiate an orderly process for managing the associated
investment portfolios. In addition, the Company has had general discussions with
the third client regarding a possible orderly unwinding of an Integrity separate
account funding agreement that the client holds. The Company continues to
negotiate with its three institutional clients and is evaluating
opportunities to reduce outstanding liabilities under these structures on an
orderly basis. The Company can give no assurance that agreements will be
reached with its institutional clients, what the terms of such agreements
might be, or the effect such terms could have on the Company or its
subsidiaries (see Note 4 of Notes to Condensed Consolidated Financial
Statements).
18
<PAGE>
Integrity is the counterparty in total yield swaps with 312 CC and 212 CC.
The swaps generally provide that Integrity guarantees certain levels of book
yield and asset fair values in 312 CC and 212 CC, and if those levels are not
maintained, Integrity would be required to make payments under the swaps to 312
CC and 212 CC. As a result of the Supervision Order from the Ohio Department of
Insurance to Integrity, 312 CC and 212 CC are in default. The Ohio Department of
Insurance has instructed the Company that Integrity is not to provide funds to
312 CC or 212 CC without its prior approval.
The Company was subject to a covenant in its bank credit agreement (a
restriction on transferring more than 15% of the Company's assets) that required
the Company to pay off, renegotiate or obtain a waiver with respect to its $38
million long-term debt prior to completing the General American transaction. On
August 3, 1999, the Company secured new debt financing of $38 million from
General American, paid in full its outstanding long-term bank debt, and
terminated its revolving line of credit associated with the bank credit
agreement.
The agreement for the new debt financing provides that the debt will mature
on the later of November 2, 1999, or if a definitive agreement to transfer
control of the stock or substantialy all of the assets of the Company,
Integrity or National Integrity is executed on or prior to such date, upon
the closing date of such transaction. Maturity of the debt may be accelerated
by General American in the event of a default by the Company in connection
with insolvency or certain other events involving the Company or its
subsidiaries upon written notice. At maturity the unpaid principal and all
accrued interest is payable, unless the parties agree to extend the date.
The Company does not intend to pursue additional institutional spread or
institutional fee business. The Company believes that its capability to
market retail products and the persistency of existing retail business have
been materially and adversely impacted by the lower ratings. Accordingly,
management believes that the Company's ability to generate earnings has been
substantially impaired.
No quarterly cash dividend will be paid on the Company's common stock or
preferred stock during the third quarter of 1999. The declaration and payment of
dividends is subject to the discretion of the Company's Board of Directors based
on the Company's results of operations, financial condition, capital
requirements, and investment opportunities, but subject to legal and regulatory
restrictions on the payment of dividends to the Company by its insurance
subsidiaries.
By correspondence dated August 5, 1999, Fidelity's Variable Insurance
Products Fund and Variable Insurance Products Fund II (the "VIP Funds"), managed
by Fidelity Management and Research Company, advised the Company's insurance
subsidiaries of their intent to terminate, effective October 4, 1999, the
various participation agreements between the VIP Funds and the Company's
insurance subsidiaries. Contractholders of variable annuities in effect on
October 4, 1999 will continue to be permitted to reallocate investments in
the VIP Funds, redeem investments in the VIP Funds and/or invest in the VIP
Funds. Shares of the VIP Funds will not be made available
19
<PAGE>
to variable annuity contractholders who purchase variable annuities offered by
the insurance subsidiaries after October 4, 1999.
The VIP Funds indicated that the decision to terminate the various
participation agreements resulted from the determination that a material adverse
change in the business or financial condition of the Company's insurance
subsidiaries had occurred. The VIP Funds further stated that if they
determined that sufficient improvement in the financial condition of the
Company's insurance subsidiaries occurred, the notice would be withdrawn.
GENERAL
The Company specializes in the growing asset accumulation business with
particular emphasis on retirement savings and investment products. The Company's
retail products and services are sold through a broad spectrum of distribution
channels. During July 1999, the Company made a decision to no longer pursue
additional institutional spread or institutional fee business. The Company
derives its earnings from the investment spread and fee income generated by the
assets it manages. The Company groups its operations into three operating
segments (retail spread products and options, institutional spread products and
retail variable fund options) and a corporate segment, based on the market
through which the products or services are sold and the earnings characteristics
of the products or services.
The Company earns a spread between what is earned on invested assets and
what is credited to customer accounts with its retail spread products and
options segment (primarily fixed and indexed annuities) and institutional spread
products segment (funding agreements, GICs and certificates). The Company
receives a fee in exchange for managing customers' deposits, and the customers
accept the investment risk with its retail variable fund options segment
(variable annuity mutual fund options). Fee-based business is less capital
intensive than the spread businesses and provides the Company with diversified
sources of income. The Company believes that market forces and population
demographics are producing and will continue to generate strong consumer demand
for long-term savings and retirement products, including retail fixed, indexed
and variable annuity products.
As discussed above in "Recent Developments," the Company and General
American completed a transaction, effective July 26, 1999, whereby General
American recaptured $3.4 billion of assets and related liabilities previously
ceded through a reinsurance agreement to Integrity. Accordingly, these assets
and liabilities and related earnings are included in the Company's financial
position and results of operations for all periods discussed below, but will not
be included in future periods. As a result of the General American transaction
and future uncertainties stemming from other matters discussed in "Recent
Developments" above, the Company's historical results of operations should not
be used as an indication of future operating results. (See Notes 3 and 4 of
Notes to Condensed Consolidated Financial Statements.)
20
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE AND SIX MONTHS
ENDED JUNE 30, 1998.
There was a net loss of $172.9 million during the second quarter of 1999
compared to net income of $11.9 million for the second quarter of 1998. For the
six months ended June 30, the net loss was $159.5 million in 1999, compared with
net income of $22.9 million in 1998. The net loss for the second quarter and
first six months of 1999 is due to $180.8 million of realized investment losses
incurred during the second quarter of 1999. Such realized investment losses
include a $90.0 million charge related to the termination of a reinsurance
agreement with General American and a $73.9 million charge as a result of
writing down the book value of the Company's remaining investment securities
relating to its institutional business. (See "--Recent Developments.")
Operating earnings (net income or loss applicable to common shareholders
excluding realized investment gains and losses, net of tax, and a tax charge
related to prior year unrealized losses for 1999 and non-recurring charges for
1998) were $16.0 million and $10.7 million for the second quarters of 1999 and
1998, respectively. For the six months ended June 30, operating earnings were
$28.6 million in 1999, compared with $20.7 million in 1998. The increase in
operating earnings is primarily attributable to an increase in net investment
spread and variable annuity fees due to the growth of assets under management
which increased from $8.4 billion at June 30, 1998 to $10.4 billion at June 30,
1999, including $3.4 billion of assets under management which were recaptured by
General American in the third quarter of 1999.
Annualized pretax operating earnings for the retail spread products and
options segment were 1.47% and 1.36% of average assets under management of $2.94
billion and $2.80 billion for that segment during the second quarter of 1999 and
1998, respectively. For the six months ended June 30, annualized pretax
operating earnings for that segment were 1.32% and 1.43% of average assets under
management of $2.89 billion and $2.81 billion in 1999 and 1998, respectively.
Annualized pretax operating earnings for the institutional spread products
segment were 0.81% and 0.49% of average assets under management of $5.14 billion
and $3.57 billion for that segment during the second quarter of 1999 and 1998,
respectively. For the six months ended June 30, annualized pretax operating
earnings for that segment were 0.82% and 0.53% of average assets under
management of $5.10 billion and $3.18 billion in 1999 and 1998, respectively.
Annualized pretax operating earnings for the retail variable fund options
segment (fee business) were 0.53% and 0.62% of average assets under management
of $1.78 billion and $1.35 billion for that segment during the second quarter of
1999 and 1998, respectively. For the six months, annualized pretax operating
earnings for that segment were 0.51% and 0.58% of average assets under
management of $1.72 billion and $1.27 billion in 1999 and 1998, respectively.
21
<PAGE>
Net investment spread for the three and six months ended June 30, 1999 and
1998 was as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income $ 141,694 $115,163
Interest credited on customer deposits (109,027) (92,657)
-------------------- ------------------
Net investment spread $ 32,667 $ 22,506
-------------------- ------------------
-------------------- ------------------
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income $ 278,162 $219,569
Interest credited on customer deposits (216,116) (174,337)
-------------------- ------------------
Net investment spread $ 62,046 $ 45,232
-------------------- ------------------
-------------------- ------------------
</TABLE>
The increases in net investment spread are primarily attributable to the
increase in average spread-based customer deposits, which were $8.1 billion
during the second quarter of 1999 compared to $6.4 billion during the second
quarter of 1998. For the six months, average spread-based customer deposits were
$8.0 billion in 1999, compared to $6.0 billion in 1998.
22
<PAGE>
Annualized investment spread rates for the Company's two spread-based
operating segments for the three and six months ended June 30, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail spread products and options segment:
Investment yield 8.04% 7.76%
Average credited rate (5.84%) (5.74%)
--------------------- ------------------
Investment spread rate 2.20% 2.02%
--------------------- ------------------
--------------------- ------------------
Institutional spread products segment:
Investment yield 6.19% 6.62%
Average credited rate (5.17%) (5.92%)
--------------------- ------------------
Investment spread rate 1.02% 0.70%
--------------------- ------------------
--------------------- ------------------
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
1999 1998
-----------------------------------------
<S> <C> <C>
Retail spread products and options segment:
Investment yield 7.90% 7.88%
Average credited rate (5.80%) (5.77%)
--------------------- ------------------
Investment spread rate 2.10% 2.11%
--------------------- ------------------
--------------------- ------------------
Institutional spread products segment:
Investment yield 6.30% 6.70%
Average credited rate (5.26%) (5.95%)
--------------------- ------------------
Investment spread rate 1.04% 0.75%
--------------------- ------------------
--------------------- ------------------
</TABLE>
Investment income on cash and investments in excess of customer deposits
(i.e., consolidated surplus assets) was $3.5 million in the second quarter of
1999, compared to $2.2 million in the second quarter of 1998. For the six months
ended June 30, investment income on cash and investments in excess of customer
deposits was $5.7 million in 1999, compared to $4.1 million in 1998.
Investment yields for the retail spread products and options segment
increased during 1999 due to the Company's investing in collateralized bond and
loan obligations having greater yields than the existing portfolio. This
increase was mostly offset by lower overall market interest rates during the
first half of 1999 compared to the first half of 1998, which also caused
investment yields for the institutional spread products segment to decline.
Investment yields for the institutional spread products segment are generally
lower than the retail spread products and options segment because the proceeds
from institutional spread product sales are invested in securities of shorter
duration (which generally have lower investment yields) than the Company's other
investment portfolios. Investments in securities of a relatively shorter
duration
23
<PAGE>
for the institutional spread products segment more closely correspond, within a
targeted range, to the average duration of institutional spread product
deposits.
The average credited rate pattern is dependent upon the general trend of
market interest rates, frequency of credited rate resets and business mix. For
institutional spread products, crediting rates are reset monthly or quarterly
based on London Interbank Offered Rates ("LIBOR"), plus a premium, and
semi-annually or annually for certain fixed annuities. The Federal Reserve's
easing of interest rates late in 1998, followed by a decline in LIBOR,
contributed to the decrease in the average credited rate for institutional
spread products.
Variable annuity fees, which are based on the market value of the mutual
fund assets supporting variable annuity customer deposits in nonguaranteed
separate accounts, increased to $6.7 million in the second quarter of 1999 from
$5.0 million in the second quarter of 1998. For the six months ended June 30,
variable annuity fees increased to $12.8 million in 1999 from $9.5 million in
1998. This increase is primarily attributable to asset growth from a stock
market driven increase in the value of existing variable annuity deposits
invested in mutual funds and from the receipt of variable annuity deposits.
Assets under management by business segment as of June 30, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------
1999 1998
----------------------------------------------------------
Percent of Percent of
(DOLLARS IN MILLIONS) Amount Total Amount Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail:
Spread products and options (primarily fixed annuity
deposits) $ 3,050.3 29% $2,782.8 33%
Variable fund options (variable annuity deposits
invested in mutual funds) 1,861.1 17 1,404.7 17
--------------------------- ---------------------------
Total retail 4,911.4* 46 4,187.5 50
Institutional products (funding agreement, GIC spread
and certificate deposits) 5,204.3** 50 3,811.4 45
Corporate and other:
Off-balance sheet deposits under a marketing
partnership arrangement with General American 271.6** 3 233.7 3
Cash and investments in excess of customer deposits 59.2 1 201.9 2
--------------------------- ---------------------------
Total assets under management $10,446.5** 100% $8,434.5 100%
--------------------------- ---------------------------
--------------------------- ---------------------------
</TABLE>
* Persistency of existing retail business has been materially adversely affected
by the lower ratings of the Company's insurance subsidiaries and Supervision
Order. (See Notes 3 and 4 of Notes to Condensed Consolidated Financial
Statements and "--Recent Developments.")
** Includes approximately $3.4 billion related to institutional business written
through a reinsurance agreement and $0.3 billion related to a marketing
partnership arrangement with General American. Assuming the termination of the
reinsurance agreement and marketing partnership agreement occurred on June 30,
1999, total assets under management would be $6.7 billion. Also includes $160.3
million of institutional customer deposits withdrawn during August 1999. The
Company is engaged in discussions with its remaining institutional customers.
(See Note 3 of Notes to Condensed Consolidated Financial Statements and
"--Recent Developments.")
24
<PAGE>
The increase in total retail assets under management was primarily
attributable to sales, net of surrenders of a variety of retail products, and
the investment performance of variable fund options due to strong stock market
returns.
Sales represent premiums and deposits received for products offered through
the Company's insurance and certificate subsidiaries. Sales by market and type
of product for the three and six months ended June 30, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------
(In millions) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail:
Spread products $203.9 $ 30.8
Variable products:
Spread options 42.8 19.5
Fund options 72.6 92.9
----------------------------------
Total variable products 115.4 112.4
----------------------------------
Total retail 319.3 143.2
Institutional:
Spread products 125.0 818.8
----------------------------------
Total sales $444.3 $ 962.0
----------------------------------
----------------------------------
<CAPTION>
Six Months Ended June 30,
----------------------------------
(In millions) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail:
Spread products $325.6 $ 64.1
Variable products:
Spread options 76.8 36.0
Fund options 124.5 164.6
----------------------------------
Total variable products 201.3 200.6
----------------------------------
Total retail 526.9 264.7
Institutional:
Spread products 415.5 1,266.0
----------------------------------
Total sales $942.4 $ 1,530.7
----------------------------------
----------------------------------
</TABLE>
Future retail sales growth and persistency of existing retail business have
been materially adversely affected due to the lowering of the Company's
insurance subsidiaries' ratings during the third quarter of 1999 and are likely
to be further affected by the Supervision Order. In addition, during July 1999,
the Company announced that it does not intend to pursue additional institutional
spread or institutional fee business. Accordingly, management believes that the
25
<PAGE>
Company's ability to generate earnings has been substantially impaired. (See
Note 3 of Notes to Condensed Consolidated Financial Statements and "-Recent
Developments").
Total retail sales gained momentum during the first half and second quarter
of 1999 with an increase of approximately 99% and 55%, respectively, over the
corresponding prior periods. The growth was attributable to an increase in
marketing efforts to broaden and strengthen the Company's retail franchise. This
included efforts to expand and diversify the Company's retail market presence by
increasing the number of producers. Effective April 16, 1999, the Company
completed the acquisition of the assets and operations of Financial Marketing
Group, Inc., FMG Distributors, Inc. and FMG Advisors, Inc. (collectively,
"FMG"). FMG, one of the nation's largest independent marketers of variable and
fixed annuities, is a key distributor of the Company's products. The acquisition
was intended to expand the Company's in-house retail distribution capabilities.
Additionally, a modest increase in intermediate-term market interest rates in
1999, combined with higher credit spreads to U.S. Treasury securities, enhanced
the attractiveness of the Company's retail spread products relative to competing
products, such as money market funds and bank certificates.
Net surrenders of retail spread and variable annuity products and options
issued by the Company's insurance subsidiaries were $98.9 million for the second
quarter of 1999, compared to $104.3 million for the second quarter of 1998. For
the six months, such net surrenders were $195.4 million in 1999, compared to
$184.0 million in 1998. Surrender charge income decreased to $1.7 million in the
second quarter of 1999, from $1.8 million in the second quarter of 1998. For the
six months ended June 30, surrender charge income decreased to $3.0 million in
1999, from $3.2 million in 1998. Retail products issued by the Company's
insurance subsidiaries generally include lapse protection provisions that
provide a deterrent to surrenders. These provisions can include surrender
charges and market value adjustments on annuity withdrawals. During the period
that surrender charges are assessable (generally the first five to seven years
after a policy is issued) surrenders are traditionally relatively low. The
surrender and withdrawal activity during the first six months of 1998 and
1999 was generally expected by the Company due to the level of customer
deposits written several years ago that were subject to declining or expiring
surrender charges and the Company's strategy of maintaining investment
spreads. The Company attempts to reduce retail surrender activity and improve
persistency through various programs. However, future surrenders of retail
products are likely to be adversely affected due to the lowering of the
Company's insurance subsidiaries' ratings during the third quarter of 1999
and the Supervision Order.
During 1999, through the filing date of this Form 10-Q, the Company's
institutional customer deposits have decreased $3.8 billion due to surrenders
and the General American transaction. Three institutional customer deposits
remain. The Company is engaged in discussions with the three remaining
institutional clients to potentially return the deposits (see Notes 3 and 4
of Notes to Condensed Consolidated Financial Statements and "-Recent
Developments").
Operating expenses were $9.8 million in the second quarter of 1999,
compared to $8.0 million in the second quarter of 1998. For the six months ended
June 30, operating expenses were $20.3 million in 1999, compared to $15.5
million in 1998. Operating expenses for the first
26
<PAGE>
six months of 1999 included increased spending to strengthen the in-house
investment department and on technology infrastructure to enhance retail
franchise Internet applications. In addition, the six months of 1999 included a
first quarter charge consisting of a one-time transition cost of approximately
$1 million for the Company's change of investment managers to BlackRock
Financial Management, Inc. ("BlackRock").
Amortization of deferred policy acquisition costs related to operations was
$4.8 million in the second quarter of 1999, compared to $3.2 million in the
second quarter of 1998. For the six months ended June 30, such amortization was
$9.2 million in 1999, compared to $5.9 million in 1998. This increase was
primarily the result of growth in the deferred policy acquisition cost asset due
to additional sales of fixed, indexed and variable annuity products. Variable
costs of selling and issuing the Company's insurance subsidiaries' products
(primarily commissions and certain policy issuance and marketing costs) are
deferred and then amortized over the expected life of the contracts.
Amortization of value of insurance in force related to operations was $1.5
million in the second quarter of 1999 compared to $1.4 million in the second
quarter of 1998. For the six months ended June 30, such amortization was $2.9
million in both 1999 and 1998. The decrease in amortization related to
operations is attributable to the decrease in the value of insurance in force
asset, excluding the effects of SFAS No. 115.
The Company recorded non-recurring charges of $4.7 million in the six
months ended June 30, 1998, of which $3.6 million was part of a retirement
package for John Franco, the Company's former Co-Chairman and Co-Chief Executive
Officer, and $1.1 million was related to registration expenses associated with
the Company's secondary offering of common stock.
Other expenses, net, increased to $2.0 million in 1999, from $1.0 million
in 1998. The increase is primarily attributable to higher mortality related
costs in 1999.
Realized investment losses from the termination of a reinsurance agreement
were $90.0 million during 1999. Realized investment losses due to
other-than-temporary impairments were $73.9 million during 1999. The $73.9
million charge resulted from writing down to fair value the June 30, 1999 book
value of the Company's institutional invested assets not recaptured by General
American. The write-down, due to other-than-temporary impairments, was recorded
as a result of the Company's decision to restructure its institutional business.
Other realized investment losses, which are reported net of related amortization
of deferred policy acquisition costs and value of insurance in force, were $16.9
million during the second quarter of 1999 compared to realized investment gains
of $1.8 million during the second quarter of 1998. For the six months ended June
30, realized investment losses were $17.2 million in 1999, compared to realized
investment gains of $7.0 million in 1998. Such other realized investment losses
during 1999 include an estimated loss of $17.9 million related to the write-down
to fair value of fixed income securities believed to be permanently impaired.
The Company analyzes its investment portfolio, including below investment
grade securities, at least quarterly in order to determine if its ability to
realize the carrying value on any investment has been impaired. For fixed
maturity and equity securities, if impairment in value is determined to be other
than temporary (i.e., if it is probable that the Company will be unable to
27
<PAGE>
collect all amounts due according to the contractual terms of the security), the
cost basis of the impaired security is written down to fair value, which becomes
the security's new cost basis. The amount of the write-down is included in
earnings as a realized loss. Future events may occur, or additional or updated
information may be received, which may necessitate future write-downs of
securities in the Company's portfolio. Significant write-downs in the carrying
value of investments could materially adversely affect the Company's net income
in future periods.
The Company recorded income tax expense of $15.9 million for the second
quarter of 1999, compared to income tax expense of $4.2 million for the second
quarter of 1998. For the six months ended June 30, income tax expense was $20.4
million in 1999, compared to $9.7 million in 1998. The difference between the
35% statutory tax rate and the 1999 effective rates for both the three months
and six months ended June 30, 1999 primarily relates to increases in deferred
tax asset valuation allowances primarily attributable to (1) the Company
determining that it is now more likely than not that certain deferred tax assets
that existed as of December 31, 1998 will not be realized, and (2) the Company
not recording a tax benefit for capital and other losses incurred during 1999.
The increases in deferred tax asset valuation allowances were partially offset
as a result of the Company utilizing net operating loss carry forwards for which
a valuation allowance was previously provided.
ASSET PORTFOLIO REVIEW
The Company primarily invests in securities with fixed maturities with the
objective of earning reasonable returns while limiting credit and liquidity
risks. At amortized cost, fixed maturities at June 30, 1999 totaled $6.4
billion, compared with $6.0 billion at December 31, 1998, representing
approximately 92% and 90% of total cash and investments, respectively.
The Company's cash and investments as of June 30, 1999 are detailed as
follows. The table also reflects asset allocation as a percentage of total cash
and investments as reported and pro forma, assuming the General American
transaction occurred on June 30, 1999. Excluding assets recaptured by General
American, total cash and investments as of June 30, 1999 would have been $3.6
billion, on an amortized cost basis.
28
<PAGE>
<TABLE>
<CAPTION>
Amortized Cost
------------------------------------------
Percent of Total
-----------------------------
Estimated
(DOLLARS IN MILLIONS) Amount As Reported Pro Forma Fair Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
Corporate securities $3,038.5 43.5% 44.7% $ 2,946.2
Mortgage-backed securities:
Collateralized mortgage obligations:
Non-agency 1,817.4 26.0 23.6 1,791.4
Agency 295.9 4.2 4.3 292.7
Agency pass-throughs 25.8 0.4 0.7 25.5
Asset-backed securities 780.4 11.2 7.3 766.6
U.S. Treasury securities and obligations
of U.S. government agencies 403.6 5.8 5.4 402.6
Other government securities (primarily foreign) 45.7 0.7 1.1 39.5
-------------------------------------------------------
Total fixed maturities 6,407.3 91.8 87.1 6,264.5
Equity securities (i.e., non-redeemable
preferred stock) 33.7 0.5 0.7 37.2
Mortgage loans on real estate 13.4 0.2 0.4 13.4
Policy loans 131.4 1.9 3.6 131.4
Cash and cash equivalents 393.8 5.6 8.2 393.8
-------------------------------------------------------
Total cash and investments $6,979.6 100.0% 100.0% $ 6,840.3
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
Pursuant to SFAS No. 115, the Company classifies its entire fixed
maturities portfolio as available-for-sale. Fixed maturities classified as
available-for-sale are carried at fair value and changes in fair value, net of
related value of insurance in force and deferred policy acquisition cost
amortization and deferred income taxes, are charged or credited directly to
shareholders' equity and classified as accumulated other comprehensive income
from net unrealized gains and losses on available-for-sale securities.
Net unrealized losses on available-for-sale securities totaled $78.8
million (net of $43.4 million of related capitalization of deferred policy
acquisition costs and value of insurance in force and $20.0 million of deferred
income tax benefit) at June 30, 1999, compared to net unrealized losses of
$138.3 million (net of $20.6 million of related capitalization of deferred
policy acquisition costs and value of insurance in force and $74.5 million of
deferred income tax benefit) at December 31, 1998. The unrealized losses on
available-for-sale securities attributable to volatility in the bond market
began during the third quarter of 1998 and continue currently. Economic
contractions in Asia, Latin America and Russia created a "flight to quality,"
mainly U.S. Treasury securities, which decreased values in the rest of the bond
market as a result of the widening of credit spreads on bonds (i.e., the yield
on an investment above the yield of a U.S. Treasury security with a similar
duration). In addition, the liquidity in the bond
29
<PAGE>
market has diminished which further depressed bond prices. Also, during 1999,
the overall level of interest rates increased further.
The change in net unrealized gains and losses on available-for-sale
securities for the six months ended June 30, 1999 decreased reported
shareholders' equity by $59.5 million as compared to a decrease of $158.6
million for the year ended December 31, 1998. At June 30, 1999 and December 31,
1998, shareholders' equity excluding the effects of SFAS No. 115 was $186.8
million and $348.8 million, respectively.
The Company manages assets and liabilities with the aim of reducing the
volatility of investment spreads during a changing interest rate environment. As
a result, adjusting shareholders' equity for changes in the fair value of the
Company's fixed maturities and equity securities without reflecting offsetting
changes in the value of the Company's liabilities or other assets creates
volatility in reported shareholders' equity.
Collateralized mortgage obligations ("CMOs") are pools of mortgages that
are segregated into sections, or tranches, which provide prioritized retirement
of bonds rather than a pro rata share of principal return as in the agency
pass-through structure. The underlying mortgages of agency CMOs are guaranteed
by the U.S. government or U.S. government agencies. At June 30, 1999, 75% of the
Company's non-agency CMO investments (on an amortized cost basis) used mortgage
loans or mortgage loan pools (primarily residential in nature), letters of
credit, agency mortgage pass-through securities, and other types of credit
enhancement as collateral. The remaining 25% of the non-agency CMOs used
commercial mortgage loans as collateral.
The Company attempts to manage prepayment exposure on CMO holdings by
diversifying among various CMO tranches, and across alternative collateral
classes. Additionally, prepayment sensitivity is evaluated and monitored, giving
consideration to the collateral characteristics such as weighted average coupon
rate, weighted average maturity and the prepayment history of the specific
collateral. Mortgage-backed securities ("MBSs") are subject to risks associated
with prepayments of the underlying collateral pools. Prepayments cause these
securities to have actual maturities different from those projected at the time
of purchase. Securities that have an amortized cost that is greater than par
(i.e., purchased at a premium) that are backed by mortgages that prepay faster
than expected will incur a reduction in yield or a loss, versus an increase in
yield or a gain if the mortgages prepay slower than expected. Those securities
that have an amortized cost that is less than par (i.e., purchased at a
discount) that are backed by mortgages that prepay faster than expected will
generate an increase in yield or a gain, versus a decrease in yield or a loss if
the mortgages prepay slower than expected. The reduction or increase in yields
may be partially offset as funds from prepayments are reinvested at current
interest rates. The degree to which a security is susceptible to either gains or
losses is influenced by the difference between its amortized cost and par, the
relative sensitivity of the underlying mortgages backing the assets to
prepayments in a changing interest rate environment and the repayment priority
of the securities in the overall securitization structure. The Company had gross
unamortized premiums and unaccreted discounts of MBSs of $10.3 million and $11.4
million, respectively, at June 30, 1999.
30
<PAGE>
Asset-backed securities ("ABS") are securitized bonds which can be backed
by, but not limited to, collateral such as home equity loans, second mortgages,
automobile loans and credit card receivables. At June 30, 1999, home equity loan
collateral represented 24.9% of the Company's investments in the ABS market. The
typical structure of an ABS provides for favorable yields, high credit rating
and stable prepayments.
The Company's investment in corporate securities includes collateralized
bond obligations ("CBOs") and collateralized loan obligations ("CLOs"). CBOs are
securities backed by pools of bonds, structured so that there are several
classes of bondholders with varying maturities, called tranches. The principal
payments from the underlying pool of bonds are used to retire the bonds on a
priority basis. CLOs are similar to CBOs except that they are securities backed
by pools of commercial loans.
Total cash and investments (on an amortized cost basis) were 96% and 95%
investment grade or equivalent at June 30, 1999 and December 31, 1998,
respectively. Investment grade securities are those classified as 1 or 2 by the
National Association of Insurance Commissioners ("NAIC") or, where such
classifications are not available, having a rating on the scale used by Standard
and Poor's Corporation ("S&P") of BBB- or above. Yields available on
non-investment grade securities are generally higher than are available on
investment grade securities. However, credit risk is greater with respect to
such non-investment grade securities. The Company attempts to reduce the risks
associated with non-investment grade securities by limiting exposure to any one
issuer and by closely monitoring the creditworthiness of such issuers.
Additionally, the Company has a diversified portfolio of dollar denominated
bonds issued in the U.S. by foreign governments, banks and corporations,
including a limited exposure to the Asian and Latin American markets. At June
30, 1999, such foreign securities represented 8% of the Company's cash and
investments (on an amortized cost basis), with Asian and Latin American
securities representing 2.6% of total cash and investments. The Company's Asian
and Latin American non-investment grade securities represented approximately 30%
of the Company's total investment in non-investment grade securities. The
Company's overall investments in foreign securities were 83% investment grade at
June 30, 1999. The Company reduces the risks associated with buying foreign
securities by limiting the exposure to both issuer and country. The Company
closely monitors the creditworthiness of such issuers and the stability of each
country. The Company's investment portfolio has minimal exposure to real estate,
mortgage loans and common equity securities, which represented less than 0.2% of
cash and investments as of June 30, 1999.
31
<PAGE>
At June 30, 1999, the ratings assigned by the NAIC and comparable S&P
ratings on the Company's fixed maturity portfolio were as follows:
<TABLE>
<CAPTION>
Amortized Cost
-------------------------
NAIC S&P Percent Estimated
Designation Comparable Rating Amount of Total Fair Value
- --------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1 AAA, AA, A $3,747.2 58.5% 3,706.2
2 BBB 2,383.1 37.2 2,310.1
3 BB 167.1 2.6 151.7
4 B 96.9 1.5 83.5
5 CCC, CC, C 9.9 0.2 9.9
6 CI, D 3.1 0.0 3.1
-------------------------------------
Total fixed maturities $6,407.3 100.0% $6,264.5
-------------------------------------
-------------------------------------
</TABLE>
Assets held in the Company's insurance subsidiaries' guaranteed separate
accounts (on an amortized cost basis) include $1.27 billion and $1.25 billion of
cash and investments at June 30, 1999 and December 31, 1998, respectively, of
which approximately 85% and 94% were fixed maturities. Total guaranteed separate
account cash and investments were 95% and 97% investment grade at June 30, 1999
and December 31, 1998, respectively. Separate accounts are investment accounts
maintained by an insurer to which funds have been allocated for certain products
under provisions of relevant state law. The investments in each separate account
are maintained separately from those in other separate accounts and from the
insurer's general account.
On March 9, 1999, the Company named BlackRock as the core fixed income
manager for the Company's investment portfolio. BlackRock provides the Company
with investment management services for a broad range of asset classes and
investment strategies.
BlackRock, headquartered in New York City, is majority-owned by PNC Bank
Corp., one of the largest diversified financial services companies in the U.S.
As of December 31, 1998, BlackRock managed $131 billion of assets on behalf of
individual and institutional investors worldwide. As one of the largest
independent managers of insurance assets in the nation, BlackRock has combined
its capital markets capabilities with its sophisticated proprietary investment
technology to customize service on behalf of insurers in the U.S. and abroad.
INSURANCE REGULATION
The Company's insurance subsidiaries are subject to regulation and
supervision by the states in which they are organized and in the other
jurisdictions where they are authorized to transact business. State insurance
laws establish supervisory agencies with broad administrative and supervisory
powers including granting and revoking licenses to transact business, regulation
of marketing and other trade practices, operating guaranty associations,
licensing agents, approving
32
<PAGE>
policy forms, regulating certain premium rates, regulating insurance holding
company systems, establishing reserve requirements, prescribing the form and
content of required financial statements and reports, performing financial and
other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, regulating the type and amount of investments permitted,
limiting the amount of dividends that can be paid without first obtaining
regulatory approval, and other related matters. The primary purpose of such
supervision and regulation under the insurance statutes of Ohio and New York
(the domiciliary states of the Company's insurance subsidiaries, Integrity and
National Integrity Life Insurance Company ("National Integrity"), respectively),
as well as other jurisdictions, is the protection of policyholders rather than
investors or shareholders of an insurer. State insurance departments also
conduct periodic examinations of the affairs of insurance companies and require
the filing of annual and other reports relating to the financial condition of
insurance companies.
In the event of a default on the Company's debt or the insolvency,
liquidation or other reorganization of the Company, the creditors and
stockholders of the Company will have no right to proceed against the assets of
Integrity or National Integrity or to cause their liquidation under federal or
state bankruptcy laws. Insurance companies are not subject to such bankruptcy
laws but are instead governed by state insurance laws relating to liquidation or
rehabilitation due to insolvency or impaired financial condition. Therefore, if
Integrity or National Integrity were to be liquidated or be the subject of
rehabilitation proceedings, such liquidation or rehabilitation proceedings would
be conducted by the Ohio Insurance Director and the New York Insurance
Superintendent, respectively, as the receiver with respect to all of Integrity's
or National Integrity's assets and business. Under the Ohio and New York
insurance laws, all creditors of Integrity or National Integrity, including
policyholders, would be entitled to payment in full from such assets before the
Company or Integrity Holdings, Inc., as indirect or direct stockholders, would
be entitled to receive any distribution therefrom. On August 20, 1999, a
Supervision Order was issued with respect to Integrity (see "--Recent
Developments").
LIQUIDITY AND FINANCIAL RESOURCES
HOLDING COMPANY OPERATIONS
The Company's principal need for liquidity has historically consisted of
debt service obligations under its bank financing agreement, dividend
payments on its common and preferred stock, operating expenses not absorbed
by management fees charged to its subsidiaries, and corporate development
expenditures. At June 30, 1999, the Company had cash and investments at the
holding company level of $37.5 million. The agreement for the Company's new
debt financing in the amount of $38 million provides that the debt will
mature on the later of November 2, 1999, or if a definitive agreement to
transfer control of the stock or substantially all of the assets of the
Company, Integrity or National Integrity is executed on or prior to such date,
upon the closing date of such transaction. Maturity of debt may be accelerated
by General American in the event of a default by the Company in connection with
insolvency or certain other events affecting the Company or its subsidiaries
upon written notice. At maturity, the unpaid principal and all accrued
interest is payable, unless the parties agree to extend the maturity date.
To support the operations of its subsidiaries, the Company may from time to
time made capital contributions to its subsidiaries. To date during 1999, the
Company has made capital contributions of approximately $15 million to 312
Certificate Company, one of its subsidiaries.
33
<PAGE>
The Company is dependent on dividends from Integrity and management and
service fee income from the Company's subsidiaries to meet ongoing cash needs,
including amounts needed to pay dividends and for debt service. The ability of
the Company's insurance subsidiaries to pay dividends and enter into agreements
with affiliates for the payment of fee income is limited by state insurance
laws. During 1998, the Company received dividends in the amount of $6 million
from Integrity. During the first half of 1999, the Company received dividends in
the amount of $4 million from Integrity. As a result of the Supervision Order,
Integrity may not pay dividends to the Company without prior approval of the
Ohio Department of Insurance. There can be no assurance that the Ohio
Department of Insurance will allow Integrity to pay any dividends to the
Company for the foreseeable future.
The Company's efforts to find a buyer have been unsuccessful. Because of
the ratings downgrades the Company has sought protection with respect to
Integrity from the Ohio Department of Insurance. On August 20, 1999 Integrity
consented to a Supervision Order issued by the Ohio Department of Insurance.
The Board of Directors of the Company is continuing to explore all
strategic alternatives, including the sale of the Company's subsidiaries or its
businesses. There can be no assurance that a transaction for the sale of the
Company's insurance subsidiaries or its businesses will be developed or
consummated or as to the price or value that might be obtained.
Due to the Company's limited resources and the substantial likelihood that
the Company will be unable to receive dividends from its insurance subsidiaries
sufficient to meet ongoing cash needs, management believes that if a sale of the
Company or its insurance subsidiaries or businesses is not consummated or a
significant infusion of capital is not received from an investor or investors,
then the Company's ability to continue as a going concern is in substantial
doubt. Without the financial strength of a buyer or investor, the Company may
not have adequate levels of capital to service its obligations, including the
$38 million debt and the $75 million of preferred stock. There can be no
assurance that the Company will be able to obtain sufficient capital to meet
its liquidity needs. Accordingly, the Company is considering all of the
options available ot it, including a possible bankruptcy filing at the
holding company level.
No quarterly cash dividend will be paid on the Company's common stock or
preferred stock during the third quarter of 1999.
INSURANCE SUBSIDIARIES OPERATIONS
The primary sources of liquidity for the Company's insurance subsidiaries
are investment income and proceeds from maturities and redemptions of
investments. The principal uses of such funds are benefits, withdrawals and
loans associated with customer deposits, commissions, operating expenses, and
the purchase of new investments.
The Company develops cash flow projections under a variety of interest rate
scenarios generated by the Company. The Company attempts to structure asset
portfolios supporting retail business so that the interest and principal
payments, along with other fee income, are more than sufficient to cover the
cash outflows for benefits, withdrawals and expenses under the expected
scenarios developed by the Company. In addition, the Company maintains other
liquid assets
34
<PAGE>
and aims to meet unexpected cash requirements without exposure to material
realized losses during a higher interest rate environment.
The regulatory action of the Ohio Department of Insurance is intended to
ensure an orderly process for addressing the financial obligations of Integrity
and to protect the interests of its individual policyholders. The Company
believes that Integrity has adequate assets to meet its obligations to
individual retail policyholders. Integrity will continue payments of death
benefits, previously scheduled systematic withdrawals, previously scheduled
immediate annuity payments, and agent commissions, but must receive written
consent from the Ohio Department of Insurance for other payments including
dividends to the Company. In particular the of Supervision Order also suspends
the processing of surrenders of policies except in cases of approved hardship.
If a sale of the Company's subsidiaries or its businesses is not
consummated, the Ohio and New York Departments of Insurance may take action with
regard to the insurance subsidiaries that could include rehabilitation or
liquidation proceedings. (See "--Insurance Regulation").
During 1998, Integrity entered into total yield swap transactions with two
of its subsidiaries, 312 Certificate Company ("312 CC") and 212 Certificate
Company ("212 CC"). The swap transactions generally provide that Integrity
guarantees certain levels of book yield and asset fair values in 312 CC and 212
CC, and if these levels are not maintained, Integrity would be required to make
payments under the swaps to 312 CC or 212 CC. Such payments must first be
approved by the Ohio Department of Insurance. (See Note 3 of Notes to Condensed
Consolidated Financial Statements and "--Recent Developments").
During the second quarter of 1999, the Company realized approximately $57.4
million in investment losses for other-than-temporary declines in market value
on its three remaining institutional structures. If these three institutional
structures were unwound and the related investment portfolio were immediately
liquidated, the amount of losses that the Company would ultimately realize could
materially exceed the amount already recognized during the second quarter of
1999. Consideration received for investments sold during a liquidation sale
could be lower than if the investments were sold over a longer period of time.
During the six months ended June 30, 1999 and 1998, the Company met its
liquidity needs entirely by cash flows from operating activities and principal
payments and redemptions of investments. At June 30, 1999, cash and cash
equivalents totaled $393.8 million compared to $525.3 million at December 31,
1998. The Company's aim is to manage its cash and cash equivalents position in
order to satisfy short-term liquidity needs. In connection with this management
of cash and cash equivalents, the Company may invest cash in short-duration
fixed maturities to capture additional yield when short-term liquidity
requirements permit.
The Company generated cash flows of $173.2 million and $132.4 million from
operating activities during the six months ended June 30, 1999 and 1998,
respectively. These cash flows resulted principally from investment income, less
commissions and operating expenses. Proceeds from sales, maturities and
redemptions of investments generated $1.2 billion and $3.2 billion in cash flows
during the six months ended June 30, 1999 and 1998, respectively, which were
offset by purchases of investments of $1.8 billion and $4.5 billion.
35
<PAGE>
EFFECTS OF INTEREST RATE CHANGES
The Company's retail and institutional spread businesses are subject to
several inherent risks arising from movements in interest rates, especially if
the Company fails to anticipate or respond to such movements. First, interest
rate changes can cause compression of the Company's net spread between interest
earned on investments and interest credited on customer deposits, thereby
adversely affecting the Company's results. Second, if interest rate changes
produce an unanticipated increase in surrenders of the Company's spread-based
products, the Company may be forced to sell investment assets at a loss in order
to fund such surrenders. Finally, changes in interest rates can have significant
effects on the performance of the Company's portfolio of MBSs, including its
CMOs, as a result of changes in the prepayment rate of the loans underlying such
securities.
The Company will experience spread compression when it is unable to
maintain the margin between its investment earnings and its crediting rates.
When interest rates rise, the Company may not be able to replace the assets in
its investment portfolio with sufficient higher-yielding assets to fund higher
crediting rates or to maintain full profit margins without assuming excessive
asset side risk. As a result, the Company may experience either a decrease in
sales and an increase in surrenders where it is able to maintain its spread by
not raising its crediting rates, or spread compression if it is willing or
contractually required to increase its crediting rates. Conversely, when
interest rates fall, the Company would have to reinvest the cash received from
its investments (i.e., interest and payments of principal upon maturity or
redemption) in the lower-yielding instruments then available. If the Company
chose not to or was unable (i.e., due to guaranteed minimum or fixed crediting
rates or limitations on the frequency of crediting-rate resets) to reduce the
crediting rate on its spread-based products or acquire relatively higher-risk
securities yielding higher rates of return, spread compression would occur.
If, as a result of interest rate increases, the Company were unable or
chose not to raise its crediting rates to keep them competitive, the Company
might experience a decrease in sales and increase in surrenders. If the Company
lacked sufficient liquidity, the Company might have to sell investment
securities to fund associated surrender payments. Because the value of such
securities would likely have decreased in response to the increase in interest
rates, the Company would realize a loss on such sales. Although certain of the
Company's products contain market value adjustment features which approximate
and transfer such loss to the customer if the selected time horizon for the
fixed return investment is terminated prior to maturity, there can be no
assurance that the Company would be fully insulated from realizing any losses on
sales of its securities. In addition, regardless of whether the Company realizes
an investment loss, surrenders would produce a decrease in invested assets, with
an adverse effect on future earnings therefrom.
During the three and six months ended June 30, 1999, the Company recorded
realized investment losses of $180.8 million and $181.1 million, respectively
(see "--Recent Developments").
36
<PAGE>
YEAR 2000
The Company has undertaken a Year 2000 project that includes all of its
subsidiaries. The Company has completed the assessment phase of the project for
all production applications, hardware (personal computers and servers), system
software, vendors, facilities and business partners. Although the Company is
still receiving information from a few vendors and business partners and
assessing various logistic concerns with its facilities, the Company's major
production systems are substantially Year 2000 compliant. Where Year 2000
problems were found, the necessary upgrades and repairs have begun and are
scheduled for completion no later than September 30, 1999.
The Company is also conducting certification testing. Certification
testing, which serves to verify that the results of repairs and assessments have
been completed for all mission critical production systems and the few problems
that were discovered have been repaired and re-tested. The Company's Year 2000
project is well underway and management believes that it will be Year 2000
compliant by September 30, 1999. However, as a precaution, the Company is
developing a contingency and business resumption plan to address various
logistic concerns with its facilities. Preparations to implement the contingency
and business resumption plan will continue through December 31, 1999.
Although the Company anticipates no major interruption of business
activities, that will be dependent, in part, upon the activity of third parties.
Even though the Company has assessed and continues to assess third party issues,
it has no direct ability to influence the compliance actions of such parties.
Accordingly, while the Company believes its actions in this regard should have
the effect of reducing Year 2000 risks, it is unable to eliminate them or to
estimate the ultimate effect Year 2000 risks will have on the Company's
operations.
The cost of the Company's Year 2000 initiatives has not been and is not
expected to be material to the Company's results of operations or financial
condition.
The estimated date on which the Company believes it will complete its Year
2000 compliance efforts, and the expenses related to the Company's Year 2000
compliance efforts are based upon management's best estimates, which were based
on assumptions of future events, including the availability of certain
resources, third party modification plans and other factors. There can be no
assurance that these results and estimates will be achieved and the actual
results could materially differ from those anticipated.
FORWARD-LOOKING STATEMENTS
Statements other than historical information contained in this report are
forward-looking statements and, therefore, subject to risks and uncertainties,
including those identified below, which would cause the actual results to differ
materially from statements made. In addition to statements which are
forward-looking by reason of context, the words "believe," "expect,"
"anticipate," "intend," "designed," "goal," "objective," "optimistic," "will"
and similar expressions identify forward-looking statements. Factors which could
cause actual results to
37
<PAGE>
differ materially from the forward-looking statements, thereby resulting in a
material adverse impact on the business, results of operations or financial
condition of the Company, include but are not limited to (i) access to
sufficient capital to fund the Company's operations; (ii) changes in population
demographics; (iii) changes in current federal income tax, securities and
insurance laws and regulations; (iv) the Company's ability to develop and
receive any necessary regulatory or other approval of new products intended to
be marketed to individuals for retirement planning and/or to large institutions
for cash management and other investment; (v) regulatory constraints on existing
or future products rendering the products unmarketable or unprofitable; (vi) a
downgrade in the short term, financial strength or other credit ratings of the
Company's insurance affiliates, the Company's counterparties or other issuers of
securities invested in by the Company; (vii) the Company's ability to favorably
differentiate its products and service levels from those of competitors,
including other insurance and financial services companies and various
investment vehicles readily available to consumers and large institutions;
(viii) loss of key personnel; (ix) the Company's ability to manage assets and
produce returns providing sufficient spread on invested assets backing
policyholder and other liabilities; (x) the strength and liquidity of the
securities markets and the interest rate environment; (xi) increase in the size
and improvement in the productivity of the Company's distribution system; (xii)
access to sufficient capital at favorable rates as needed to operate and grow
the Company's business lines; (xiii) the Company's ability to ensure the
continuous availability of technology at levels necessary to efficiently process
and maintain the business produced for the entire enterprise and manage the
assets of the enterprise; (xiv) litigation, with or without merit, claiming
significant resources of the enterprise; (xv) the impact of consolidations,
mergers, acquisitions or other business investments or combinations in the
financial services industry, including or not including, the Company and/or its
affiliates; and (xvi) the ability of the Company to adequately remediate all
operational systems and non-computer devices and internal computer software to
avoid Year 2000 problems without significant additional expense, and the
reliability of assurances obtained from and ongoing data exchange testing with
key vendors and business partners to address Year 2000 problems. In addition,
there can be no assurance that (i) the Company has correctly identified and
assessed all of the factors affecting its business; (ii) the publicly available
and other information on which the Company has based its analyses is complete or
correct; (iii) the Company's analyses are correct; or (iv) the Company's
strategy, which is based in part on these analyses, will be successful.
Forward-looking statements speak only as of the date on which they are made, and
the Company does not undertake an obligation to update or revise any
forward-looking statements.
38
<PAGE>
PART II. OTHER
INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been served with, or has been placed on notice of, three
shareholder class action lawsuits filed in the United States District Court for
the Western District of Kentucky. One such lawsuit, styled Gottlieb v. ARM
Financial Group, Inc., et al. (Civil Action No. 3:99 CV-539-H), was filed on
August 18, 1999. A second lawsuit, styled Kehoe v. ARM Financial Group, Inc., et
al. (Civil Action No. 3:99 CV-542-H), was filed on August 19, 1999. The Company
has not yet been served with the third lawsuit, although it has been put on
notice of an intent to file such a suit. These lawsuits allege that the Company
and certain of its officers violated sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 by, among other things, misrepresenting and/or omitting
material information about its results of operations and financial condition.
The lawsuits further allege that as a result of the purportedly false and
misleading information and failure to disclose material facts, the price of the
Company's securities were artificially inflated. The lawsuits seek damages in an
amount to be proven at trial, interest thereon, reasonable attorneys and expert
witness fees and other costs, and other relief as permitted by law or equity.
The Company intends to defend such lawsuits vigorously. The ultimate outcome of
these lawsuits cannot be predicted with certainty.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of the stockholders on May 14, 1999. At
the annual meeting, the stockholders elected three directors, each to serve for
a term of three years expiring in 2002. The number of votes cast for or withheld
for each director were as follows:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Edward D. Powers 19,857,794 432,889
Colin F. Raymond 19,835,180 455,503
Martin H. Ruby 19,838,330 452,353
</TABLE>
ITEM 5. OTHER INFORMATION
On July 27, 1999, Mark V. Kaminski resigned as a director of the Company.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the second quarter
of 1999.
39
<PAGE>
EXHIBITS (ELECTRONIC FILING ONLY)
10.1 Offering Circular dated November 25, 1997, for the BRAVO Trust Series
1997-1 Floating Rate Trust Certificates.
10.2 Offering Circular Supplement dated November 25, 1997, for the BRAVO
Trust Series 1997-1 Floating Rate Trust Certificates.
10.3 Declaration of Trust and Trust Agreement dated as of November 25,
1997, between The Bank of New York, as Trustee and The Holders of
Trust Certificates.
10.5 Agency Agreement dated as of November 25, 1997, between BRAVO Trust
Series 1997-1 and Bayerische Landesbank Girozentrale, New York Branch.
10.6 Separate Account Group Annuity Contract dated November 25, 1997,
issued by BRAVO Trust Series 1997-1.
10.7 Standby Trust Certificate Purchase Agreement dated as of November 25,
1997, among BRAVO Trust Series 1997-1, Bayerische Landesbank
Girozentrale, New York Branch, and Integrity Life Insurance Company.
10.8 Custody Agreement dated as of November 27, 1997, among First Trust
National Association, BRAVO Trust Series 1997-1, Integrity Life
Insurance Company and Bayerische Landesbank Girozentrale, New York
Branch.
10.9 Custody Agreement dated as of November 25, 1997, between Signet Trust
Company and BRAVO Trust Series 1997-1.
10.10 Agreement dated as of November 25, 1997, among Integrity Life
Insurance Company, Bayerische Landesbank Girozentrale, New York
Branch, and BRAVO Trust Series 1997-1
10.11 Purchase Agreement dated as of November 25, 1997, between BRAVO Trust
Series 1997-1 and Lehman Brothers, Inc.
10.12 Market Agent Agreement dated as of November 25, 1997, between
Bayerische Landesbank Girozentrale, New York Branch, and BRAVO Trust
Series 1997-1.
10.13 Remarketing Agreement dated as of November 25, 1997, between BRAVO
Trust Series 1997-1 and Lehman Brothers, Inc.
10.14 Calculation Agent Agreement dated as of November 25, 1997, between
BRAVO Trust Series 1997-1 and Lehman Brothers, Inc.
40
<PAGE>
10.15 Indemnity Agreement dated as of November 25, 1997, between BRAVO Trust
Series 1997-1 and Bayerische Landesbank Girozentrale, New York Branch.
10.16 Installment Face-Amount Certificate Agreement dated as of September
15, 1998, among 212 Certificate Company, Park Avenue Receivables
Corporation and The Chase Manhattan Bank, as Funding Agent, together
with Annex X attached thereto.
10.17 Investment Management Agreement dated as of September 15, 1998, among
212 Certificate Company, Integrity Capital Advisors, Inc. and The
Chase Manhattan Bank, as Funding Agent.
10.18 Domestic Custody Agreement dated as of September 15, 1998, between 212
Certificate Company and The Chase Manhattan Bank.
10.19 Account Control Agreement dated as of September 15, 1998, between The
Chase Manhattan Bank and 212 Certificate Company.
10.20 Pledge and Security Agreement dated as of September 15, 1998, made by
212 Certificate Company in favor of The Chase Manhattan Bank, as
Funding Agent.
10.21 ISDA Master Agreement, Schedule and Confirmation dated as of September
15, 1998, between Integrity Life Insurance Company and 212 Certificate
Company.
10.22 Face-Amount Certificate dated as of September 15, 1998, issued by 212
Certificate Company.
10.23 Amendment No. 1 to Installment Face-Amount Certificate Agreement dated
as of February 23, 1999, to Installment Face-Amount Certificate
Agreement dated as of September 15, 1998, among 212 Certificate
Company, Park Avenue Receivables Corporation, the Chase Manhattan
Bank, as Fidelity agent and as APA Bank thereunder.
10.24 Amendment No. 1 to Asset Purchase Agreement dated as of February 23,
1999, to Asset Purchase Agreement dated as of September 15, 1998,
between Park Avenue Receivables Corporation and The Chase Manhattan
Bank, as Funding Agent and as APA Bank thereunder.
10.25 Amendment No. 1 to Investment Management Agreement dated as of
February 23, 1999, to Investment Management Agreement dated as of
September 15, 1998, among 212 Certificate Company, Integrity Capital
Advisors, Inc. and The Chase Manhattan Bank, as Funding Agent.
10.26 Face-Amount Certificate dated as of February 23, 1999, issued by 212
Certificate Company.
41
<PAGE>
10.27 Amendment No. 2 to Investment Management Agreement dated as of May 11,
1999, to Investment Management Agreement dated as of September 15,
1998, among 212 Certificate Company, Integrity Capital Advisors, Inc.
and The Chase Manhattan Bank, as Funding Agent.
10.28 Face-Amount Certificate Agreement dated as of April 24, 1998, among
312 Certificate Company, International Securitization Corporation, and
The First National Bank of Chicago, as agent for the Certificate
holders.
10.29 Liquidity Agreement dated as of April 24, 1998, among International
Securitization Corporation, certain financial institutions party
thereto, and The First National Bank of Chicago, as the Liquidity
Agent.
10.30 Letter of Credit Reimbursement Agreement dated as of April 24, 1998,
among International Securitization Corporation, the financial
institutions party thereto, and The First National Bank of Chicago as
the Letter of Credit Agent.
10.31 Investment Management Agreement dated as of April 24, 1998, among 312
Certificate Company, Integrity Capital Advisors, Inc., as Portfolio
Manager, and The First National Bank of Chicago, as agent for the
Certificateholders.
10.32 Pledge and Security Agreement dated as of April 24, 1998, between 312
Certificate Company and The First National Bank of Chicago, as agent
for the Certificateholders.
10.33 Standard Custody Agreement between 312 Certificate Company and Bank
One, Kentucky, N.A., as Custodian.
10.34 Control Agreement dated as of April 24, 1998, among 312 Certificate
Company, Bank One, as Custodian, and The First National Bank of
Chicago, as agent for the Certificateholders.
10.35 ISDA Master Agreement dated as of April 24, 1998, between 312
Certificate Company and Integrity Life Insurance Company, together
with the Schedule attached thereto.
10.36 Initial Swap Confirmation dated as of April 24, 1998, made by
Integrity Life Insurance Company and acknowledged by 312 Certificate
Company.
10.37 Amendment No. 1 dated as of April 21, 1999, to Face-Amount Certificate
Agreement dated as of April 24, 1998, among 312 Certificate Company,
International Securitization Corporation, and The First National Bank
of Chicago, as agent for the Certificateholders.
42
<PAGE>
10.38 $600,000,000 Installment Face-Amount Certificate dated as of April 21,
1999, issued in favor of The First National Bank of Chicago, as agent
for the Certificateholders, for the benefit of International
Securitization Corporation and certain financial institutions party
thereto.
10.39 Amendment No. 1 dated as of April 21, 1999, to Liquidity Agreement
dated as of April 24, 1998, among International Securitization
Corporation, certain financial institutions party thereto, and The
First National Bank of Chicago, as the Liquidity Agent.
10.40 Amendment No. 1 dated as of April 21, 1999, to Letter of Credit
Reimbursement Agreement dated as of April 24, 1998, among
International Securitization Corporation, the financial institutions
party thereto, and The First National Bank of Chicago as the Letter of
Credit Agent.
10.41 Amendment No. 1 dated as of April 21, 1999, to Investment Management
Agreement dated as of April 24, 1998, among 312 Certificate Company,
Integrity Capital Advisors, Inc., as Portfolio Manager, and The First
National Bank of Chicago, as agent for the Certificateholders.
10.42 Amendment No. 1 dated as of April 21, 1999, to Swap Transaction
between Integrity Life Insurance Company and 312 Certificate Company.
10.43 Amendment No. 1 dated as of April 21, 1999, to Pledge and Security
Agreement dated as of April 24, 1998, between 312 Certificate Company
and The First National Bank of Chicago, as agent for the
Certificateholders.
10.44 Termination Master Agreement effective as of July 26, 1999, between
ARM Financial Group, Inc., Integrity Life Insurance Company and
General American Life Insurance Company.
10.45 Commutation Agreement dated as of August 3, 1999 between Integrity
Life Insurance Company and General American Life Insurance Company.
10.46 Termination Agreement dated as of August 3, 1999 between General
American Life Insurance Company and ARM Financial Group, Inc.
10.47 Term Loan Agreement dated as of August 3, 1999 between ARM Financial
Group, Inc. and GenAmerica Corporation.
10.48 Promissory Note dated as of August 3, 1999 between ARM Financial
Group, Inc. and GenAmerica Corporation.
43
<PAGE>
10.49 Waiver, Release and Termination Agreement dated as of August 3, 1999
between ARM Financial Group, Inc. and The Chase Manhattan Bank, as
Administrative Agent for the lenders.
27 Financial Data Schedule.
99.1 Supervision Order dated as of August 20, 1999 issued by the Director
of Insurance of the State of Ohio.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 20, 1999.
ARM FINANCIAL GROUP, INC.
By: /S/ EDWARD L. ZEMAN
-------------------------------
Edward L. Zeman
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /S/ BARRY G. WARD
-------------------------------
Barry G. Ward
Controller
(Principal Accounting Officer)
45
<PAGE>
OFFERING CIRCULAR DATED NOVEMBER 25,1997
- ----------------------------------------
BAYERISCHE LANDESBANK
REPACKAGED
BRAVO TRUST
SERIES 1997-1 ASSET
VEHICLE
OBLIGATIONS
- --------------------------------------------------------------------------------
BRAVO Trust Series 1997-1 (the "Trust") will be a newly formed,
limited purpose Delaware business trust formed pursuant to a Declaration of
Trust and Trust Agreement (the "Trust Agreement") under which The Bank of New
York (together with any successor trustee, the "Trustee") will act as trustee
for the benefit of the beneficial owners (the "Owners") of the Trust
Certificates (the "Trust Certificates") described below. The Trust
Certificates will represent two classes of undivided interests in the Trust.
The two classes are designated "Class A Trust Certificates" and "Class B
Trust Certificates" and are referred to herein collectively as the "Trust
Certificates". Each Trust Certificate will be sold in amounts and on terms as
designated in the Supplement to this Offering Circular (the "Supplement").
The Trust will be formed for the primary purpose of acquiring the financial
instrument designated in the Supplement (the "Financial Instrument") and
issuing the related Trust Certificates. The Trust Certificates will represent
the right to receive specified payments from the Trust based upon periodic
payments to be received by the Trust under the Financial Instrument in the
manner described herein and in the Supplement.
Subject to timely receipt by the Trust of payments under the Financial
Instrument, interest payments on the Trust Certificates will be distributed to
each class of Owners at such times and in such manner as described in the
Supplement. Subject to timely receipt by the Trust of payments under the
Financial Instrument, principal payments on the Trust Certificates will be
distributed at such times and in such manner as is described in the Supplement.
As provided in the Supplement, Trust Certificates will be represented either by
one or more global trust certificates (the "Global Trust Certificates"),
registered in the name of the Depository Trust Company ("DTC") or its nominee
and deposited with DTC, or by certificates issued in definitive form ("Physical
Certificates"). An interest in a Global Trust Certificate will be shown only on,
and transfers thereof will be effected only through, records maintained by DTC
and its participants. Each Owner will be entitled to receive its proportionate
share of the foregoing distributions subject to such distinction as shall be
made between Owners of Class A Trust Certificates and Class B Trust
Certificates, as described in the Supplement. Only the Class A Trust
Certificates are being offered hereby.
----------------------------------
THE TRUST CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST
ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS
IN THE DEALER, THE ISSUER OF THE FINANCIAL
INSTRUMENT OR ANY OF THEIR AFFILIATES.
----------------------------------
THE TRUST CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE TRUST HAS NOT BEEN REGISTERED
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
SEE "NOTICE TO INVESTORS" HEREIN.
----------------------------------
LEHMAN BROTHERS INC.
Dealer
<PAGE>
Each Owner must be a qualified institutional buyer, as such term is
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"). Transfers of Class A Trust Certificates may be effected
pursuant to Rule 144A, or other exemption from registration, under the
Securities Act, subject to the restrictions described herein. See "Description
of the Trust Certificates--Holding and Transfer of Class A Trust Certificates".
There is currently no secondary market for the Class A Trust Certificates and
there can be no assurances that one will develop or, if one does develop, that
it will continue. Lehman Brothers Inc. (the "Dealer", the "Remarketing Agent",
or "Lehman Brothers") has entered into a remarketing arrangement, as described
in the Supplement.
The Class A Trust Certificates will be purchased by the Dealer from
the Trust and offered by the Dealer subject to prior sale, when, as and if
issued and subject to acceptance by the Dealer and approval of certain legal
matters by counsel for the Trust and certain other conditions, at the initial
offering price (the "Offering Price") per Class A Trust Certificate and with a
minimum subscription, both as set forth in the Supplement. This Offering
Circular may not be used to consummate sales of Class A Trust Certificates
unless accompanied by the Supplement. Lehman Brothers reserves the right to
offer the Class A Trust Certificates at a price different from the Offering
Price at any time. See "Offering and Sale".
The rating of the Class A Trust Certificates is set forth in the
Supplement.
<PAGE>
NOTICE TO INVESTORS
THE TRUST CERTIFICATES (THE "TRUST CERTIFICATES") OF THE BRAVO TRUST SERIES
1997-1 (THE "TRUST") HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THE TRUST HAS NOT BEEN
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT
COMPANY ACT"), IN RELIANCE UPON AN EXCEPTION TO REGISTRATION THEREUNDER. THE
TRUST CERTIFICATES ARE BEING OFFERED ONLY TO "QUALIFIED INSTITUTIONAL BUYERS" AS
DEFINED IN AND IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT ("QUALIFIED
INSTITUTIONAL BUYERS").
THE CLASS A TRUST CERTIFICATES WILL BE EVIDENCED BY GLOBAL TRUST CERTIFICATES
(THE "GLOBAL TRUST CERTIFICATES") AND THE CLASS B TRUST CERTIFICATES WILL BE
EVIDENCED BY PHYSICAL CERTIFICATES. EACH GLOBAL TRUST CERTIFICATE WILL BE IN
FULLY REGISTERED FORM WITHOUT COUPONS, DEPOSITED WITH A CUSTODIAN FOR AND
REGISTERED IN THE NAME OF A NOMINEE OF THE DEPOSITORY TRUST COMPANY ("DTC").
EXCEPT AS DESCRIBED HEREIN, BENEFICIAL INTERESTS IN THE GLOBAL TRUST
CERTIFICATES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY
THROUGH, RECORDS MAINTAINED BY DTC AND ITS DIRECT AND INDIRECT PARTICIPANTS.
BY ITS PURCHASE OF A TRUST CERTIFICATE EACH INVESTOR WILL BE DEEMED TO HAVE
REPRESENTED TO AND AGREED WITH THE TRUSTEE AND THE DEALER THAT
(A) (I) IT IS A QUALIFIED INSTITUTIONAL BUYER, (II) IT IS AWARE
THAT THE SALE OF THE TRUST CERTIFICATE IS BEING MADE IN
RELIANCE ON RULE 144A AND (III) THE TRUST CERTIFICATE IS
BEING ACQUIRED FOR ITS OWN ACCOUNT (OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER),
(B) ANY RESALE OR OTHER TRANSFER OF THE TRUST CERTIFICATE WILL BE
MADE ONLY (I) TO A PERSON WHO SUCH PURCHASER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ACQUIRING SUCH
TRUST CERTIFICATE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING
WITH RULE 144A AND (II) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER
JURISDICTIONS,
(C) TRANSFERS OF TRUST CERTIFICATES SHALL BE RESTRICTED SO THAT,
UNLESS THE TRUSTEE HAS OBTAINED AN OPINION OF COUNSEL THAT
SUCH TRANSFER WILL NOT RESULT IN THE TRUST BEING TREATED AS
A PUBLICLY TRADED PARTNERSHIP WITHIN THE MEANING OF SECTION
7704(a) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), (I) THE TRUST CERTIFICATES OR INTERESTS IN THE
TRUST CERTIFICATES MAY NOT BE OR BECOME TRADEABLE ON AN
"ESTABLISHED SECURITIES MARKET" AS DEFINED IN TREASURY
REGULATION SECTION 1.7704-1(b), (II) ANY TRANSFER THAT
WOULD RESULT IN THERE BEING MORE THAN 100 OWNERS SHALL BE
NULL AND VOID, (III) NO TRUST CERTIFICATE MAY BE HELD BY A
FLOW-THROUGH ENTITY (A PARTNERSHIP, A GRANTOR TRUST, OR AN
S CORPORATION, MORE THAN HALF OF THE ASSETS OF WHICH CONSIST
OF TRUST CERTIFICATES), AND (IV) NO OWNER SHALL HOLD LESS
THAN $5 MILLION FACE AMOUNT OF CLASS A TRUST CERTIFICATES,
AND
(D) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"),
OR, IF IT IS, THAT THE ACQUISITION AND HOLDING OF THE
RELEVANT TRUST CERTIFICATES IS IN COMPLIANCE WITH ERISA (FOR
EXAMPLE, SUCH ACQUISITION AND HOLDING ARE IN COMPLIANCE WITH
PROHIBITED CLASS TRANSACTION EXEMPTION 84-14, RELATING To
PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT QUALIFIED
PROFESSIONAL ASSET MANAGERS) AND THE RELATED PROVISIONS OF
THE CODE AND IS PERMITTED UNDER SUCH PLAN'S CONSTITUENT
DOCUMENTS AND RELATED POLICIES.
THE TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION,
THE TRUST AGREEMENT AND THE PURCHASE AGREEMENT (AS SUCH TERMS ARE DEFINED
BELOW)) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT
OF, BUT UPON NOTICE TO, THE OWNERS OF TRUST CERTIFICATES (THE "OWNERS") TO,
AMONG OTHER THINGS: (I) MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES
AND OTHER TRANSFERS OF THE TRUST CERTIFICATES TO REFLECT ANY CHANGE IN
APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES
RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY, (II)
ENABLE THE TRUST To RELY UPON ANY EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OR THE INVESTMENT COMPANY ACT (AND TO REMOVE CERTAIN EXISTING
RESTRICTIONS TO THE EXTENT NOT REQUIRED UNDER SUCH EXEMPTION), PROVIDED THAT NO
SUCH CHANGE SHALL HAVE A MATERIAL ADVERSE EFFECT UPON THE OWNERS OF TRUST
CERTIFICATES THEN OUTSTANDING AS EVIDENCED BY AN OPINION OF COUNSEL, AND
PROVIDED FURTHER THAT, IF THE TRUST CERTIFICATES HAVE BEEN RATED BY S&P AND/OR
MOODY'S (AS SUCH TERMS ARE DEFINED IN THE SUPPLEMENT), S&P AND/OR MOODY'S SHALL
HAVE PROVIDED EVIDENCE IN WRITING THAT SUCH RATING SHALL NOT HAVE BEEN REDUCED
OR WITHDRAWN AS A RESULT OF ANY SUCH AMENDMENT. THE OWNER OF ANY TRUST
CERTIFICATES SHALL BE DEEMED, BY PURCHASE THEREOF, TO HAVE AGREED TO ANY SUCH
AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL BE CONCLUSIVE AND BINDING ON SUCH
OWNER AND ALL FUTURE OWNERS OF SUCH TRUST CERTIFICATES FROM TIME TO TIME).
THE ISSUER OF THE FINANCIAL INSTRUMENT (AS SUCH TERM IS DEFINED BELOW), THE
TRUSTEE AND ITS AFFILIATES, THE BANK (AS DEFINED BELOW), THE DEALER AND THE
REMARKETING AGENT ARE EACH IN THE BUSINESS OF PROVIDING SERVICES TO BENEFIT
PLANS AND OTHERS AND THUS SUCH ORGANIZATIONS MAY BE, OR MAY BECOME, A PARTY IN
INTEREST AS TO MANY EMPLOYEE BENEFIT PLANS SUBJECT TO RISA. IN
ii
<PAGE>
ADDITION, THE PLANS PURCHASING CLASS A TRUST CERTIFICATES MAY BE DEEMED TO HAVE
ENTERED INTO A LENDING OR OTHER TRANSACTION WITH THE BANK, AS OWNER OF THE CLASS
B TRUST CERTIFICATES. THEREFORE, FIDUCIARIES CONSIDERING THE PURCHASE OF TRUST
CERTIFICATES ON BEHALF OF A BENEFIT PLAN SHOULD DETERMINE IF THE ACQUISITION AND
HOLDING OF TRUST CERTIFICATES IS IN COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH
ACQUISITION AND HOLDING ARE IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION
EXEMPTION 84-14, RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT
QUALIFIED PROFESSIONAL ASSET MANAGERS) AND RELATED PROVISIONS OF THE CODE.
ADDITIONALLY, EACH ERISA BENEFIT PLAN ACQUIRING AN INTEREST IN TRUST
CERTIFICATES MUST MAKE ITS OWN DETERMINATION THAT THE ACQUISITION OF THE TRUST
CERTIFICATES OR AN INTEREST IN A FINANCIAL INSTRUMENT SIMILAR TO THE FUNDING
AGREEMENT IS PERMITTED UNDER SUCH PLAN'S CONSTITUENT DOCUMENTS AND RELATED
POLICIES.
IN DECIDING WHETHER OR NOT TO PURCHASE TRUST CERTIFICATES, AS DESCRIBED HEREIN,
EACH POTENTIAL INVESTOR MUST MAKE ITS OWN INDEPENDENT EVALUATION, BASED UPON
SUCH INVESTIGATION AND ANALYSIS AS IT DEEMS APPROPRIATE, OF THE BUSINESS,
PROSPECTS AND CREDITWORTHINESS OF THE ISSUER OF THE FINANCIAL INSTRUMENT, AND OF
THE TERMS AND PROVISIONS OF THE TRUST CERTIFICATES AND THE OTHER AGREEMENTS, IN
EACH CASE AS DESCRIBED OR REFERRED TO HEREIN. IN ADDITION, NO REPRESENTATION IS
MADE BY THE DEALER, THE REMARKETING AGENT OR THE TRUST AS TO THE
CHARACTERIZATION OF THE TRUST CERTIFICATES WITH RESPECT TO THE LEGAL INVESTMENT
RESTRICTIONS APPLICABLE TO ANY REGULATED ENTITY.
THE FEDERAL INCOME TAX TREATMENT OF THE FINANCIAL INSTRUMENT IS UNCERTAIN.
ACCORDINGLY, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE
INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF TRUST
CERTIFICATES, PARTICULARLY WITH RESPECT TO THE TIMING AND CHARACTER OF INCOME,
LOSS OR DEDUCTION ASSOCIATED WITH HOLDING AN INTEREST IN THE FINANCIAL
INSTRUMENT.
THE TRUST WILL MAKE AVAILABLE TO EACH PROSPECTIVE PURCHASER PRIOR TO SUCH
PURCHASER'S PURCHASE OF TRUST CERTIFICATES THE OPPORTUNITY TO ASK QUESTIONS OF,
AND RECEIVE ANSWERS FROM, THE DEALER OR THE REMARKETING AGENT CONCERNING THE
TERMS AND CONDITIONS OF THIS OFFERING AND THE TRUST. EXCEPT AS SET FORTH IN THIS
OFFERING CIRCULAR AND THE SUPPLEMENT, NO PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING
CIRCULAR AND THE SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON. NEITHER THE DELIVERY OF THIS OFFERING
CIRCULAR OR THE SUPPLEMENT AT ANY TIME NOR ANY SALE MADE HEREUNDER OR THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, IMPLY THAT THERE HAS NOT BEEN A CHANGE IN THE
AFFAIRS OF THE TRUST SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE
SUPPLEMENT OR THE DATE OF THIS OFFERING CIRCULAR.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH
NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON
IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY
OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
The Trustee has not participated in the preparation of the Supplement or this
Offering Circular and assumes no responsibility for their contents.
A Supplement describing the particular terms of each class of Trust
Certificates offered hereby and the related Financial Instrument and other
matters is provided herewith. This Offering Circular must be read in conjunction
with such Supplement. The information set forth in such Supplement with respect
to the Issuer of the Financial Instrument has been obtained from official or
other sources which are believed to be reliable but is not guaranteed as to
accuracy or completeness by and is not to be construed as a representation by
Lehman Brothers or the Trustee. In the event that there is a conflict between
the provisions of the Supplement and the provisions of this Offering Circular,
the provisions of the Supplement will be controlling.
The distribution of this Offering Circular and the Supplement and the
offering of the Trust Certificates in certain jurisdictions may be restricted
by law. Persons receiving this Offering Circular and the Supplement should
inform themselves about and observe any such restriction. This Offering Circular
and the Supplement do not constitute, and may not be used for or in connection
with, an offer or solicitation by anyone in any jurisdiction in which such offer
or solicitation is not authorized or to any person to whom it is unlawful to
make such offer or solicitation. This Offering Circular and the Supplement are
highly confidential and have been prepared solely for use in connection with the
offering of the Trust Certificates. They are personal to each offeree to whom
they have been delivered by the Dealer or an affiliate thereof or the
Remarketing Agent or an affiliate thereof and do not constitute an offer to any
other person or to the public generally to subscribe for or otherwise acquire
the Trust Certificates. Distribution of the Offering Circular and the
Supplement to any person other than the offeree and those persons, if any,
retained to
iii
<PAGE>
advise such offeree with respect thereto is unauthorized, and any disclosure of
any of their contents, without the prior written consent of the Dealer, is
prohibited. Each prospective Purchaser, by accepting delivery of the Offering
Circular and the Supplement, agrees to the foregoing and to make no photocopies
of the Offering Circular and Supplement or any documents attached thereto and,
if the offeree does not purchase the Trust Certificates or the offering is
terminated, to return this Offering Circular and all documents attached hereto
to: Michele Mahoney, Lehman Brothers Inc., 3 World Financial Center, New York,
New York 10285, telephone: (212) 526-6092 and facsimile: (212) 528-6925. For a
further description of certain restrictions on offerings and sales of Trust
Certificates and on distribution of this Offering Circular and the Supplement,
see "Offering and Sale".
No person is authorized to give any information or to make any representation
not contained in this Offering Circular or the related Supplement, and any
information or representation not contained herein must not be relied upon as
having been authorized by or on behalf of the Dealer. The delivery of this
Offering Circular and related Supplement at any time does not imply that
information contained herein or therein is correct at any time subsequent to
their respective dates.
iv
<PAGE>
TABLE OF CONTENTS
Summary of Principal Terms................1 The Financial Instrument.....14
Special Considerations ...................6 Tax Considerations...........14
Description of the Trust Certificate......8 Offering and Sale............14
Use of Proceeds..........................11 General Information..........17
The Trust................................11
v
<PAGE>
SUMMARY OF PRINCIPAL TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE HEREIN AND BY REFERENCE TO THE INFORMATION
CONTAINED IN THE SUPPLEMENT DELIVERED IN CONNECTION WITH THE RELATED OFFERING OF
TRUST CERTIFICATES.
<TABLE>
<S> <C>
THE TRUST............................... BRAVO Trust Series 1997-1 is a limited
purpose business trust (the "Trust")
established under the laws of the State
of Delaware (12 Del. C. Section 3801, et
seq.) pursuant to the terms of a
Declaration of Trust and Trust Agreement
(the "Trust Agreement") between The Bank
of New York, as trustee (the "Trustee"),
and the holders of the Trust
Certificates. The Trust will be
established for the primary purpose of
issuing two classes of Trust
Certificates representing undivided
interests in the Trust (collectively, the
"Trust Certificates") and acquiring the
Financial Instrument described in the
offering circular supplement (the
"Supplement").
THE TRUST PROPERTY...................... The property of the Trust (the "Trust
Property") will consist of (i) the
Financial Instrument and certain
proceeds thereof, (ii) certain
segregated accounts held by the Trustee
in trust for the benefit of the Owners
and (iii) any other assets described in
the Supplement as constituting a portion
of the Trust Property, in each case as
more fully described in this Offering
Circular or in the Supplement.
DEALER AND REMARKETING AGENT............ Lehman Brothers Inc.
TRUST CERTIFICATE REMARKETING The terms of any remarketing arrangement
ARRANGEMENTS............................ with respect to the Trust Certificates
will be described in the Supplement.
LIQUIDITY ARRANGEMENTS.................. The terms of any liquidity arrangement
with respect to the remarketing of Trust
Certificates will be described in the
Supplement under "Liquidity Agreement".
TRUSTEE................................. The Bank of New York
THE TRUST CERTIFICATES.................. The Trust Certificates are designated as
"Class A Trust Certificates" and "Class
B Trust Certificates" constituting an
undivided interest in the Trust with
such rights distinguished by class as are
summarized in the Supplement.
Trust Certificates will be available for
purchase in minimum denominations of
$5,000,000 and integral multiples of
$100,000 in excess thereof, or such
other minimum denominations as are set
forth in the Supplement.
The Trust Certificates may be offered
from time to time by the Dealer at
prices which will reflect,
<PAGE>
among other things, the current value of
the Financial Instrument, and which
prices may be adjusted to reflect
selling concessions, as determined by
the Dealer or as otherwise set forth in
the Supplement.
Each Trust Certificate of the same
denomination of a particular class will
be entitled to identical distributions
and other rights and will be entitled to
an identical undivided interest in the
Trust as each other Trust Certificate of
the same denomination and class.
THE SUPPLEMENT.......................... This Offering Circular, which describes
various aspects of the Trust, the Trust
Certificates, the Trustee, the offering
of the Trust Certificates and related
tax and other considerations, must be
read in conjunction with the Supplement.
PAYMENTS UNDER THE TRUST CERTIFICATES... Payments to Owners corresponding to
payments received under the Financial
Instrument will be made with respect to
Class A Trust Certificates and Class B
Trust Certificates at such time and in
such manner as are described in the
Supplement, subject to the timely
receipt by the Trust of payments under
the Financial Instrument and subject to
payment of unfunded Trust Expenses, if
any. See "Description of the Trust
Certificates".
METHOD OF INTEREST PAYMENTS............. Distributions in respect of interest and
AND PRINCIPAL PAYMENTS principal on the Trust Certificates will
be paid to Owners entitled thereto in
accordance with the terms of the Class A
Trust Certificates and the Class B Trust
Certificates, as the case may be,
that are holders of record thereof
at the close of business 15 calendar
days prior to the related Distribution
Date (as defined in the Trust Agreement),
as the case may be (each a "Record Date"),
in such manner as is described in the
Supplement. See "Description of the Trust
Certificates -- Payments of Principal,
Interest and Redemption Payments".
TRUST TERMINATION....................... The Trust will terminate when all
amounts have been received by the Trust
with respect to the Financial Instrument
and distributed in accordance with the
terms of the Trust after payment of all
liabilities of the Trust.
THE FINANCIAL INSTRUMENT................ The Financial Instrument owned by the
Trust will be identified in the
Supplement.
After the Issue Date (as defined in the
Supplement), no additional assets will
be purchased by the Trust (other than
short-term eligible investments).
2
<PAGE>
REPURCHASE OF TRUST CERTIFICATES........ The terms of any permitted repurchase of
Trust Certificates will be as described
in the Supplement.
RATINGS................................. The ratings applicable to the Class A
Trust Certificates are set forth in the
Supplement. The Class B Trust
Certificates will not be rated.
A rating is not a recommendation to
buy, sell or hold Trust Certificates,
and such rating may be subject to
revision or withdrawal at any time by
the assigning rating agency. Any
suspension, reduction or withdrawal of
the rating assigned to the Trust
Certificates may adversely affect the
market price of such Trust Certificates.
TRUST'S AGENT............................ Bayerische Landesbank Girozentrale, New
York Branch (the "Bank") or an affiliate
thereof will act as agent for the Trust
(the "Trust's Agent") and in that
capacity will, among other things,
perform various administrative functions
on behalf of the Trust and determine the
value of the Trust's interest in the
Financial Instrument from time to time.
The Bank will not act in a fiduciary
capacity as the Trust's Agent. The
Trust's Agent will not be acting on
behalf of any of the Owners of the Class
A Trust Certificates. The Trust's Agent
will undertake to deliver, if requested,
other information as is available with
respect to the Trust in connection with
transfers of Trust Certificates pursuant
to Rule 144A. The Trust's Agent may also
select a substitute Trustee upon the
resignation of the Trustee.
EXPENSES................................ All initial organization expenses
incurred by the Trust will be paid by
the Dealer, which will be entitled to be
reimbursed by the purchaser of the Class
B Trust Certificates. Certain customary
ongoing expenses of the Trust, such as
the fees and expenses of the Trustee and
the custodian for the Financial
Instrument (the "Virginia Custodian"),
up to $10,000 per year, will be paid by
the Trust before payments of principal
and interest are distributed to the
Owners of Class A Trust Certificates
("Class A Owners"). Any additional fees
and expenses of the Trustee and the
Virginia Custodian, as well as the
remainder of ongoing expenses, such as
fees of the custodian for the insurer's
(as defined below) assets that
collateralize the Financial Instrument
(the "Custodian"), the Trust's Agent and
the Remarketing Agent, will be paid out
of funds that would otherwise have been
distributable to the Owners of the Class
B Trust Certificates.
3
<PAGE>
Extraordinary expenses, such as expenses
of the Trust resulting from claims
against the Trust by the Dealer or the
Remarketing Agent pursuant to an
indemnification of the Dealer under the
Purchase Agreement or of the Remarketing
Agent under the Remarketing Agreement,
respectively, or by creditors of or
claimants against the Dealer or the
Remarketing Agent, legal actions against
the Trust or the Trustee,
indemnification of the Trustee, and
expenses relating to litigation to
enforce rights under the Trust
Certificates, up to $25,000, will be
paid by the Bank pursuant to a Side
Letter Agreement between the Bank and
the Trust. Any such expenses over
$25,000 will be paid first out of funds
that would otherwise have been
distributable to Owners of the Class B
Trust Certificates and, to the extent
that such amounts are insufficient, by
BLB (pursuant to such Side Letter
Agreement).
FORM OF TRUST CERTIFICATES; SETTLEMENT;.. As provided in the Supplement, Class A
DENOMINATION Trust Certificates will be represented
by one or more Global Trust Certificates
registered in the name of DTC or its
nominee and deposited with DTC. An
interest in a Global Trust Certificate
will be shown only on, and transfers
thereof will be effected only through,
records maintained by DTC and its
participants. Minimum denominations, if
any, of the Trust Certificates will be
set forth in the Supplement.
FORM, REGISTRATION...................... The Trust Certificates will not be
AND TRANSFER registered under the Securities Act. The
Trust Certificates will be offered only
to "Qualified Institutional Buyers" as
defined in and in reliance on Rule 144A
under the Securities Act as set forth in
the Supplement. There is no undertaking
to register the Trust Certificates under
the Securities Act, and the Trust
Certificates cannot be resold unless the
Trust Certificates are subsequently
registered thereunder or an exemption
(including the exemption provided for in
Rule 144A) from registration is
available.
No sale or transfer of Trust
Certificates shall be permitted which
would require registration of the Trust
under the Investment Company Act or
registration of the Trust Certificates
under the Securities Act or result in a
violation of any federal or state
securities law or regulation and Trust
Certificates sold or otherwise
transferred in violation of such
restrictions are subject to resale or
redemption by the Trustee.
Eligibility and restrictions on the
purchase of Trust Certificates by
employee benefit or similar plans
4
<PAGE>
may be subject to certain additional
restrictions. See "Offering and Sale" in
the Supplement.
GOVERNING LAW .......................... The Trust Certificates and the Trust
Agreement will be governed by, and
construed in accordance with, the laws
of the State of Delaware.
SPECIAL CONSIDERATIONS ................. An investment in Trust Certificates
represents an indirect investment in the
Financial Instrument and other Trust
Property of the Trust. As a result, such
investment will be subject to special
considerations. See "Special
Considerations".
TAXES................................... Unless otherwise provided in the
Supplement, the Trust will be classified
as a partnership, and not as an
association or publicly traded
partnership taxable as a corporation,
under the Internal Revenue Code of 1986,
as amended (the "Code"). Owners of Class
A Trust Certificates will be required to
separately take into account such
Owner's allocated share of income,
gains, losses, deductions and credits of
the Trust. See "Tax Considerations".
</TABLE>
5
<PAGE>
SPECIAL CONSIDERATIONS
THE PURCHASE OF THE CLASS A TRUST CERTIFICATES INVOLVES CERTAIN RISKS.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHERS, THE FOLLOWING FACTORS.
THE FINANCIAL INSTRUMENT
The primary investment to be made by the Trust will be the acquisition of
the Financial Instrument. As a result, the value of each class of Trust
Certificates will increase or decrease with any change in the value of the
Financial Instrument. Each prospective investor should, therefore, consider the
volatility of the Financial Instrument and the nature and credit risk of the
issuer of the Financial Instrument. Specific considerations which apply to the
Financial Instrument may be set forth in the Supplement.
The secondary market for each class of Trust Certificates will be affected
by a number of factors, independent of the creditworthiness of the issuer of
the Financial Instrument, including the time remaining to the final distribution
date of such Trust Certificates, the amount outstanding of such Trust
Certificates, market interest rates, and economic, financial and political
events over which the Trust will not have control. The historical experience of
any interest rate should not be taken as an indication of future performance of
such interest rate during the term of the Class A Trust Certificates. Credit
ratings assigned to Trust Certificates do not reflect on the potential impact of
the factors discussed above, or the market value of the Trust Certificates.
Accordingly, a prospective investor should consult its own financial and legal
advisors as to the risks of such Trust Certificates and the suitability of such
Trust Certificates in light of such investor's particular circumstances.
LIMITED RIGHTS TO ENFORCE THE TRUST CERTIFICATES
The Financial Instrument will be issued in the name of the Trust. No
Owner will have the contractual right to act directly with respect to the
Financial Instrument or to proceed directly against the issuer of the
Financial Instrument. Such rights are reserved to the Trustee. In addition,
no Owner will have any right to bring an action in the right of the Trust
except in accordance with applicable law and unless Owners owning at least
51% in interest in the Trust join in the bringing of such action. See "The
Trust--The Trustee".
LEGAL INVESTMENT
The appropriate characterization of the Class A Trust Certificates under
various legal investment restrictions, and thus the ability of investors subject
to those restrictions to purchase the Class A Trust Certificates, may be subject
to significant interpretative uncertainties. An investor should consult with its
own legal advisors in determining whether, and to what extent, the Class A Trust
Certificates will constitute legal investments for such investor and the
consequences of such an investment.
LIQUIDITY OF THE CLASS A TRUST CERTIFICATES
Restrictions on the transfer of Trust Certificates will affect such Trust
Certificates' liquidity.
TAX CONSIDERATIONS
Prospective investors in Class A Trust Certificates should carefully
consider the federal income tax treatment of such Trust Certificates, as
described in the Supplement. Investors are urged to consult their tax advisers
regarding the income tax consequences of the purchase, ownership and disposition
of the Class A Trust Certificates, particularly with respect to the timing and
character of income, loss or deduction associated with holding an indirect
interest in the Financial Instrument, as described in the Supplement.
INSOLVENCY RISK
Integrity National Life Insurance Company, as issuer of the Financial
Instrument ("Integrity"), will maintain, in custody for the benefit of the
Trust, separate account assets with a market value (based on a weekly valuation
by First Trust National Association, as custodian) at least equal to 102% of the
principal amount of the Trust Certificates (the "Separate Account Assets"). Such
assets will be acquired pursuant to investment guidelines as more fully
described in the Supplement. See "The Trust Assets--Custodial Accounts" in the
Supplement. Under applicable state law, the Separate Account Assets remain the
property of Integrity but are not chargeable with liabilities arising out of any
other business of Integrity. In the event of an insolvency of Integrity, it is
possible that
6
<PAGE>
Separate Account Assets (i) in excess of 100% of the principal amount of the
Trust Certificates and (ii) which have been contributed by Integrity to meet the
maintenance requirement referred to above, may be subject to recovery as
"fraudulent transfers" or "voidable preferences" by other creditors of
Integrity.
TERMINATION OF LIQUIDITY FACILITY
Unless the maturity date is extended as provided in the Supplement (see
"The Trust Certificates--Extension of Maturity" in the Supplement), the
principal amount of Class A Trust Certificates will be payable to the Class A
Owners on October 15, 1998. Funds necessary to make such payments will be made
available through liquidation of the Separate Account Assets. Under certain
circumstances as described herein, Class A Owners may be offered the opportunity
to extend the maturity date applicable to their Class A Trust Certificates for
designated periods of up to 360 days. In such event, all, but not less than all,
of the Trust Certificates of Class A Owners who do not elect to extend such
maturity date will be offered for sale in a remarketing process. Class A Trust
Certificates not sold in the remarketing are required to be purchased by the
Bank under its liquidity facility, provided that the Bank has not terminated the
liquidity facility. The liquidity facility may be terminated by the Bank upon 10
days' notice in case of certain events, including receivership of, or
rehabilitation or liquidation proceedings involving, Integrity or the failure of
the Trust to make payments when due to Owners. Following any such termination
there will be no extension elections or remarketings of the Class A Trust
Certificates and the amounts payable to the Trust under the Financial Instrument
will be the sole source of payment of the Class A Trust Certificates.
7
<PAGE>
DESCRIPTION OF THE TRUST CERTIFICATES
THE FOLLOWING IS A GENERAL SUMMARY OF THE TERMS AND CONDITIONS OF THE CLASS
A TRUST CERTIFICATES. THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE SUPPLEMENT AND TO THE TRUST AGREEMENT, COPIES OF WHICH ARE AVAILABLE UPON
REQUEST FROM THE DEALER. CAPITALIZED TERMS USED HEREIN HAVE THE MEANINGS
ASCRIBED TO THEM IN THE TRUST AGREEMENT UNLESS THE CONTEXT OTHERWISE REQUIRES.
INTEREST IN THE TRUST
The Trust Certificates will constitute two classes of undivided interests
in the Trust with such rights distinguished by class as are set forth in the
Supplement. The Class A Trust Certificates will be available for purchase in
minimum denominations of $5,000,000 and integral multiples of $100,000 in excess
thereof, or such other minimum denominations as are set forth in the Supplement.
Each Trust Certificate of the same denomination of a particular class will be
entitled to an identical undivided interest in the Trust. The Trust Property
will consist of (i) the Financial Instrument and certain proceeds thereon, (ii)
certain segregated accounts held by the applicable Trustee in trust and for the
benefit of the Owners and (iii) any other assets described in the Supplement as
constituting a portion of the Trust Property, in each case as more fully
described in the Supplement. Owners will not have any right in or claim to any
specific part of the Trust Property. Unless otherwise provided in the
Supplement, no further Trust Certificates will be issued by the Trust after the
relevant Issue Date.
PAYMENTS OF PRINCIPAL, INTEREST AND REDEMPTION PAYMENTS
The Trustee will receive payments related to principal and interest under
the Financial Instrument as and to the extent such payments are made and, after
the deduction of any amounts required to pay certain customary ongoing expenses
of the Trust, if any, allocable to the Owners of Class A Trust Certificates and
to Owners of Class B Trust Certificates, respectively, will pay such amounts to
Owners of Class A Trust Certificates and Class B Trust Certificates required in
accordance with their respective rights. The Trustee will distribute such
amounts to an account maintained by each holder whose ownership was recorded in
the Trust Certificate Register on the related Record Date. See "The Trust --
Expenses".
The Trustee may, whether or not expressly authorized to do so by any
provision of the Trust Agreement, make from any distribution or other payment in
respect of any Trust Certificate such other deductions as by law the Trustee is
required or entitled to make in respect of any taxes, charges or other
assessments whatsoever (for example, assessments in the nature of taxes),
allocable to such Trust Certificate.
REMARKETING ARRANGEMENTS
The terms of any remarketing arrangement with respect to the Class A Trust
Certificates will be summarized in the Supplement.
LIQUIDITY ARRANGEMENTS
The terms of any liquidity arrangement with respect to the repayment of the
Class A Trust Certificates will be summarized in the Supplement.
ADDITIONAL PROVISIONS
The Supplement may describe provisions that relate specifically to the
Trust Certificates. These provisions may include, among others, those relating
to a right of the Dealer to call the Trust Certificates or a right of the
Owners, the Trust or any liquidity provider to extend the maturity of Trust
Certificates.
RIGHT OF OWNERS TO EXTEND THE MATURITY OF TRUST CERTIFICATES
The Supplement may provide that the Owners will have the right, upon
written notice to the Trustee, to extend the maturity of any Trust Certificates
held by such Owners pursuant to and in accordance with the terms set forth in
the Supplement.
8
<PAGE>
HOLDING AND TRANSFER OF CLASS A TRUST CERTIFICATES
In the case of Trust Certificates issued in the form of Global Trust
Certificates, beneficial interests therein will be shown only on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. See "Global Trust Certificates" below.
The Trustee will maintain a register (the "Trust Certificate Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
will provide for the registration of Trust Certificates, the registration of
transfers of Trust Certificates and recordations of redemptions thereof, if any.
No service charge will be payable with respect to any transfer of Trust
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any such
transfer. Unless otherwise provided in the Supplement, transfers pursuant to
Rule 144A or other exemptions from registration under the Securities Act will be
permitted only (i) to the Trust or the Dealer or (ii) through, by or in a
transaction approved by the Dealer or any Remarketing Agent. The Trustee will
register transfers only if certain representations are made with respect to the
eligibility of the transferee and compliance with applicable securities laws.
The Trust's Agent has agreed to make available to Owners and transferees, upon
request, information, as available, with respect to the Trust as appropriate
pursuant to Rule 144A(d)(4). Transfers made in violation of the requirements
of the Trust Agreement will be null and void. See "Offering and Sale".
As provided in the Supplement, Class A Trust Certificates will be
represented by one or more global trust certificates (the "Global Trust
Certificates"), registered in the name of DTC or its nominee. An interest in a
Global Trust Certificate will be shown only on, and transfers thereof will be
effected only through, records maintained by DTC or its participants.
No sale or transfer of Trust Certificates shall be permitted which
would require registration of the Trust under the Investment Company Act or
registration of the Trust Certificates under the Securities Act or result in
a violation of any federal or state securities law or regulation. Offers to
purchase, and subsequent transfers, will be subject to the foregoing
restrictions, and Owners' ability to resell or otherwise transfer the Trust
Certificates (or any interest therein) may therefore be limited.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS
The issuer of the Funding Agreement and its affiliates, the Trustee, the
Bank, the Dealer and the Remarketing Agent are each in the business of providing
services to benefit plans and others and thus one or more of such organizations
may be, or may become, a party in interest as to many employee benefit plans
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). In addition, the plans purchasing Class A Trust Certificates may be
deemed to have entered into a lending or other transaction with the Bank, as
holder of the Class B Trust Certificates. Therefore, fiduciaries considering the
purchase of Trust Certificates on behalf of a benefit plan should determine if
the acquisition and holding of Trust Certificates is in compliance with ERISA
and related provisions of the Code.
Additionally, each ERISA benefit plan acquiring Trust Certificates must
make its own determination that the acquisition of the Trust Certificates or an
interest in a financial instrument similar to the Funding Agreement is permitted
under such plan's constituent documents and related policies.
GLOBAL TRUST CERTIFICATES
THE FOLLOWING DESCRIPTION OF THE OPERATIONS AND PROCEDURES OF DTC IS
PROVIDED SOLELY AS A MATTER OF CONVENIENCE. THESE OPERATIONS AND PROCEDURES
ARE SOLELY WITHIN THE CONTROL OF THE RESPECTIVE SETTLEMENT SYSTEMS AND ARE
SUBJECT TO CHANGES BY THEM FROM TIME TO TIME. NEITHER THE TRUSTEE NOR THE
DEALER TAKES ANY RESPONSIBILITY FOR THESE OPERATIONS AND PROCEDURES AND URGES
INVESTORS TO CONTACT THE SYSTEM OR THEIR PARTICIPANTS DIRECTLY TO DISCUSS
THESE MATTERS.
Upon the issuance of the Global Trust Certificates, DTC will credit, on
its internal system, the respective principal amount of the individual
beneficial interests represented by such Global Trust Certificates to the
accounts of persons who have accounts with such depositary. Such accounts
initially will be designated by the Dealer. Ownership of beneficial interests
in a Global Trust Certificate will be limited to persons who maintain
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Trust
Certificates will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect
to interests of persons other than participants).
9
<PAGE>
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL
TRUST CERTIFICATE, DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE
CONSIDERED THE SOLE OWNER AND HOLDER OF THE TRUST CERTIFICATES REPRESENTED BY
SUCH GLOBAL TRUST CERTIFICATE FOR ALL PURPOSES UNDER THE TRUST AGREEMENT AND
THE TRUST CERTIFICATES. Unless (a) DTC notifies the Trustee that it is
unwilling or unable to continue as depositary for a Global Trust Certificate,
or ceases to be a "Clearing Agency" registered under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), or (b) approved by the Trust and
the Trust's Agent in their sole discretion, owners of beneficial interests in
a Global Trust Certificate will not be entitled to have any portions of such
Global Trust Certificate registered in their names, will not receive or be
entitled to have any physical delivery of Trust Cerificates in certificated
form and will not be considered the owners or holders of the Global Trust
Certificate (or any Trust Certificates represented thereby) under the Trust
Agreement or the Trust Certificates. In addition, no beneficial owner of an
interest in a Global Trust Certificate will be able to transfer that interest
except in accordance with DTC's applicable procedures (in addition to those
under the Trust Agreement referred to herein).
Payments of the principal of and interest on Global Trust Certificates
will be made to DTC or its nominee as the registered owners thereof. The
Trust, the Trustee, the Dealer and their respective agents will not have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Trust Certificates or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Trust expects that DTC or its nominee, upon receipt of any payment
of principal or interest in respect of a Global Trust Certificate
representing any Class A Trust Certificates held by it or its nominee, will
immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal
amount of such Global Trust Certificate for such Class A Trust Certificates
as shown on the records of DTC or its nominee. The Trust also expects that
payments by participants to owners of beneficial interests in such Global
Trust Certificate held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name". Such payments will
be the responsibility of such participants.
The laws of some U.S. states require that certain persons take
physical delivery of securities in certificated form. Consequently, the
ability to transfer beneficial interests in a Global Trust Certificate to
such persons may be limited. Because DTC can act only on behalf of
participants, which, in turn, act on behalf of indirect participants and
certain banks, the ability of a person having a beneficial interest in a
Global Trust Certificate to pledge such interest to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Interests in the Global Trust Certificates will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in
such interests will therefore settle in immediately available funds, subject
in all cases to the rules and procedures of DTC and its participants.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds.
DTC has advised the Trust that it will take any action permitted to be
taken by a holder of Trust Certificates (including the presentation of Trust
Certificates for exchange as described below) only at the direction of one or
more participants to whose account with DTC interests in the Global Trust
Certificates are credited and only in respect of such portion of the
aggregate principal amount of the Trust Certificates as to which such
participant or participants has or have given such direction.
DTC has advised the Trust as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement
of securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system is available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly ("indirect participants").
Although DTC currently follows the forgoing procedures to facilitate
transfers of interests in global notes among participants of DTC, it is under
no obligation to do so, and such procedures may be discontinued or modified
at any time. The Trustee will not have any responsibility for the performance
by DTC, or its respective participants or indirect participants of its
respective obligations under the rules and procedures governing its
operations.
10
<PAGE>
If any depositary is at any time unwilling or unable to continue as a
depositary for the Class A Trust Certificates for the reasons set forth
above, the Trustee will issue certificates for the Class A Trust Certificates
in definitive, fully registered, non-global form without interest coupons in
exchange for the Global Trust Certificates. In no other circumstance will the
Trustee issue certificates for the Class A Trust Certificates in definitive,
fully registered, non-global form, without interest coupons, in exchange for
beneficial interests of like principal amount in any Class A Trust
Certificate. Upon receipt of notice that the depositary is unwilling or
unable to continue as a depositary for the Class A Trust Certificates, the
Trustee will cause the requested certificates to be prepared for delivery.
In all cases, certificates for notes delivered in exchange for any Global
Trust Certificate or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by DTC (in
accordance with its customary procedures).
Physical Certificates for non-global Trust Certificates issued in
exchange for a Global Trust Certificate (or any portion thereof) will bear
certain restrictive legends as set forth under "Offering and Sale" below
(unless the Trustee determines otherwise in accordance with applicable law
and the Trust Agreement). The holder of a non-global Trust Certificate may
transfer such Trust Certificate, subject to compliance with the provisions of
the applicable legend.
USE OF PROCEEDS
Net cash proceeds from the sale of the Trust Certificates will be used
by the Trustee to acquire the Financial Instrument, as described in the
Supplement.
THE TRUST
The Trust will be established under the laws of the State of Delaware
pursuant to the terms of the Trust Agreement with the Trustee. The Trust
will be administered by the Trustee pursuant to the terms of the Trust
Agreement.
The Trust will be established for the primary purpose of issuing two
classes of Trust Certificates representing undivided interests in the Trust,
acquiring the Trust Property--the Financial Instrument described in the
Supplement--and temporarily investing funds in short-term Eligible
Investments, if any. The Trust will not purchase or otherwise acquire any
additional financial instruments or securities and will not dispose of or
create any lien on the Financial Instrument except as described in the
Supplement.
THE TRUSTEE
Pursuant to the terms of the Trust Agreement, the Trustee will
administer the Trust and hold Trust Property in one or more segregated
accounts and, as described in the Supplement, in certain custodial accounts.
The Trust will hold an ownership interest valid against third parties in the
Financial Instrument on behalf of the Owners of Trust Certificates.
The Trust Agreement provides for indemnification of the Trustee by the
Trust and exculpates the Trustee for acts or omissions in respect of the
Trust except for its own willful misconduct or negligence. The Trustee will
not be obligated to take or pursue any action on behalf of the Trust unless
the Trustee is satisfied that it has adequate indemnification for such action
and any related expense. The Trustee may from time to time delegate certain
of its responsibilities to third parties in good faith and in accordance with
the terms of the Trust Agreement. The Trustee will be paid a fee for its
services and will be reimbursed for its out-of-pocket expenses.
The Trustee's liability in connection with the issuance and sale of
Trust Certificates is limited solely to the express obligations of the
Trustee as set forth in the Trust Agreement. The primary source of payments
on the Trust Certificates will be the proceeds of, or payments received in
respect of, the Financial Instrument. Neither the Trust Certificates nor the
Financial Instrument will represent an interest in or obligation of, or be
guaranteed or insured by, the Trustee in its individual capacity. There will
be no recourse to the Trustee in its individual capacity or any other entity
in the event that proceeds of, or payments received in respect of, the
Financial Instrument are insufficient or otherwise unavailable to make all
payments provided for under the Trust Certificates.
In order to comply with Delaware law respecting business trusts, the
Trustee will enter into a Co-Trustee Agreement in respect of the Trust
Agreement (the "Co-Trustee Agreement") with The Bank of New York (Delaware),
a Delaware banking corporation (the "Delaware Trustee"). Under the
Co-Trustee Agreement, the Delaware Trustee will assume certain
responsibilities for executing and
11
<PAGE>
delivering documents necessary for the maintenance of the Trust in Delaware
and will be entitled to all the benefits and protection of the Trustee.
THE TRUST'S AGENT
The Trust will enter into an agreement (the "Agency Agreement") with
the Bank, which will serve as an agent of the Trust (the "Trust's Agent")
and, in that capacity, will, among other things, perform various
administrative duties and determine any tax or governmental charges that may
be due in connection with any transfer or exchange of Trust Certificates.
The Bank will not act in a fiduciary capacity as the Trust's Agent. The
Trust's Agent will not be acting on behalf of the Owners of the Class A Trust
Certificates. The Trust's Agent may also select a substitute Trustee upon
the resignation of a Trustee. The Trust's Agent will undertake to deliver,
if requested, other information as is available with respect to the Trust in
connection with transfers of Trust Certificates pursuant to Rule 144A. The
Trust's Agent may be removed by the Trustee upon 30 days' prior written
notice and may resign upon 60 days' prior written notice to the Trustee. The
Agency Agreement provides for indemnification and reimbursement of the
Trust's Agent for all expenses, losses, damages and liabilities incurred
under the Agency Agreement, subject to compliance with the applicable
standard of care, as provided therein, and limited to the extent of Trust
Property.
TERMINATION OF THE TRUST
The Trust will be terminated only in the event that all amounts owed
under the Trust Agreement in respect of the Financial Instrument have been
received by the Trust and distributed in accordance with the terms of the
Trust. Such event would occur upon the Maturity Date of the Financial
Instrument (see "The Trust Assets" in the Supplement) or if an Early
Certificate Maturity Event or an Early Funding Agreement Termination Event
(as such terms are defined in the Custody Agreement among the Custodian, the
Trust, the issuer of the Financial Instrument (the "Insurer"), and the
Trust's Agent (the "Custody Agreement")) occurs. An Early Certificate
Maturity Event will occur (i) if there is a material violation of investment
guidelines under the Custody Agreement; (ii) if assets supporting the
Financial Instrument fall below 102% of the then-applicable value of the
Deposit Fund under the Funding Agreement by more than $1 million as of any
weekly valuation; (iii) if the Insurer becomes subject to seizure or
receivership by its domiciliary state insurance department or rehabilitation
or liquidation proceedings; or (iv) if the Insurer fails to make a payment of
interest or principal under the Financial Instrument. An Early Funding
Agreement Termination Event will occur (i) if the liquidity provider holds,
under certain conditions, more than $45 million of Class A Trust
Certificates; (ii) if at any time upon initial and any subsequent maturity of
the Class A Trust Certificates there is not a liquidity provider in place or
if the Market Agent has not selected an extended maturity date on which the
principal amount of all outstanding Senior Securities will be due and
payable; (iii) if, following a change of control of the Insurer or an
assignment by the Insurer of any of its obligations under the Financial
Instrument or an amendment to the Financial Instrument required by applicable
state insurance regulatory authorities, one or both of the relevant rating
agencies lowers or withdraws its then-current rating of the Class A Trust
Certificates; or (iv) if the Custodian resigns and cannot be replaced. If an
Early Certificate Maturity Event described in clause (iii) of the third
sentence of this paragraph occurs, amounts owed under the Financial
Instrument will be received by the Trustee from the Custodian as soon as
possible thereafter. If any other Early Certificate Maturity Event occurs
under the Custody Agreement, amounts owed under the Financial Instrument will
be received by the Trustee from the Custodian no later than the earlier to
occur of the day that is 30 days after the Early Certificate Maturity Event or
the maturity date of the Class A Trust Certificates. If an Early Funding
Agreement Termination Event occurs under the Custody Agreement, amounts owed
under the Financial Instrument are required to be paid to the Trustee by the
Custodian no later than the maturity date of the Class A Trust Certificates.
Upon termination of the Trust in the circumstances described above,
the Trustee out of Trust fund will pay any accrued fees that have not yet
been paid to the Trustee or the Virginia Custodian, all principal and
interest that is owed to the Owners of the Class A Trust Certificates, all
other liabilities of the Trust not paid or payable by a third party and any
remaining amounts to Owners of the Class B Trust Certificates.
EXPENSES
All initial organization expenses incurred by the Trust will be paid
by the Dealer (subject to reimbursement by the purchaser of the Class B Trust
Certificates). Certain customary ongoing expenses of the Trust, such as the
fees and expenses of the Trustee and the Virginia Custodian up to a maximum
of $10,000 a year, will be paid by the Trust from amounts received by the
Trust under the Financial Instrument before payments are made to the Owner of
the Class A Trust Certificates. Any additional fees and expenses of the
Trustee and the Virginia Custodian in excess of $10,000 a year, as well as
the remainder of ongoing expenses, such as fees of the
12
<PAGE>
Trust's Agent, the Custodian and the Remarketing Agent, will be paid out
of funds that would otherwise have been distributable to the Owners of the
Class B Trust Certificates.
Extraordinary expenses, such as expenses of the Trust resulting from
claims against the Trust by creditors of or claimants against the Dealer,
legal actions against the Trust or the Trustee, indemnification of the
Trustee, indemnification of the Dealer and expenses relating to litigation to
enforce rights under the Trust Certificates, up to $25,000, will be paid by
the Bank pursuant to a Side Letter Agreement between the Bank and the Trust.
Any such expenses over $25,000 will be paid first out of funds that would
otherwise have been distributable to Owners of the Class B Trust Certificates
and, to the extent that such amounts are insufficient, by the Bank.
RESIGNATION AND REPLACEMENT OF THE TRUSTEE
Owners may not remove the Trustee. The Trustee of the Trust may
resign upon giving at least 90 days' prior written notice to the Trust's
Agent and the Owners. Such resignation will not take effect until a
successor trustee is appointed by the Trust's Agent (or otherwise) and has
assumed the duties of trustee as set forth in the Trust Agreement.
A resigning Trustee will continue, following appointment of any
successor, to have the benefit of all indemnities, powers and privileges and
rights of recourse against the property of the Trust conferred upon such
Trustee pursuant to the Trust Agreement or applicable law in respect of the
period during which it acted as Trustee.
MODIFICATION OF THE TRUST AGREEMENT
The Trustee acting in consultation with the Trust's Agent may amend
the Trust Agreement in such manner and to such extent as it may consider
expedient (i) to cure any ambiguity, (ii) to add to the duties or obligations
of the Trustee or the Trust's Agent under the Trust Agreement, (iii) to
address any questions arising under the Trust Agreement which amendment may
not be materially inconsistent with other provisions, or (iv) to add or
change any provision or modify the rights of Owners, provided that any such
amendment may not materially adversely affect the interests of the Owners of
either class of Trust Certificates. Without the approval of the Owners, the
Trustee may, upon Opinion of Counsel, amend the restrictions on resales and
other transfers of Trust Certificates as provided in the Trust Agreement in
order to reflect amendments to the Securities Act and/or the Investment
Company Act or regulations thereunder or interpretations thereof.
NO PETITION
Notwithstanding any termination of the Custody Agreement, the Trust
Agreement, the Financial Instrument, the Liquidity Agreement, the Virginia
Custody Agreement, the Purchase Agreement or the Remarketing Agreement, none
of the parties to the relevant agreement is permitted, prior to the date
which is one year and one day after the termination of such agreement and
payment in full of the Class A Trust Certificates, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Trust or any
substantial part of its property, or making a general assignment for the
benefit of creditors, or ordering the winding up or liquidation of the
affairs of the Trust.
RIGHTS OF OWNERS
The terms and conditions of the Trust Agreement shall inure to the
benefit of, and be binding on, all Owners as if each Owner had been a party
to and had executed the Trust Agreement, had covenanted to observe and be
bound by all the provisions of the Trust Agreement, and had thereby
authorized the Trust and the Trustee to do all such acts and things as the
Trust Agreement may or shall require the Trust and the Trustee to do or which
the Trust and the Trustee shall do in accordance with the provisions thereof.
GOVERNING LAW
The Trust Certificates and the Trust Agreement will be governed by the
laws of the State of Delaware.
13
<PAGE>
THE FINANCIAL INSTRUMENT
The Financial Instrument to be held by the Trust is described in the
Supplement. This Offering Circular must be read in conjunction with the
Supplement.
ANY AND ALL INFORMATION PROVIDED IN THE SUPPLEMENT WITH RESPECT TO THE
FINANCIAL INSTRUMENT WILL BE IN SUMMARY FORM, WILL NOT PURPORT TO BE COMPLETE
AND, ACCORDINGLY, WILL BE QUALIFIED IN ITS ENTIRETY TO THE ACTUAL FORM
THEREOF. NO REPRESENTATIONS AS TO THE ACCURACY AND COMPLETENESS OF ANY SUCH
DESCRIPTION WILL BE MADE BY THE DEALER, THE TRUST OR THE TRUSTEE.
TAX CONSIDERATIONS
Prospective investors in the Trust Certificates should carefully
consider the federal income tax treatment of the Trust Certificates, as
described in the Supplement. Investors are urged to consult their tax
advisers regarding the income tax consequences of the purchase, ownership and
disposition of the Trust Certificates, particularly with respect to the
timing and character of income, loss or deduction associated with holding an
interest in the Financial Instrument, as described in the Supplement.
OFFERING AND SALE
Each prospective purchaser is hereby offered the opportunity to ask
questions of, and receive answers from, the Dealer concerning the terms and
conditions of this offering and the Trust and to obtain additional
information which the Dealer possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of the
information furnished in this Offering Circular and the Supplement. Inquiries
concerning such additional information should be directed to Michele Mahoney,
Lehman Brothers Inc., 3 World Financial Center, New York, New York 10285,
tel: (212) 526-6092, fax: (212) 528-6925.
Lehman Brothers will be appointed sole Dealer of the Trust for the
private placement of the Trust Certificates pursuant to a Purchase Agreement
(the "Purchase Agreement") between the Trust and Lehman Brothers. In order to
facilitate the offering of the Trust Certificates by the Dealer, the Dealer
will temporarily acquire and hold the Trust Certificates as principal for
resale at prices determined by the Dealer to reflect the current market for
the related Financial Instrument as well as selling concessions and certain
costs and expenses (including those associated with the establishment of the
Trust). The Trust Certificates are being offered by the Dealer, subject to
prior sale, when as and if issued with approval of certain legal matters by
counsel for the Trustee and the Dealer and certain other conditions.
ELIGIBLE INVESTORS
The Trust Certificates have not been, and will not be, registered under
the Securities Act or any state securities laws. The Trust has not been
registered under the Investment Company Act, in reliance upon an exception
from registration thereunder or because registration is not required. As
provided in the Supplement, Trust Certificates may be offered to "qualified
institutional buyers", as defined in and in reliance on Rule 144A under the
Securities Act, and may not be reoffered, resold or otherwise transferred
except (i) to a person who such purchaser reasonably believes is a qualified
institutional buyer acquring such Trust Certificates for its own account or
for the account of a qualified institutional buyer in a transaction complying
with Rule 144A and (ii) in accordance with all applicable securities laws of
the states of the United States and other jurisdictions. Each purchaser of
Trust Certificates will be deemed to have made certain acknowledgments,
representations and agreements as set forth in the Supplement. The Trust
Certificates may not be offered or sold except in the limited circumstances
described above.
No sale or other transfer of Trust Certificates shall be permitted which
would require registration of the Trust Certificates under the Securities
Act, registration of the Trust under the Investment Company Act or result in
a violation of any federal or state securities law or regulation.
Unless otherwise provided in the Supplement (in which case, the related
legend and representations will be appropriately modified), each Class A Trust
Certificate representing an interest in a Class A Trust Certificate
initially offered in reliance on Rule 144A will be subject to the provisions
set forth in, and will bear, and by accepting an interest in a Class A Trust
Certificate, each purchaser shall be deemed to have agreed to the provisions
set forth in, the following legend:
14
<PAGE>
"THE TRUST CERTIFICATES (THE "TRUST CERTIFICATES") OF THE BRAVO TRUST SERIES
1997-1 (THE "TRUST") HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THE TRUST HAS NOT BEEN REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), IN RELIANCE
UPON AN EXCEPTION FROM REGISTRATION THEREUNDER. THE TRUST CERTIFICATES ARE
BEING OFFERED ONLY TO "QUALIFIED INSTITUTIONAL BUYERS" AS DEFINED IN AND IN
RELIANCE ON RULE 144A UNDER THE SECURITIES ACT ("QUALIFIED INSTITUTIONAL
BUYERS").
THIS TRUST CERTIFICATE IS A TRUST CERTIFICATE WITHIN THE MEANING OF THE TRUST
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY ("DTC") OR A NOMINEE OF DTC. THIS TRUST CERTIFICATE
IS EXCHANGEABLE FOR TRUST CERTIFICATES REGISTERED IN THE NAME OF A PERSON
OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE TRUST AGREEMENT AND NO TRANSFER OF THIS TRUST CERTIFICATE (OTHER THAN A
TRANSFER OF THIS TRUST CERTIFICATE AS A WHOLE BY DTC TO A NOMINEE OF DTC OR
BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED
EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS TRUST CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC, TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY TRUST CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. ("CEDE") OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE, HAS AN
INTEREST HEREIN.
THE ISSUER OF THE FINANCIAL INSTRUMENT (THE "FINANCIAL INSTRUMENT") TO BE
PURCHASED BY THE TRUST, CERTAIN OF ITS AFFILIATES, BAYERISCHE LANDESBANK
GIROZENTRALE (THE "BANK"), THE BANK OF NEW YORK (THE "TRUSTEE"), THE DEALER
AND THE REMARKETING AGENT, AS SUCH TERMS ARE DEFINED IN THE TRUST AGREEMENT
REFERRED TO BELOW, ARE EACH IN THE BUSINESS OF PROVIDING SERVICES TO BENEFIT
PLANS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"). IN ADDITION, PLANS PURCHASING CLASS A TRUST CERTIFICATES
MAY BE DEEMED TO HAVE ENTERED INTO A LENDING OR OTHER TRANSACTION WITH THE
BANK AS OWNER OF THE CLASS B TRUST CERTIFICATES. THEREFORE, FIDUCIARIES
CONSIDERING THE PURCHASE OF TRUST CERTIFICATES ON BEHALF OF A BENEFIT PLAN
SHOULD DETERMINE IF THE ACQUISITION AND HOLDING OF TRUST CERTIFICATES IS IN
COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND HOLDING ARE IN
COMPLIANCE WITH PROHIBITED CLASS TRANSACTION EXEMPTION 84-14, RELATING TO
PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT QUALIFIED PROFESSIONAL
ASSET MANAGERS) AND RELATED PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"). ADDITIONALLY, EACH ERISA BENEFIT PLAN ACQUIRING AN
INTEREST IN TRUST CERTIFICATES MUST MAKE ITS OWN DETERMINATION THAT THE
ACQUISITION OF THE TRUST CERTIFICATES OR AN INTEREST IN A FINANCIAL INSTRUMENT
SIMILAR TO THE FINANCIAL INSTRUMENT IS PERMITTED UNDER SUCH PLAN'S
CONSTITUENT DOCUMENTS AND RELATED POLICIES.
BY ITS ACCEPTANCE OF THIS TRUST CERTIFICATE (THE "TRUST CERTIFICATE"),
DIRECTLY OR THROUGH A NOMINEE, THE INVESTOR WILL BE DEEMED TO HAVE
REPRESENTED TO AND AGREED WITH THE TRUSTEE AND THE DEALER THAT:
(A) (I) IT IS A QUALIFIED INSTITUTIONAL BUYER, (II) IT IS AWARE THAT THE
SALE OF THE TRUST CERTIFICATE IS BEING MADE IN RELIANCE ON RULE
144A AND (III) THE TRUST CERTIFICATE IS BEING ACQUIRED FOR ITS OWN
ACCOUNT (OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER),
(B) ANY RESALE OR OTHER TRANSFER OF THE TRUST CERTIFICATE WILL BE MADE
ONLY (I) TO ONE OR MORE PERSONS EACH OF WHICH SUCH PURCHASER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ACQUIRING
SUCH TRUST CERTIFICATE FOR ITS OWN
15
<PAGE>
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION COMPLYING WITH RULE 144A AND (II) IN ACCORDANCE WITH
ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES
AND OTHER JURISDICTIONS,
(C) TRANSFERS OF TRUST CERTIFICATES SHALL BE RESTRICTED SO THAT,
UNLESS THE TRUSTEE HAS OBTAINED AN OPINION OF COUNSEL THAT SUCH
TRANSFER WILL NOT RESULT IN THE TRUST BEING TREATED AS A PUBLICLY
TRADED PARTNERSHIP WITHIN THE MEANING OF SECTION 7704(a) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (I) THE
TRUST CERTIFICATES OR INTERESTS IN THE TRUST CERTIFICATES MAY NOT
BE OR BECOME TRADEABLE ON AN "ESTABLISHED SECURITIES MARKET" AS
DEFINED IN TREASURY REGULATION SECTION 1.7704-1(b), (II) ANY
TRANSFER THAT WOULD RESULT IN THERE BEING MORE THAN 100 BENEFICIAL
OWNERS SHALL BE NULL AND VOID, (III) NO TRUST CERTIFICATE MAY BE
HELD BY A FLOW-THROUGH ENTITY (A PARTNERSHIP, A GRANTOR TRUST, OR
AN S CORPORATION, MORE THAN HALF OF THE ASSETS OF WHICH CONSIST OF
TRUST CERTIFICATES), AND (IV) NO BENEFICIAL OWNER OR HOLDER SHALL
HOLD LESS THAN $5 MILLION FACE AMOUNT OF CLASS A TRUST
CERTIFICATES, AND
(D) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR, IF IT IS,
THAT THE ACQUISITION AND HOLDING OF THE RELEVANT TRUST CERTIFICATES
IS IN COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND
HOLDING ARE IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION
EXEMPTION 84-14, RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY
INDEPENDENT QUALIFIED PROFESSIONAL ASSET MANAGERS) AND THE RELATED
PROVISIONS OF THE CODE AND IS PERMITTED UNDER SUCH PLAN'S
CONSTITUENT DOCUMENTS AND RELATED POLICIES.
THE TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING,
WITHOUT LIMITATION, THE DECLARATION OF TRUST AND TRUST AGREEMENT
OF THE TRUST (THE "TRUST AGREEMENT") AND THE PURCHASE AGREEMENT
(THE "PURCHASE AGREEMENT") BETWEEN THE TRUST AND LEHMAN BROTHERS
INC. MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE
CONSENT OF, BUT UPON NOTICE TO, THE OWNERS OF TRUST CERTIFICATES
SENT TO THEIR REGISTERED ADDRESSES: (i) TO MODIFY THE RESTRICTIONS
ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THE TRUST
CERTIFICATES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION
(OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE
RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY AND (ii) TO
ACCOMMODATE THE ISSUANCE, IF ANY, OF TRUST CERTIFICATES IN
BOOK-ENTRY FORM THROUGH THE FACILITIES OF A CLEARING AGENCY. THE
TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING WITHOUT
LIMITATION, THE AGREEMENTS REFERRED TO ABOVE) MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, EXISTING RESTRICTIONS UPON THE
RESALE OR TRANSFER OF THE TRUST CERTIFICATES MAY BE ALTERED, AND
ANY OTHER ACTIONS MAY BE TAKEN, IN EACH CASE WITHOUT THE CONSENT
OF BUT UPON NOTICE TO THE REGISTERED OWNERS, TO ENABLE THE TRUST
TO RELY UPON ANY EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OR THE INVESTMENT COMPANY ACT THAT MAY BECOME AVAILABLE (AND
TO REMOVE CERTAIN EXISTING RESTRICTIONS TO THE EXTENT NOT REQUIRED
UNDER SUCH EXEMPTION), PROVIDED THAT NO SUCH CHANGE SHALL HAVE A
MATERIAL ADVERSE EFFECT UPON THE OWNERS OF TRUST CERTIFICATES THEN
OUTSTANDING. THE OWNER OF THIS TRUST CERTIFICATE SHALL BE DEEMED,
BY ACCEPTANCE HEREOF, DIRECTLY OR THROUGH A NOMINEE, TO HAVE
AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL BE
CONCLUSIVE AND BINDING ON SUCH OWNER AND ALL FUTURE OWNERS OF THIS
TRUST CERTIFICATE AND ANY TRUST CERTIFICATE ISSUED IN EXCHANGE OR
SUBSTITUTION FOR THIS TRUST CERTIFICATE WHETHER OR NOT ANY
NOTATION THEREOF IS MADE THEREON) AND, IN ADDITION, TO HAVE AGREED
TO EXCHANGE THIS TRUST CERTIFICATE FOR A TRUST CERTIFICATE IN
BOOK-ENTRY FORM.
16
<PAGE>
NO SALE OR OTHER TRANSFER OF TRUST CERTIFICATES SHALL BE PERMITTED WHICH
WOULD REQUIRE REGISTRATION OF THE TRUST CERTIFICATES UNDER THE SECURITIES
ACT, OR REQUIRE REGISTRATION OF THE TRUST UNDER THE INVESTMENT COMPANY ACT OR
RESULT IN A VIOLATION OF ANY FEDERAL OR STATE SECURITIES LAW OR REGULATION."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
OFFERING CIRCULAR AND THE SUPPLEMENT IN CONNECTION WITH THE OFFER CONTAINED
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUSTEE OR THE DEALER. THIS
OFFERING CIRCULAR AND SUCH SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY TRUST CERTIFICATE IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR AND THE
SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST
SINCE THE DATE HEREOF OR THE DATE OF THE SUPPLEMENT OR THAT THE INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
By acquiring a Trust Certificate, each Owner appoints the Trustee to act
on its behalf pursuant to the terms of the Trust Agreement and agrees to be
bound by the terms and conditions of the Trust Agreement to the same extent
as if it were a signatory thereto.
GENERAL INFORMATION
FINANCIAL INFORMATION
Within 90 days of the termination of the Trust, the Trustee will
distribute unaudited financial statements of the Trust to all related Owners.
FURTHER INFORMATION
Further information concerning the Trust Certificates, the Financial
Instrument, the Trust's Agent, the Liquidity Provider, the Remarketing Agent,
the Custodian, the Virginia Custodian, and the operations of the Trust is
available from the Trust's Agent upon request.
17
<PAGE>
OFFERING CIRCULAR SUPPLEMENT DATED NOVEMBER 25, 1997
(TO OFFERING CIRCULAR DATED NOVEMBER 25, 1997)
BRAVO
TRUST SERIES 1997-1
$500,000,000
FLOATING RATE
TRUST CERTIFICATES
BAYERISCHE LANDESBANK
REPACKAGED
ASSET
VEHICLE
OBLIGATIONS
- --------------------------------------------------------------------------------
BRAVO Trust Series 1997-1 (the "Trust") is a newly organized Delaware
business trust, created pursuant to a declaration of trust and trust
agreement (the "Trust Agreement") between The Bank of New York, as trustee
(the "Trustee"), and the Owners (as defined below) of the Trust Certificates
(the "Trust Certificates"). The Trust will issue $500,000,000 aggregate
principal amount of Trust Certificates on the date hereof, which will
represent two classes of undivided interests in the Trust. The two classes
are designated "Class A Trust Certificates" and "Class B Trust Certificates"
and are referred to collectively herein as "Trust Certificates". Only the
Class A Trust Certificates, in the principal amount of $450,000,000, are
being offered hereby. The Class A Trust Certificates are issued in minimum
denominations of $5,000,000 and in integral multiples of $100,000 in excess
thereof. As described below, the Class B Trust Certificates are subordinated
to the Class A Trust Certificates.
In connection with the sale of the Trust Certificates, the Trust will
purchase an insurance company separate account group annuity contract (the
"Funding Agreement") issued by Integrity Life Insurance Company ("Integrity").
Integrity will maintain, in custody for the benefit of the Trust, separate
account assets with a market value (based on a weekly valuation by First Trust
National Association, as custodian) at least equal to 102% of the principal
amount and accrued interest of the Trust Certificates (the "Separate Account
Assets"). Such assets will be acquired pursuant to investment guidelines more
fully described herein. See "The Trust Assets -- Custodial Accounts".
As described under "The Trust Certificates", beneficial owners of the Class
A Trust Certificates (the "Class A Owners") will be entitled to receive periodic
interest payments and a return of principal at maturity. Beneficial owners of
Class B Trust Certificates (the "Class B Owners" and, collectively with the
Class A Owners, the "Owners") will be entitled to receive, on a similar payment
schedule, the assets of the Trust that remain after payment of all amounts owed
to the Class A Owners and all expenses of the Trust not paid by a third party.
Credit Rating of Class A Trust "P-1" by Moody's Investors Service, Inc.
Certificates: "A-1+" by Standard & Poor's Ratings Services
---------------------
THE TRUST CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST
ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN
THE DEALER OR THE ISSUER OF THE FUNDING AGREEMENT.
---------------------
THE TRUST CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE TRUST HAS
NOT BEEN REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED. SEE
"NOTICE TO INVESTORS".
---------------------
LEHMAN BROTHERS INC.
Dealer
<PAGE>
Unless the maturity date is extended as provided below, the principal
amount of Class A Trust Certificates will be payable to the Class A Owners on
October 15, 1998. Funds necessary to make such payments will be made available
through liquidation of the Separate Account Assets. Under certain circumstances
as described herein, Class A Owners may be offered the opportunity to extend the
maturity date applicable to their Class A Trust Certificates for designated
periods of up to 360 days. In such event, all, but not less than all, of the
Class A Owners who do not elect to extend such maturity date will be offered for
sale in a remarketing process. Class A Trust Certificates not sold in the
remarketing are required to be purchased by Bayerische Landesbank Girozentrale,
New York Branch ("BLB") under its liquidity facility, provided that BLB has not
terminated the liquidity facility. The liquidity facility may be terminated by
BLB upon 10 days' notice upon the occurrence of certain events, including
receivership of, or rehabilitation or liquidation proceedings involving,
Integrity or the failure of the Trust to make payment when due to Owners.
Following any such termination there will be no extension elections or
remarketings of the Class A Trust Certificates and amounts payable under the
Funding Agreement will be the sole source of payment of the Class A Trust
Certificates. All payments on the Class B Trust Certificates are subordinated to
the prior payment in full of all amounts then due and owing on the Class A Trust
Certificates.
This Offering Circular Supplement (the "Supplement") is delivered together
with the Offering Circular, dated November 25, 1997 (the "Offering Circular"),
issued in conjunction with the Trust. This Supplement must be read in
conjunction with the Offering Circular, and capitalized terms herein have the
meanings ascribed to them therein unless otherwise herein defined.
This Offering Circular Supplement and the accompanying Offering Circular
may also be delivered in connection with a remarketing of Class A Trust
Certificates conducted through Lehman Brothers Inc. ("Lehman Brothers", the
"Dealer" or the "Remarketing Agent").
2
<PAGE>
NOTICE TO INVESTORS
THE TRUST CERTIFICATES (THE "TRUST CERTIFICATES") OF THE BRAVO TRUST SERIES
1997-1 (THE "TRUST") HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THE TRUST HAS NOT BEEN
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT
COMPANY ACT"), IN RELIANCE UPON AN EXCEPTION TO REGISTRATION THEREUNDER. THE
TRUST CERTIFICATES ARE BEING OFFERED ONLY TO "QUALIFIED INSTITUTIONAL BUYERS" AS
DEFINED IN AND IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT ("QUALIFIED
INSTITUTIONAL BUYERS").
THE CLASS A TRUST CERTIFICATES WILL BE EVIDENCED BY ONE OR MORE GLOBAL TRUST
CERTIFICATES (THE "GLOBAL TRUST CERTIFICATES") AND THE CLASS B TRUST
CERTIFICATES WILL BE EVIDENCED BY A PHYSICAL CERTIFICATE. EACH GLOBAL TRUST
CERTIFICATE WILL BE IN FULLY REGISTERED FORM WITHOUT COUPONS, DEPOSITED WITH A
CUSTODIAN FOR AND REGISTERED IN THE NAME OF A NOMINEE OF THE DEPOSITORY TRUST
COMPANY ("DTC"). EXCEPT AS DESCRIBED HEREIN, BENEFICIAL INTERESTS IN THE GLOBAL
TRUST CERTIFICATES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY
THROUGH, RECORDS MAINTAINED BY DTC AND ITS DIRECT AND INDIRECT PARTICIPANTS.
BY ITS PURCHASE OF A TRUST CERTIFICATE (THE "CERTIFICATE"), EACH INVESTOR WILL
BE DEEMED TO HAVE REPRESENTED TO AND AGREED WITH THE TRUSTEE AND THE DEALER THAT
(A) (I) IT IS A QUALIFIED INSTITUTIONAL BUYER, (II) IT IS AWARE THAT THE
SALE OF THE CERTIFICATE IS BEING MADE IN RELIANCE ON RULE 144A AND
(III) THE CERTIFICATE IS BEING ACQUIRED FOR ITS OWN ACCOUNT (OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER),
(B) ANY RESALE OR OTHER TRANSFER OF THE CERTIFICATE WILL BE MADE ONLY (I)
TO A PERSON WHO SUCH PURCHASER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER ACQUIRING SUCH TRUST CERTIFICATE FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION COMPLYING WITH RULE 144A AND (II) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND
OTHER JURISDICTIONS,
(C) TRANSFERS OF TRUST CERTIFICATES SHALL BE RESTRICTED SO THAT, UNLESS
THE TRUSTEE HAS OBTAINED AN OPINION OF COUNSEL THAT SUCH TRANSFER WILL
NOT RESULT IN THE TRUST BEING TREATED AS A PUBLICLY TRADED PARTNERSHIP
WITHIN THE MEANING OF SECTION 7704(a) OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), (I) THE TRUST CERTIFICATES OR INTERESTS
IN THE TRUST CERTIFICATES MAY NOT BE OR BECOME TRADEABLE ON AN
"ESTABLISHED SECURITIES MARKET" AS DEFINED IN TREASURY REGULATION
SECTION 1.7704-1(b), (II) ANY TRANSFER THAT WOULD RESULT IN THERE
BEING MORE THAN 100 OWNERS SHALL BE NULL AND VOID, (III) NO TRUST
CERTIFICATE MAY BE HELD BY A FLOW-THROUGH ENTITY (A PARTNERSHIP, A
GRANTOR TRUST, OR AN S CORPORATION, MORE THAN HALF OF THE ASSETS OF
WHICH CONSIST OF TRUST CERTIFICATES), AND (IV) NO OWNER SHALL HOLD
LESS THAN $5 MILLION FACE AMOUNT OF TRUST CERTIFICATES, AND
(D) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR, IF IT IS, THAT
THE ACQUISITION AND HOLDING OF THE RELEVANT TRUST CERTIFICATES IS IN
COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND HOLDING ARE
IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION EXEMPTION 84-14,
RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT
QUALIFIED PROFESSIONAL ASSET MANAGERS) AND THE RELATED PROVISIONS OF
THE CODE AND IS PERMITTED UNDER SUCH PLAN'S CONSTITUENT DOCUMENTS AND
RELATED POLICIES.
THE TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION,
THE TRUST AGREEMENT AND THE PURCHASE AGREEMENT (AS SUCH TERMS ARE DEFINED
BELOW)) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT
OF, BUT UPON NOTICE TO, THE HOLDERS OF TRUST CERTIFICATES (THE "OWNERS") TO,
AMONG OTHER THINGS: (I) MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES
AND OTHER TRANSFERS OF THE TRUST CERTIFICATES TO REFLECT ANY CHANGE IN
APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES
RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY, (II)
ENABLE THE TRUST TO RELY UPON ANY EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OR THE INVESTMENT COMPANY ACT (AND TO REMOVE CERTAIN EXISTING
RESTRICTIONS TO THE EXTENT NOT REQUIRED UNDER SUCH EXEMPTION), PROVIDED THAT NO
SUCH CHANGE SHALL HAVE A MATERIAL ADVERSE EFFECT UPON THE OWNERS OF TRUST
CERTIFICATES THEN OUTSTANDING AS EVIDENCED BY AN OPINION OF COUNSEL, AND
PROVIDED FURTHER THAT, IF THE TRUST CERTIFICATES HAVE BEEN RATED BY S&P AND/OR
MOODY'S, S&P AND/OR MOODY'S SHALL HAVE PROVIDED EVIDENCE IN WRITING THAT SUCH
RATING SHALL NOT HAVE BEEN REDUCED OR WITHDRAWN AS A RESULT OF ANY SUCH
AMENDMENT. THE OWNER OF ANY TRUST CERTIFICATES SHALL BE DEEMED, BY PURCHASE
THEREOF, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL
BE CONCLUSIVE AND BINDING ON SUCH OWNER AND ALL FUTURE OWNERS OF SUCH TRUST
CERTIFICATES FROM TIME TO TIME).
3
<PAGE>
THE ISSUER OF THE FUNDING AGREEMENT, THE TRUSTEE AND ITS AFFILIATES, THE BANK
(AS DEFINED BELOW), THE DEALER AND THE REMARKETING AGENT ARE EACH IN THE
BUSINESS OF PROVIDING SERVICES TO BENEFIT PLANS AND OTHERS AND THUS SUCH
ORGANIZATIONS MAY BE, OR MAY BECOME, A PARTY IN INTEREST AS TO MANY EMPLOYEE
BENEFIT PLANS SUBJECT TO ERISA. IN ADDITION, THE PLANS PURCHASING CLASS A TRUST
CERTIFICATES MAY BE DEEMED TO HAVE ENTERED INTO A LENDING OR OTHER TRANSACTION
WITH THE BANK, AS OWNER OF THE CLASS B TRUST CERTIFICATES. THEREFORE,
FIDUCIARIES CONSIDERING THE PURCHASE OF TRUST CERTIFICATES ON BEHALF OF A
BENEFIT PLAN SHOULD DETERMINE IF THE ACQUISITION AND HOLDING OF TRUST
CERTIFICATES IS IN COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND
HOLDING ARE IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION EXEMPTION 84-14,
RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT QUALIFIED
PROFESSIONAL ASSET MANAGERS) AND RELATED PROVISIONS OF THE CODE. ADDITIONALLY,
EACH ERISA BENEFIT PLAN ACQUIRING AN INTEREST IN TRUST CERTIFICATES MUST MAKE
ITS OWN DETERMINATION THAT THE ACQUISITION OF THE TRUST CERTIFICATES OR AN
INTEREST IN A FINANCIAL INSTRUMENT SIMILAR TO THE FUNDING AGREEMENT IS PERMITTED
UNDER SUCH PLAN'S CONSTITUENT DOCUMENTS AND RELATED POLICIES.
IN DECIDING WHETHER OR NOT TO PURCHASE TRUST CERTIFICATES, AS DESCRIBED HEREIN,
EACH POTENTIAL INVESTOR MUST MAKE ITS OWN INDEPENDENT EVALUATION, BASED UPON
SUCH INVESTIGATION AND ANALYSIS AS IT DEEMS APPROPRIATE, OF THE BUSINESS,
PROSPECTS AND CREDITWORTHINESS OF THE ISSUER OF THE FUNDING AGREEMENT, AND OF
THE TERMS AND PROVISIONS OF THE TRUST CERTIFICATES AND THE OTHER AGREEMENTS, IN
EACH CASE AS DESCRIBED OR REFERRED TO HEREIN. IN ADDITION, NO REPRESENTATION IS
MADE BY THE DEALER, THE REMARKETING AGENT OR THE TRUST AS TO THE
CHARACTERIZATION OF THE TRUST CERTIFICATES WITH RESPECT TO THE LEGAL INVESTMENT
RESTRICTIONS APPLICABLE TO ANY REGULATED ENTITY.
THE FEDERAL INCOME TAX TREATMENT OF THE FUNDING AGREEMENT IS UNCERTAIN.
ACCORDINGLY, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE
INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF TRUST
CERTIFICATES, PARTICULARLY WITH RESPECT TO THE TIMING AND CHARACTER OF INCOME,
LOSS OR DEDUCTION ASSOCIATED WITH HOLDING AN INTEREST IN THE FUNDING AGREEMENT.
THE TRUST WILL MAKE AVAILABLE TO EACH PROSPECTIVE PURCHASER PRIOR TO SUCH
PURCHASER'S PURCHASE OF TRUST CERTIFICATES THE OPPORTUNITY TO ASK QUESTIONS OF,
AND RECEIVE ANSWERS FROM, THE DEALER OR THE REMARKETING AGENT CONCERNING THE
TERMS AND CONDITIONS OF THE OFFERING AND THE TRUST. EXCEPT AS SET FORTH IN THE
OFFERING CIRCULAR AND THIS SUPPLEMENT, NO PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE OFFERING CIRCULAR
AND THIS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON. NEITHER THE DELIVERY OF THE OFFERING CIRCULAR OR THIS
SUPPLEMENT AT ANY TIME NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCE, IMPLY THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS OF THE
TRUST SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS SUPPLEMENT OR THE DATE
OF THE OFFERING CIRCULAR.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH
NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON
IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY
OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
The Trustee has not participated in the preparation of this Supplement or the
Offering Circular and assumes no responsibility for their contents.
The information set forth in this Supplement with respect to the Issuer of the
Funding Agreement has been obtained from official or other sources which are
believed to be reliable but is not guaranteed as to accuracy or completeness by
and is not to be construed as a representation by Lehman Brothers or the
Trustee. In the event that there is a conflict between the provisions of this
Supplement and the provisions of the Offering Circular, the provisions of this
Supplement will be controlling.
The distribution of the Offering Circular and this Supplement and the offering
of the Trust Certificates in certain jurisdictions may be restricted by law.
Persons receiving the Offering Circular and this Supplement should inform
themselves about and observe any such restriction. The Offering Circular and
this Supplement do not constitute, and may not be used for or in connection
with, an offer or solicitation by anyone in any jurisdiction in which such offer
or solicitation is not authorized or to any person to whom it is unlawful to
make such offer or solicitation. The Offering Circular and this Supplement are
highly confidential and have been prepared solely for use in connection with the
offering of the Trust Certificates. They are personal to each offeree to whom
they
4
<PAGE>
have been delivered by the Dealer or an affiliate thereof or the Remarketing
Agent or an affiliate thereof and do not constitute an offer to any other person
or to the public generally to subscribe for or otherwise acquire the Trust
Certificates. Distribution of the Offering Circular and this Supplement to any
person other than the offeree and those persons, if any, retained to advise such
offeree with respect thereto is unauthorized, and any disclosure of any of their
contents, without the prior written consent of the Dealer, is prohibited. Each
prospective Purchaser, by accepting delivery of the Offering Circular and this
Supplement, agrees to the foregoing and to make no photocopies of the Offering
Circular and this Supplement or any documents attached thereto and, if the
offeree does not purchase the Trust Certificates or the offering is terminated,
to return this Offering Circular and all documents attached hereto to: Michele
Mahoney, Lehman Brothers Inc., 3 World Financial Center, New York, New York
10285, telephone: (212) 526-6092 and facsimile: (212) 528-6925. For a further
description of certain restrictions on offerings and sales of Trust Certificates
and on distribution of the Offering Circular and this Supplement, see "Offering
and Sale" in the Offering Circular.
No person is authorized to give any information or to make any representation
not contained in the Offering Circular or the related Supplement, and any
information or representation not contained herein must not be relied upon as
having been authorized by or on behalf of the Dealer. The delivery of the
Offering Circular and related Supplement at any time does not imply that
information contained herein or therein is correct at any time subsequent to
their respective dates.
5
<PAGE>
THE TRUST CERTIFICATES
THE TRUST CERTIFICATES WILL BE ISSUED IN TWO CLASSES TO OWNERS PURSUANT TO
THE TRUST AGREEMENT. EACH TRUST CERTIFICATE WILL ENTITLE THE OWNER TO A
PROPORTIONATE UNDIVIDED INTEREST IN ALL PAYMENTS MADE BY THE TRUST WITH RESPECT
TO THE RELATED CLASS OF CERTIFICATES. SUBJECT TO CERTAIN EXCEPTIONS DESCRIBED
HEREIN, EACH CLASS A TRUST CERTIFICATE WILL ENTITLE THE OWNER TO RECEIVE
PERIODIC INTEREST PAYMENTS AND A RETURN OF PRINCIPAL AT MATURITY, FROM PAYMENTS
RECEIVED BY THE TRUST ON THE TRUST ASSETS FROM THE ISSUE DATE THROUGH THE
SCHEDULED FINAL PAYMENT DATE AND EACH CLASS B TRUST CERTIFICATE WILL ENTITLE THE
OWNER TO RECEIVE, ON A SIMILAR PAYMENT SCHEDULE BUT ON A SUBORDINATED BASIS, THE
ASSETS OF THE TRUST THAT REMAIN AFTER PAYMENT OF ALL AMOUNTS OWED TO THE CLASS A
OWNERS AND ALL EXPENSES OF THE TRUST NOT PAID BY A THIRD PARTY. EACH TRUST
CERTIFICATE WILL HAVE TERMS SUBSTANTIALLY AS SET FORTH BELOW AND AS FURTHER
DESCRIBED IN THE OFFERING CIRCULAR. SEE "DESCRIPTION OF THE TRUST CERTIFICATES"
IN THE OFFERING CIRCULAR. TO THE EXTENT ANY PROVISION OF THIS SUPPLEMENT IS
INCONSISTENT WITH THE OFFERING CIRCULAR, PROVISIONS HEREIN SHALL CONTROL. THE
SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT, THE TRUST CERTIFICATES,
THE PURCHASE AGREEMENT, THE REMARKETING AGREEMENT, THE FUNDING AGREEMENT, THE
CUSTODY AGREEMENT (AS DEFINED BELOW), AND THE LIQUIDITY AGREEMENT (AS SUCH TERMS
ARE DEFINED BELOW) SET FORTH HEREIN AND IN THE OFFERING CIRCULAR DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO, SUCH DOCUMENTS. COPIES OF THE TRUST AGREEMENT, THE PURCHASE
AGREEMENT, THE REMARKETING AGREEMENT, THE FUNDING AGREEMENT, THE CUSTODY
AGREEMENT, AND THE LIQUIDITY AGREEMENT AND SPECIMEN FORMS OF THE TRUST
CERTIFICATES MAY BE OBTAINED FROM THE DEALER.
CLASS A TRUST
CERTIFICATES
CREDIT RATINGS: "P-1" by Moody's Investors Service, Inc.
("Moody's").
"A-1+" by Standard & Poor's Ratings Services
("S&P").
A rating is not a recommendation to buy, sell or
hold Trust Certificates and may be subject to
revision or withdrawal at any time by the
assigning rating organization. A suspension,
reduction or withdrawal of the rating assigned to
the Class A Trust Certificates may adversely
affect the market price of the Class A Trust
Certificates.
CLASS B TRUST
CERTIFICATES
CREDIT RATINGS: The Class B Trust Certificates will not be rated.
AGGREGATE PRINCIPAL
AMOUNT OF THE
TRUST CERTIFICATES: $450,000,000 with respect to the Class A Trust
Certificates; $50,000,000 with respect to the
Class B Trust Certificates; aggregate
$500,000,000. Only the Class A Trust Certificates
are being offered hereby. Bayerische Landesbank
Girozentrale or a Branch thereof will buy all of
the Class B Trust Certificates on the Issue Date.
Such purchaser reserves the right to sell such
Certificates, in whole or in part, at any time.
All payments of principal of the Class B Trust
Certificates are subordinated to the prior payment
in full of all amounts then due and owing on the
Class A Trust Certificates.
ISSUE DATE: November 25, 1997.
SCHEDULED
FINAL PAYMENT DATE: October 15, 1998 (the "Maturity Date"). On the
Maturity Date, the Owners will be entitled to
receive payment of the principal amount of the
Trust Certificates. No principal amount of any
Class B Trust Certificates can be paid until the
principal amount of all Class A Trust Certificates
has been paid in full. Under certain circumstances
Class A Owners may be offered the opportunity to
extend the Maturity Date for designated periods.
See "Extension of Maturity" below.
6
<PAGE>
EARLY
PAYMENT SCHEDULE: If the issuer of the Funding Agreement becomes
subject to rehabilitation or liquidation
proceedings or if some other cause for early
termination of the Trust occurs (see "The
Trust--Termination of the Trust" in the Offering
Circular), the Trust could receive payments
allocable to principal prior to the Maturity Date.
In such an event, Class A Owners will be entitled
to receive their proportionate share of the
distribution promptly after the Trust has received
sufficient payments to pay principal and accrued
interest on the Class A Trust Certificates.
INTEREST
PAYMENT DATES: January 15, April 15, July 15 and the Maturity
Date, commencing January 15, 1998.
INTEREST PAYMENTS
WITH RESPECT TO
CLASS A TRUST
CERTIFICATES: Class A Owners will be entitled to receive
interest on the principal amount thereof for each
Interest Accumulation Period (see below) equal to
Three-Month LIBOR (as defined below) plus .05% per
annum. Interest will be reset and paid quarterly,
calculated on an actual/360 daycount convention,
as described below.
DETERMINATION OF THREE-MONTH LIBOR. (i) On each
Interest Determination Date (as defined below),
LIBOR will be determined on the basis of the
offered rate for deposits for U.S. Dollars for a
period of three months (the "Index Maturity"),
which appears on Telerate Page 3750 as of
11:00 a.m. London time (or such page as may
replace the Telerate Page on that service for
the purpose of displaying London interbank
offered rates of major banks).
(ii) With respect to an Interest Determination
Date on which no such offered rate appears on
Telerate Page 3750, LIBOR for the next Reset Date
(as defined below) shall be reasonably determined
by the Calculation Agent as the arithmetic mean
(rounded upwards, if necessary, to the nearest one
hundredth of a percentage point) of the rates
quoted at approximately 11.00 a.m., London time,
on such date, by four major banks in the London
interbank market, selected by the Calculation
Agent, to prime banks in the London interbank
market for three-month U.S. Dollar deposits of not
less than $100,000,000 commencing on such Reset
Date; provided that the Calculation Agent will
request the principal London office of each of
such four major banks to provide a quotation of
its rate; provided further, that, if at least two
such quotations are provided, LIBOR will be the
arithmetic mean of such quotations, and, if fewer
than two quotations are provided as requested,
LIBOR will be the arithmetic mean of the rates
quoted by major banks in New York City, selected
by the Calculation Agent, at approximately 11:00
a.m., New York City time, on that Reset Date for
loans in U.S. Dollars to leading European banks
with a three-month maturity commencing on the
Reset Date in a principal amount of not less than
U.S. $100,000,000.
Payments will be made in immediately available
funds by wire transfer to an account designated by
the relevant Owner to the Trustee at least ten
Business Days prior to the related Record Date.
The Owners of Trust Certificates will not receive
payments until the Trustee receives funds from the
Custodian (as defined below) pursuant to the
Custody Agreement (as defined below) and the
Funding Agreement. In addition, see "General
Payment Information" below.
DAYCOUNT CONVENTION: [ ] 30/360 for the period from _____ to _____.
[X] ACTUAL/360 for the period from November 25,
1997 to October 15, 1998.
[ ] ACTUAL/ACTUAL for the period from _____
to ______.
7
<PAGE>
INTEREST
ACCUMULATION
PERIODS: Each period from and including one Interest
Payment Date to but excluding the next following
Interest Payment Date, except that (a) the initial
Interest Accumulation Period will commence on and
include the Issue Date and (b) the final Interest
Accumulation Period will end on, but exclude, the
Maturity Date ((a) and (b) being the "Stub
Periods").
RECORD DATE: The 15th day prior to each Interest Payment Date,
whether or not a Business Day.
RESET DATES: The first day of each Interest Accumulation
Period.
INTEREST
DETERMINATION DATES: Two Business Days prior to each Reset Date.
CALCULATION AGENT: Lehman Brothers Inc.
GENERAL PAYMENT
INFORMATION: Payments of the principal of and interest on the
Global Trust Certificates will be made to DTC or
its nominee as the registered owner thereof. The
Trust, the Trustee, the Dealer and their
respective agents will not have any responsibility
or liability for any aspect of the records
relating to or payments made on account of
beneficial ownership interests in the Global Trust
Certificates or for maintaining, supervising or
reviewing any records relating to such beneficial
ownership interests. See "Description of the Trust
Certificates--Global Trust Certificates" in the
Offering Circular.
CURRENCY: U.S. Dollars.
DENOMINATIONS: $5,000,000 and integral multiples of $100,000 in
excess thereof.
MINIMUM PURCHASE: $5,000,000.
BUSINESS DAY
CONVENTION: New York, Minnesota and Ohio, except London for
purposes of interest determinations.
If any Interest Payment Date would otherwise be a
day that is not a Business Day, such Interest
Payment Date will be the next succeeding day that
is a Business Day, except that, in the case of a
payment based on LIBOR, if such next succeeding
Business Day falls in the next succeeding calendar
month, such Interest Payment Date will be the
immediately preceding Business Day. If the
Maturity Date falls on a day that is not a
Business Day, the payment due on such Maturity
Date will be made on the next succeeding Business
Day, and no interest on such payment shall accrue
for the period from and after such Maturity Date.
REDEMPTION
PROVISIONS: The Trust Certificates are not redeemable at the
election of an Owner prior to the Maturity Date.
EXTENSION OF
MATURITY: Not less than 30 days prior to the Maturity Date
or any Extended Maturity Date (the "Extended
Maturity Date"), Bayerische Landesbank
Girozentrale, New York Branch (the "Bank"), as
Market Agent for the Trust under the Market Agent
Agreement between the Trust and the Bank, may, but
is not required to, select an "Extended Maturity
Date" on which the principal amount of all
outstanding Trust Certificates will be due and
payable, provided that such an Extended Maturity
Date shall correspond with an Interest Payment
Date (as defined above) under the Funding
8
<PAGE>
Agreement and may not be more than 360 days after
the Maturity Date or the Extended Maturity Date,
as the case may be. There can be no assurance that
the Market Agent will select an Extended Maturity
Date. If the Market Agent so selects an Extended
Maturity Date, the Market Agent will fix (A) the
interest rate applicable to the Class A Trust
Certificates until the Extended Maturity Date, (B)
the Payment Dates applicable to the Class A Trust
Certificates until the Extended Maturity Date,
(C) the Reset Dates applicable to the Class A
Trust Certificates until the Extended Maturity
Date, (D) the Interest Determination Dates
applicable to the Class A Trust Certificates
until the Extended Maturity Date, (E) the Business
Day Convention applicable to the Class A Trust
Certificates until the Extended Maturity Date, and
(F) any other variable terms applicable to the
Class A Trust Certificates until the Extended
Maturity Date and will give the Trustee notice in
sufficient time for Owners to be notified, not
less than 30 days prior to the Maturity Date or
relevant Extended Maturity Date, as the case may
be, as to what the Extended Maturity Date will be
and the terms applicable to the Class A Trust
Certificates until such Extended Maturity Date.
Each Class A Owner will then have the option (the
"Extension Option"), exercisable no fewer than 20
days prior to the Maturity Date or the Extended
Maturity Date, as applicable, to have the Maturity
Date of all but not less than all of such Owner's
Class A Trust Certificates extended on the revised
terms determined as described above. The maturity
date of the Class B Trust Certificates will always
be the same as that of the Class A Trust
Certificates.
If a Class A Owner chooses not to exercise the
Extension Option, such Owner will be entitled to
receive payment in full of the Principal Amount of
the related Class A Trust Certificates on the next
scheduled Maturity Date or Extended Maturity Date,
as applicable, (i) from proceeds received by the
Trustee from the Remarketing Agent (as such term
is defined below) pursuant to a reoffering of all
or a portion of such Class A Trust Certificates,
(ii) from proceeds received by the Trustee from
the Liquidity Provider upon its purchase of the
related Trust Certificates pursuant to the terms
of the Liquidity Agreement, or (iii) if the
Liquidity Provider is not obligated to purchase
such Class A Trust Certificates, from amounts
received by the Trustee under the Funding
Agreement.
LIQUIDITY PROVIDER: Bayerische Landesbank Girozentrale, New York
Branch. The obligations of the Liquidity Provider
to purchase Class A Trust Certificates may be
terminated by it upon 10 days' notice upon the
occurrence of certain events, including
receivership of, or rehabilitation or liquidation
proceedings involving Integrity or the failure of
the Trust to make payment when due to Owners. The
Liquidity Provider may also resign at any time
upon giving of at least 360 days' notice. See "The
Liquidity Agreement".
REMARKETING
PROCESS: Under the Remarketing Agreement between the Trust
and Lehman Brothers, Lehman Brothers has agreed to
act as remarketing agent (the "Remarketing Agent")
with respect to any Class A Trust Certificate with
respect to which a Class A Owner has not exercised
an Extension Option. On the next Scheduled
Maturity Date or Extended Maturity Date, as the
case may be, each person purchasing Class A Trust
Certificates as a result of a remarketing shall
pay the purchase price to the Remarketing Agent,
which will pay such amounts as are payable to
Owners that have sold their Trust Certificates in
such remarketing. Neither the Trust nor the
Remarketing Agent is obligated to provide funds to
make payments upon any Owner's tender pursuant to
the remarketing arrangement. Furthermore, no
remarketing shall take place if such remarketing
would require that the Trust be registered
pursuant to the Investment Company Act or that any
Trust Certificates be registered pursuant to the
Securities Act. Performance by the Remarketing
Agent is subject to certain conditions as provided
in the Remarketing Agreement. Class A Trust
Certificates tendered in a remarketing may be
purchased by the Remarketing Agent, although the
Remarketing Agent is not obligated to purchase any
Trust
9
<PAGE>
Certificates. However, to the extent that any
Class A Trust Certificates are tendered for
purchase at the time an Extension Option is
offered with respect thereto and such Class A
Certificates are not sold in a remarketing or
purchased by the Remarketing Agent, such
Certificates will be required to be purchased by
the Liquidity Provider pursuant to the Liquidity
Agreement (or, if such Agreement has been
terminated, will be paid by the Trust with funds
received under the Funding Agreement). Lehman
Brothers' fees in connection with acting as the
Remarketing Agent will be paid by the Trust, but
will be subordinate in priority to the payment of
the fees of the Trustee, the fees of Signet Trust
Company, which will hold the Funding Agreement in
custody for the Trust, and amounts due to the
Owners of Class A Trust Certificates.
TRANSFERS TO
ERISA PURCHASERS: Transfers to ERISA plans are permitted pursuant to
the Trust Agreement.
The issuer of the Funding Agreement and its
affiliates, the Trustee, the Liquidity Provider,
the Dealer and the Remarketing Agent are each in
the business of providing services to benefit
plans and others and thus such organizations may
be, or may become, a party in interest as to many
employee benefit plans subject to ERISA. In
addition, the plans purchasing Class A Trust
Certificates may be deemed to have entered into a
lending or other transaction with Bayerische
Landesbank Girozentrale, as Class B Owner.
Therefore, fiduciaries considering the purchase of
Trust Certificates on behalf of a benefit plan
should determine if the acquisition and holding of
Trust Certificates is in compliance with ERISA and
related provisions of the Code.
Additionally, each ERISA benefit plan acquiring an
interest in Trust Certificates must make its own
determination that the acquisition of the Trust
Certificates or an interest in a financial
instrument similar to the Funding Agreement is
permitted under such plan's constituent documents
and related policies.
EARLY TERMINATION: See "The Trust--Termination of the Trust" in the
Offering Circular.
CUSIP NUMBER: 105669 AA 3
ADDITIONAL FEDERAL
INCOME TAX
CONSIDERATIONS: Prospective Class A Trust Certificate Owners
should carefully consider the federal income tax
treatment of such Trust Certificates. Investors
are urged to consult their tax advisers regarding
the income tax consequences of the purchase,
ownership and disposition of the Class A Trust
Certificates, particularly with respect to the
timing and character of income, loss or deduction
associated with holding an interest in the Trust.
See "Certain Federal Income Tax Consequences".
NO PETITION: Notwithstanding any termination of the Custody
Agreement (as defined below), the Trust Agreement,
the Funding Agreement, the Liquidity Agreement,
the Virginia Custody Agreement, the Purchase
Agreement or the Remarketing Agreement, none of
the parties to the relevant agreement is
permitted, prior to the date which is one year and
one day after payment in full of all principal of
and interest on the Class A Trust Certificates, to
acquiesce, petition or otherwise invoke or cause
the Trust to invoke the process of any court or
governmental authority for the purpose of
commencing or sustaining a case against the Trust
under any federal or state bankruptcy, insolvency
or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the
Trust or any substantial part of its property, or
making a general assignment for the benefit of
creditors, or ordering the winding up or
liquidation of the affairs of the Trust.
10
<PAGE>
THE TRUST ASSETS
The Trust Assets will consist of the following:
FINANCIAL
INSTRUMENT/
TYPE OF
AGREEMENT: Separate Account Group Annuity Contract (the
"Funding Agreement")
INSURER: Integrity Life Insurance Company
PRINCIPAL AMOUNT: $500,000,000
AGREEMENT NUMBER: IFAA00141ST
EFFECTIVE DATE: November 25, 1997
MATURITY DATE: October 15, 2002 (subject to a maximum of five
one-year extensions)
CURRENCY: U.S. Dollars
INTEREST
RATE: Three-month LIBOR plus .25% per annum as fixed by
the British Bankers Association at 11:00 A.M.
(London time) on the day which is two Business
Days prior to the beginning of the applicable
Interest Accumulation Period, as reported on
Bloomberg L.P.'s Financial Markets Commodities
News ("Bloomberg") under the ticker symbol
"US0003M" or on display page 3750 on the Dow Jones
Telerate Service ("Telerate") (or such other page
as may replace that page on that service) or on
any other nationally recognized service. Should
there be a discrepancy between the Bloomberg and
Telerate reported three-month LIBOR rate, then
Telerate will be used.
INTEREST
PAYMENTS
DATES: January 15, April 15, July 15, October 15 and the
Maturity Date, commencing January 15, 1998.
INTEREST
ACCUMULATION
PERIODS: Each period from and including one Interest
Payment Date to, but excluding, the next following
Interest Payment Date, except that (a) the initial
Interest Accumulation Period will commence on and
include the Effective Date and (b) the final
Interest Accumulation Period will end on, but
exclude, the Maturity Date ((a) and (b) being the
"Stub Periods").
DAYCOUNT
CONVENTION: Actual/360
REPAYMENT: On the Maturity Date, the Trust is entitled to
receive repayment of the principal amount of the
Funding Agreement.
CUSTODIAL ACCOUNTS: On the Effective Date, the Insurer will establish
two custodial accounts (the "Accounts") with First
Trust National Association (the "Custodian")
pursuant to a Custody Agreement among the Trust,
the Bank as the Trust's Agent, the Insurer,
11
<PAGE>
and the Custodian (the "Custody Agreement") to
support the Funding Agreement (although under Ohio
law, which governs the Funding Agreement, the
Insurer will continue to own the assets in the
Accounts). These two Accounts are required at all
times (subject to minimum adjustments of $1
million) to contain cash, securities and other
financial instruments having a market value equal
to at least 102% of the unpaid principal amount of
the Funding Agreement plus accrued and unpaid
interest thereon (that is, $510 million plus 102%
of accrued interest). The assets in the Accounts
will be actively managed by the Insurer or an
affiliate thereof pursuant to investment
guidelines attached to the Custody Agreement as an
annex and summarized below. The Accounts will be
marked to market on a weekly basis, and the
Insurer will, within one business day after being
notified that the market value has fallen below
the required 102% level by $1 million or more, be
required under the terms of the Funding Agreement
to add to the Accounts sufficient assets to
eliminate any such deficit. There can be no
assurance that such active management will not
result in losses or that the Insurer will
contribute additional funds in connection
therewith.
Amounts contributed by the Insurer (a) on the
Effective Date, to the extent that such amounts
exceed $500 million, or (b) after the Effective
Date to maintain such 102% market value, if any,
may be subject to recovery as "fraudulent
transfers" or "voidable preferences" by creditors
of the Insurer in the event the Insurer becomes
subject to seizure or receivership by its
domiciliary state insurance department or
rehabilitation or liquidation proceedings. The
total contributions made by the Insurer after the
Effective Date (which may be subject to recovery
by creditors under the foregoing circumstances)
could be substantially more than the 2% required
over-collateralization. Repayment of the entire
$50 million principal amount of Class B Trust
Certificates, as well as any other assets of the
Trust to which such Class is otherwise entitled,
is subordinated to payment in full of principal of
the Class A Trust Certificates and interest
accrued thereon.
In order to maintain the highest ratings granted
to short-term securities with respect to the Class
A Trust Certificates, the Custody Agreement
provides that assets in the Accounts will be
invested pursuant to investment criteria
summarized below:
(1) the average effective duration of the
portfolio cannot exceed 1.75 years;
(2) the average credit quality of the portfolio
cannot be less than AA/NAIC "1";
(3) the portfolio cannot contain investments in
real estate, direct commercial mortgages, common
stocks, leveraged futures or other
leveraged/speculative derivatives; and
(4) any derivative position must be used for
hedging only and must result in the portfolio
still being in compliance with all other
investment guidelines.
The following is the table of permitted
investments from the Custody Agreement:
12
<PAGE>
SHORT-TERM PORTFOLIO GUIDELINES
BLB/INTEGRITY SEPARATE ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
ASSET CLASS MIN/MAX. EXP. MAX. PER ISSUE MAX. PER ISSUER
- ---------------------------------------- ------------- -------------- ---------------
<S> <C> <C> <C>
U.S. Gov't & Agencies 0/100% unlimited unlimited
Mortgage-backed Securities
Agency CMOs 0/50% 5% 15%
Non-agency CMOs 0/50% 5% 10%
Agency Pass Throughs 0/50% 5% 15%
Support Tranches 0/10% 5% 10%
Asset-backed Securities 0/30% 2.5% 10%
Auto Loans
Credit Card Receivables
Home Equity
Manufactured Housing
Corporate Debt 0/60% 5% 5%
Public Utilities
Corporate Bonds
144A/Private Placements 0/30% 2.5% 2.5%
Foreign Debt 0/20% 2.5% 2.5%
(U.S. Dollar Denominated only)
Non-Investment Grade Securities 0/3% 1% 1%
(No lower than BB/NAIC "3" rated)
Cash and Cash Equivalents 0/100% 5% 5%
Non-Speculative Hedging Instruments 0/3% 1% 1%
(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)
</TABLE>
13
<PAGE>
Except as set forth in the following two paragraphs, this Offering Circular
Supplement does not provide information with respect to the Insurer. No
investigation has been made of the financial condition or creditworthiness of
the Insurer or any of its subsidiaries in connection with the issuance of the
Trust Certificates. An investor in the Trust Certificates should obtain and
evaluate the same information concerning the Insurer as such investor would if
it were investing directly in the Funding Agreement.
DESCRIPTION OF INSURER: The Insurer is an Ohio stock life insurance company
licensed to sell life insurance and annuities in 45 states and the District of
Columbia. All of the Insurer's outstanding shares are owned by Integrity
Holdings, Inc., a Delaware corporation that is in turn 100% owned by ARM
Financial Group, Inc., a Delaware corporation (the "Corporation"). The Insurer
provides retail, fixed, indexed and variable annuities and institutional
guaranteed investment contracts. The Insurer prepares financial statements in
accordance with statutory accounting principles applicable to it for each year
ending December 31 and files such financial statements with the state insurance
regulator of Ohio (the "Ohio Department"), its state of domicile. The Ohio
Department has established procedures pursuant to which copies of such financial
statements may be obtained. A copy of such procedures may be requested from the
Ohio Department by sending a written request to the Financial Regulation
Services Division of the Ohio Department of Insurance at 2100 Stella Court,
Columbus, Ohio 43215-1067. The Corporation is not responsible with respect to
any payment due under the Trust Certificates.
DESCRIPTION OF CORPORATION: ARM Financial Group Inc. is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
at the Commission's New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048; and at its Chicago Regional Office, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
reports, proxy statements and other information filed with the Commission are
also available via electronic means including the Internet (@http://www.sec.gov)
and Bloomberg Business News.
14
<PAGE>
LIQUIDITY AGREEMENT
On or prior to the Issue Date, the Trust will enter into a Standby Trust
Certificate Purchase Agreement (the "Liquidity Agreement") with the Bank.
Subject to certain conditions, the Liquidity Agreement will provide for the
purchase of the Class A Trust Certificates that are subject to an Extension
Option that has not been exercised by the relevant Owners and have been
delivered to the Remarketing Agent but are not successfully remarketed by the
Remarketing Agent for the account of such Owners. Payments to purchase the Class
A Trust Certificates pursuant to the Liquidity Agreement will be made by the
Bank to the Remarketing Agent. The price to be paid by the Bank pursuant to the
Liquidity Agreement for the purchase of Class A Trust Certificates will be equal
to the aggregate principal amount of such Class A Trust Certificates. Upon any
purchase of Class A Trust Certificates pursuant to the Liquidity Agreement, the
commitment of the Bank to purchase Trust Certificates will be reduced by the
purchase price and will be reinstated upon the resale of such Trust Certificates
by the Bank. The Liquidity Agreement will expire on November 20, 1998 (360 days
from closing), unless sooner terminated as the result of an event of default or
a voluntary termination by the Bank. See "Events of Default" and "Voluntary
Termination by the Bank" below. If such Agreement has not been so terminated by
November 20, 1998, such termination date will be extended on a daily basis until
the earliest to occur of (a) termination of the Liquidity Agreement, either as
the result of an event of default or voluntarily, (b) the date on which no Class
A Trust Certificates are outstanding, or (c) October 15, 2007.
UNDER CERTAIN CIRCUMSTANCES DESCRIBED BELOW THE OBLIGATIONS OF THE BANK TO
PURCHASE CLASS A TRUST CERTIFICATES MAY BE TERMINATED.
EVENTS OF DEFAULT
The occurrence of certain events of default under the Liquidity Agreement
will entitle the Bank to terminate or suspend its obligation under the Liquidity
Agreement. Events of default under the Liquidity Agreement include: (i) the
Insurer becomes subject to seizure, receivership, rehabilitation or liquidation
proceedings or conservatorship or similar proceedings; (ii) failure of the
Insurer to pay any principal or interest owed by it under the Funding Agreement;
(iii) the Bank has owned more than $45 million of the Class A Trust Certificates
for at least 360 consecutive days and has given notice to the Custodian, the
Insurer and the Rating Agencies of the Bank's desire to terminate its
obligations under the Liquidity Agreement; or (iv) the failure of the Trust to
make a payment when due to Owners.
If an event of default shall occur under the Liquidity Agreement and be
continuing for 10 days, the Bank may terminate its obligation to purchase Class
A Trust Certificates by giving written notice to the Trustee (with a copy to the
Insurer), and the Bank will be under no further obligation to purchase Class A
Trust Certificates.
VOLUNTARY TERMINATION BY THE BANK
The Bank may terminate the Liquidity Agreement at any time upon giving at
least 360 days' notice to the Trustee and the Insurer.
THE BANK
Except as set forth in the following three paragraphs, this Offering
Circular Supplement does not provide information with respect to the Bank. No
investigation has been made of the financial condition or creditworthiness of
the Bank. An investor in the Trust Certificates should review carefully the
disclosure with respect to the Liquidity Agreement contained herein and make its
own credit evaluation of the Bank.
Bayerische Landesbank Girozentrale ("BLB") was incorporated as a public law
financial institution (Rechtsfaehige Anstalt des Oeffentlichen Rechts) by the
Law Establishing Bayerische Landesbank Girozentrale (Gesetz ueber die Errichtung
der Bayerischen Landesbank Girozentrale) of June 27, 1972, as amended, as
adopted by the Parliament of the Free State of Bavaria, and is subject to the
German Federal Banking Act of July 10, 1961, as amended (Gesetz ueber das
Kreditwesen) (the "Federal Banking Act"). Its statutes authorize the Bank to
provide universal financial services including both commercial and investment
banking as well as brokerage activities. The Free State of Bavaria owns 50% of
the Bank's share capital, the other 50% being owned by the Bavarian Savings
15
<PAGE>
Bank and Clearing Association (Bayerischer Sparkassen-und Giroverband), which is
the central organization of the Bavarian Savings Banks.
BLB established a Representative Office in New York in October 1979 and
obtained a license from the office of the Comptroller of the Currency in October
1981 to operate through a branch located in the City of New York. The New York
Branch engages in a diversified banking business and is a major wholesale
lending participant throughout the United States, offering a full range of
domestic and international financial services, including loans, foreign exchange
and money market operations.
Copies of BLB's Annual Report for the most recent available fiscal year may
be obtained at the New York Branch in person during normal business hours or by
mail by writing to the New York Branch at: Bayerische Landesbank Girozentrale,
560 Lexington Avenue, New York, New York 10022, Attention: Corporate Finance.
16
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Trust
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of the Owners, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
the Owners that are insurance companies, regulated investment companies or
dealers in securities. The following summary also only addresses U.S. Owners (as
defined below) who purchase Trust Certificates in connection with the original
issuance thereof. Moreover, there are no cases or Internal Revenue Service
("IRS") rulings on similar transactions to the terms of the Trust and the
issuance of the Trust Certificates. As a result, the IRS may disagree with all
or a part of the discussion below. Prospective investors are urged to consult
their own tax advisors in determining the federal, state, local, foreign and any
other tax consequences to them of the purchase, ownership and disposition of the
Trust Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The Trust will be provided
with an opinion of Brown & Wood LLP, special Federal tax counsel to the Trust
("Federal Tax Counsel"), regarding certain federal income tax matters discussed
below. An opinion of Federal Tax Counsel, however, is not binding on the IRS or
the courts. No ruling on any of the issues discussed below will be sought from
the IRS. For purposes of the following summary, references to the Trust, the
Trust Certificates and related terms, parties and documents shall be deemed to
refer, unless otherwise specified herein, to the Trust, the Trust Certificates
and related terms, parties and documents applicable to such Trust.
As used herein, the term "U.S. Owner" means a beneficial owner of Trust
Certificates that is for U.S. federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, a partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (iii) an estate the
income of which is subject to U.S. federal income taxation regardless of its
source, or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
Trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue to
be treated as United States persons also will be a U.S. Owner.
Notwithstanding anything to the contrary contained herein, no resale or
other transfer of a Trust Certificate or any interest therein shall be made
unless (1) immediately after giving effect to such resale or other transfer,
there would be no more than 100 Owners of Trust Certificates and (2) if the
transferee (or any person or entity for whom such transferee is acting as
agent or custodian in connection with the acquisition of such Trust
Certificate) is a partnership, grantor trust or S corporation for federal
income tax purposes (a "Flow Through Entity"), any Trust Certificates owned
by or on behalf of such Flow Through Entity will represent less than 50% of
the value of all the assets owned by or on behalf of such Flow Through Entity.
CLASSIFICATION OF THE TRUST ASSETS. The Trust Assets will consist of a
$500,000,000 Integrity Life Insurance Company Separate Account Group Annuity
Contract (the "Funding Agreement"). Davis & Harman, special tax counsel to the
Insurer, has rendered an opinion generally to the effect that the Funding
Agreement will be treated as indebtedness for U.S. federal income tax purposes.
The following discussion, as well as the opinion to be provided to the Trust by
Federal Tax Counsel, is based upon and relies upon the opinion of Davis & Harman
concerning the U.S. federal income tax treatment of the Funding Agreement. If
the Funding Agreement is not ultimately treated as indebtedness for U.S. federal
income tax purposes, then the U.S. federal income tax consequences of the
purchase, ownership and disposition of the Trust Certificates could differ in
various respects from the consequences described below.
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Trustee has agreed, and the
Owners will agree by their purchase of Trust Certificates, to treat the Trust as
a partnership for purposes of federal and state income tax, franchise tax and
any other tax measured in whole or in part by income, with the assets of the
partnership being the assets held by the Trust and the partners of the
partnership being the Owners. In the opinion of Federal Tax Counsel, for U.S.
federal income tax purposes, the Trust will be classified as a partnership and
not as an association or a publicly traded partnership taxable as a corporation.
Moreover, the Trustee has agreed, and the Owners will agree by their purchase of
the Trust Certificates, to elect under Section 761 (a) of the Code to exclude
the Trust from the provisions of subchapter K of the Code (the "Election"). In
most respects, the Election will cause the Owners of the Trust Certificates to
be taxed as co-owners of their respective interest in the Funding Agreement,
rather than as partners. As a result of the Election,
17
<PAGE>
each Owner will be required to take into account directly for U.S. federal
income tax purposes in accordance with such Owner's own tax accounting method
such Owner's income realized and recognized with respect to its interest in the
Funding Agreement and such Owner's expenses paid or incurred with respect to
such Owner's interest, and each Owner will receive a tax information report
(and, if required, IRS Form 1099) showing its share of income received by the
Trust for the year rather than a partnership Form K-1. The Election will not
cause the Trust to cease to be a partnership of all purposes of the Code.
The Code and the regulations thereunder impose a number of conditions and
qualifications on the right to make the Election. The Election has not been
frequently used outside the oil and gas area, and there is little authority
relating to its use by an asset repackaging vehicle such as the arrangement
among the Owners of the Trust Certificates evidenced hereby. The Election is
permitted only if the income of the members may be adequately determined
"without the necessity of computing partnership taxable income". It is unclear
whether, or under what circumstances, this test will be satisfied. If, upon
audit, the IRS were successfully to assert that the Election was not available
or not properly made, certain penalties (resulting from the failure to file
partnership returns) could be imposed if it were determined that the failure to
file was not due to reasonable cause. In addition, the imposition of the rules
of Subchapter K to the Owners would require the tax partnership to utilize a
partnership taxable year for reporting purposes, which could have the effect of
shifting income and expense items into different taxable years for the Owners.
Although there is no authority directly on point, Federal Tax Counsel believes
there is reasonable basis for the tax partnership evidenced by the Trust
Certificates not to file partnership returns for U.S. federal income tax
purposes after making the Election.
DISPOSITION OF CERTIFICATES. In general, capital gain or loss will be
recognized on a sale of Trust Certificates in an amount equal to the difference
between the amount realized and the Owner's tax basis in the Trust Certificates
sold. An Owner's tax basis in a Trust Certificate will generally equal the
Owner's cost increased by the Owner's share of Trust income (includible in such
Owner's income) and decreased by any distributions received with respect to such
Trust Certificate. In addition, both the tax basis in the Trust Certificates and
the amount realized on a sale of a Trust Certificate would include the Owner's
share of any liabilities of the Trust. An Owner acquiring Trust Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Trust Certificates and, upon sale or other disposition of some of
the Trust Certificates, allocate a portion of such aggregate tax basis to the
Trust Certificates sold (rather than maintaining a separate tax basis in each
Trust Certificate for purposes of computing gain or loss on a sale of that Trust
Certificate).
If an Owner is required to recognize an aggregate amount of income over the
life of the Trust Certificates that exceeds the aggregate cash distributions
with respect thereto (which is not expected to be the case), such excess will
generally give rise to a capital loss upon the retirement of the Trust
Certificates.
UNRELATED BUSINESS TAXABLE INCOME. Income from the Trust Certificates may
constitute "unrelated business taxable income" within the meaning of Section
512(a)(1) of the Code. Prospective investors in the Trust Certificates should
consult their own tax advisors in this regard.
ADMINISTRATIVE MATTERS. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes, and the fiscal year of the Trust will be
the calendar year. Each year, the Trustee will report or cause to be reported
each registered owner's allocable share of items of Trust income and expense to
registered owner's and the IRS. The Trust will provide or cause to be provided
this information to nominees, and such nominees will be required to forward such
information to the Owners of the Trust Certificates. Generally, the Owners must
file tax returns that are consistent with the information return filed by the
Trust or be subject to penalties unless the Owner notifies the IRS of all such
inconsistencies.
Bayerische Landesbank Girozentrale, acting through whichever branch thereof
is acting as the Owner of the Class B Trust Certificates, will be designated as
the tax matters partner in the Trust Agreement and, as such, will be responsible
for representing the Owners of the Trust Certificates in any dispute with the
IRS. The Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the Owners
and, under certain circumstances, an Owner may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of an Owner's returns and adjustments of items not
related to the income and losses of the Trust.
18
<PAGE>
BACKUP WITHHOLDING. Distributions made on the Trust Certificates and
proceeds from the sale of the Trust Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Owner fails to comply with certain
identification procedures, unless the Owner is an exempt recipient under
applicable provisions of the Code. On October 6, 1997, the Treasury Department
issued new regulations (the "New Regulations") which make certain modifications
to these backup withholding and information reporting rules. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
19
<PAGE>
ERISA
The issuer of the Funding Agreement and certain of its affiliates, the
Trustee, the Bank, the Dealer and the Remarketing Agent are each in the business
of providing services to benefit plans and others and thus such organizations
may be, or may become, a party in interest as to many employee benefit plans
subject to ERISA. In addition, the plans purchasing Class A Trust Certificates
may be deemed to have entered into a lending or other transaction with
Bayerische Landesbank Girozentrale, as the Class B Owner. Therefore, fiduciaries
considering the purchase of Trust Certificates on behalf of a benefit plan
should determine if the acquisition and holding of Trust Certificates is in
compliance with ERISA and related provisions of the Code. The U.S. Department of
Labor (the "DOL") has issued several class exemptions that may afford exemptive
relief for otherwise prohibited transactions arising from the purchase or
holding of the Trust Certificates. Included among these exemptions are:
Prohibited Class Transaction Exemptions 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
95-60 (Class Exemption for Certain Transactions Involving Insurance Company
General Accounts), 91-38 (Class Exemption for Certain Transactions Involving
Bank Collective Investment Funds), 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts), and 96-23
(Class Exemption for Plan Asset Transactions Determined by In-House Investment
Managers).
Additionally, each ERISA benefit plan acquiring an interest in Trust
Certificates must make its own determination that the acquisition of the Trust
Certificates or an interest in a financial instrument similar to the Funding
Agreement is permitted under such plan's constituent documents and related
policies.
20
<PAGE>
FURTHER INFORMATION
Further information concerning the Trust Certificates, the Trust Agreement,
the Purchase Agreement, the Remarketing Agreement, the Liquidity Agreement, the
Custody Agreement and the Trust Assets is available from the Dealer upon
request. Inquiries concerning such additional information should be directed to
Lehman Brothers Inc., 3 World Financial Center, 12th Floor, New York, New York
10285, Attention: Michele Mahoney, Senior Vice President, telephone (212)
526-6092, facsimile: (212) 528-6925.
21
<PAGE>
BRAVO TRUST SERIES 1997-1
DECLARATION OF TRUST
AND
TRUST AGREEMENT
BY AND BETWEEN
THE BANK OF NEW YORK, as Trustee
AND
THE HOLDERS OF TRUST CERTIFICATES
from time to time hereunder
dated as of November 25, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
1.01. Definitions .............................................................1
ARTICLE II
ORGANIZATION
2.01. Name ...................................................................10
2.02. Office .................................................................10
2.03. Purpose and Powers .....................................................10
2.04. Appointment of the Trustee .............................................10
2.05. Declaration of Trust ...................................................11
2.06. Trust Obligations ......................................................11
2.07. Tax Treatment; Construction ............................................11
2.08. Sale ...................................................................12
ARTICLE III
ISSUANCE, OWNERSHIP AND TRANSFER OF TRUST CERTIFICATES
3.01. The Trust Certificates .................................................12
3.02. Form and Dating ........................................................13
3.03. Persons Deemed Holders .................................................15
3.04. Access to List of Holders' Names and Addresses .........................15
3.05. Transfer Procedures and Restrictions ...................................15
3.06. CUSIP Numbers ..........................................................18
3.08. Appointment of Successor Clearing Agency ...............................18
3.09. Restriction on Transfers ...............................................18
3.10. ERISA Restrictions on Transfers ........................................19
3.11. Publicly Traded Partnership Restriction on Transfers....................19
3.12. Appointment of Paying Agent ............................................19
3.13. Deemed Agreements and Representations...................................20
3.14. Book Entry Interests ...................................................20
1-i
<PAGE>
PAGE
----
ARTICLE IV
THE TRUST'S AGENT
4.01. Appointment as Trust's Agent ...........................................21
ARTICLE V
DISTRIBUTIONS AND REPORTS
5.01. Periodic Payments ......................................................21
5.02. Tax Reporting ..........................................................23
5.03. Tax Matters Partner ....................................................24
5.04. Distribution Reports ...................................................24
5.05. Financial Reports ......................................................24
5.06. Remarketing of Trust Certificates ......................................24
5.07. Purchase of Trust Certificates by Liquidity Provider....................25
5.08. Right to Extend the Maturity of Trust Certificates......................25
5.09. Subordination of the Class B Trust Certificates ........................25
5.10. Allocations for Partnership Tax Purposes ...............................25
ARTICLE VI
DUTIES AND AUTHORITY OF THE TRUSTEE
6.01. In General .............................................................25
6.02. Establishment of and Deposits in Trust Certificate Accounts ............27
6.03. No Duties Except as Specified in Agreement or Instructions;
Discharge of Liens by Bank; Permissible Indemnities; Tender,
Conversion and Default under the Financial Instrument ................28
6.04. No Action Except Under Specified Documents or Instructions..............29
6.05. No Direction by Holders ................................................29
6.06. Limitation on Actions of Holders .......................................30
ARTICLE VII
THE TRUSTEE
7.01. Acceptance of Trusts and Duties.........................................30
7.02. Representations and Warranties .........................................31
7.03 Reliance; Employment of Agents and Advice of Counsel....................32
7.04 Not Acting in Individual Capacity ......................................33
1-ii
<PAGE>
PAGE
----
ARTICLE VIII
TRUSTEE COMPENSATION
8.01. Compensation ...........................................................33
8.02. Reimbursement and Indemnification ......................................34
8.03. Survival of Article ....................................................35
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
9.01. Termination of Trust Agreement .........................................35
ARTICLE X
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
10.01. Resignation of Trustee; Appointment of Successor.......................36
10.02. Appointment of Additional Trustees ....................................37
10.03. Delaware Trustee ......................................................37
ARTICLE XI
MISCELLANEOUS
11.01. Amendments ............................................................37
11.02. No Legal Title to Trust Property in Holders............................39
11.03. Limitations on Rights of Others........................................39
11.04. Notices ...............................................................39
11.05. No Subdivision ........................................................40
11.06. Severability ..........................................................40
11.07. Separate Counterparts .................................................41
11.08. Successors and Assigns ................................................41
11.09. Incorporation by Reference ............................................41
11.10. Headings ..............................................................41
11.11. No Petition Covenant ..................................................41
11.12. Section, Schedule and Exhibit References ..............................41
11.13. GOVERNING LAW .........................................................41
1-iii
<PAGE>
PAGE
----
SCHEDULES
SCHEDULE 1 ..................................................................1-1
EXHIBITS
A-1 Form of Class A Trust Certificate ....................................A-1
A-2 Form of Class B Trust Certificate ....................................A-2
B. Form of Co-Trustee Agreement .........................................B-1
C. Schedule of Fees .....................................................C-1
1-iv
<PAGE>
DECLARATION OF TRUST AND TRUST AGREEMENT, dated as of the date set forth on
the cover page hereof, by The Bank of New York, a New York banking corporation,
as Trustee and the Holders of the BRAVO TRUST SERIES 1997-1 Trust Certificates
(the "Trust Certificates") from time to time hereunder.
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS. For all purposes of this Agreement, the following terms
shall have the meanings set forth below:
"Additional Income Amount" has the meaning specified in Section 5.01(c).
"Additional Income Payment Date" has the meaning specified in Section
5.01(c).
"Additional Principal Amount" has the meaning specified in Section 5.01(f).
"Additional Principal Payment Date" has the meaning specified in Section
5.01(f).
"Agency Agreement" means the agency agreement dated as of the date hereof,
including, without limitation, any amendments or supplements thereto, between
the Trust and the Trust's Agent, relating to the performance of certain
administrative duties under this Agreement.
"Agreement" means this Declaration of Trust and Trust Agreement, as
supplemented or amended pursuant to Section 11.01.
"Applicants" has the meaning specified in Section 3.04.
"Bank" means The Bank of New York, in its individual capacity and not as
Trustee, and its successors and assigns.
"Basic Documents" means the Financial Instrument, the Purchase Agreement,
any Remarketing Agreement, the Liquidity Agreement, the Custody Agreement, the
Virginia Custody Agreement, the Trust-BLB-Integrity Agreement and any agreement
between the Trust and any Paying Agent.
"BLB" means Bayerische Landesbank Girozentrale, New York Branch, and its
successors and assigns.
"Beneficial Owner" means, with respect to a Book Entry Interest, a person
who is the beneficial owner of such Book Entry Interest, as reflected on the
books of the Clearing
<PAGE>
Agency, or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Participant or as an indirect participant, in
each case in accordance with the rules of such Clearing Agency).
"Book Entry Interest" means a beneficial interest in a Global Trust
Certificate registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 3.05.
"Business Day" means any day other than a day on which banking institutions
in the States of Delaware or New York are authorized or obligated by law or
executive order to be closed.
"Calculation Agent" means Lehman Brothers Inc. in its capacity as
Calculation Agent under the Calculation Agent Agreement, and any successor
thereunder.
"Calculation Agent Agreement" means the calculation agent agreement dated
as of the date hereof, including without limitation any amendments or
supplements thereto, between the Trust and the Calculation Agent.
"Certificate" means a physical certificate evidencing an interest in a
Class A Trust Certificate or a Class B Trust Certificate and executed and
delivered by the Trustee substantially in the forms of Exhibits A-1 and A-2,
respectively.
"Class A Net Investment Income" means the net investment income of the
Trust in respect of any period as determined in accordance with applicable
generally accepted accounting principles and determined by adding all interest
payments received by the Trust from the Main Custodial Account pursuant to the
Financial Instrument, the Main Collection Account and the Main Distribution
Account allocable to all Class A Trust Certificates (calculated in accordance
with the Supplement), in each case for such period.
"Class A Trust Certificate" means, as provided in Sections 5.01 and 9.01, a
preferred unit of undivided interest in the Trust and all Trust Property equal
to its Percentage Interest therein.
"Class B Net Investment Income" means the net investment income of the
Trust in respect of any period as determined in accordance with applicable
generally accepted accounting principles and determined by adding all interest
payments received by the Trust pursuant to the Financial Instrument and the
Trust Certificate Accounts and subtracting from the resulting sum the aggregate
of all Class A Net Investment Income and all Trust Expenses and Extraordinary
Expenses not paid by a third party.
2
<PAGE>
"Class B Trust Certificate" means, as provided in Sections 5.01 and 9.01, a
subordinated unit of undivided interest in the Trust and all Trust Property
equal to its Percentage Interest therein, subject to the subordination
provisions set forth in Section 5.09.
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as depositary for the
Trust Certificates and in whose name or in the name of a nominee of that
organization shall be registered a Global Trust Certificate and which shall
undertake to effect book entry transfers and pledges of the Trust Certificates.
"Closing Date" means the date set forth in Schedule 1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Accounts" means the Collection Accounts created and maintained
pursuant to Section 6.02.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office at the Closing Date is located at, for The Bank of New York, 101 Barclay
Street, 12E, New York, New York 10286, Attention: Corporate Trust
Administration; and, for The Bank of New York (Delaware), c/o The Bank of New
York at the aforementioned address.
"Co-Trustee Agreement" means the agreement in the form of Exhibit B hereto
between the Trustee and the Delaware Trustee.
"Custodian" means First Trust National Association, a national banking
association organized under the laws of the United States.
"Custody Agreement" means the Custody Agreement, dated as of the date
hereof, among the Custodian, the Trust, the Issuer and the Trust's Agent.
"Dealer" means Lehman Brothers Inc., acting as dealer of Trust Certificates
pursuant to the Purchase Agreement.
"Delaware Trustee" means The Bank of New York (Delaware), in its capacity
as Trustee under the Co-Trustee Agreement, and any successor thereunder.
"Distribution Accounts" means the Distribution Accounts created and
maintained pursuant to Section 6.02.
"Distribution Date" means any and all of an Additional Income Payment Date,
an Additional Principal Payment Date, a Scheduled Income Payment Date and a
Principal Payment Date.
3
<PAGE>
"Distribution Report" means the report described in Section 5.04.
"Dollars" means United States Dollars, being the currency of the United
States of America, and the symbol "$ shall be construed accordingly.
"DTC" means the Depository Trust Company, the initial Clearing Agency.
"Duff & Phelps" means Duff & Phelps Credit Rating Co.
"Eligible Account" means an account that is either (i) maintained with a
depository institution the long-term deposit rating or the long-term unsecured
debt obligations of which (or in the case of the principal bank in a bank
holding company system, the long-term unsecured debt obligations of such bank
holding company) have been rated at least AAA/Aaa/AAA by Standard & Poor's,
Moody's and Fitch, respectively, or maintained with a depository institution
the commercial paper of which (or, in the case of a principal bank in a bank
holding company system, of such bank holding company) is rated at least A-1+
/P-1 by Standard & Poor's and Moody's, respectively, or (ii) a trust account
maintained with the Trustee in its corporate trust department, in both cases in
which the funds are either uninvested or invested solely in Eligible
Investments.
"Eligible Investments" means one or more of the following:
(a) obligations of, or guaranteed as to both full and timely payment
of principal and interest by, the United States or any agency or
instrumentality thereof when such obligations are backed by the full faith
and credit of the United States; PROVIDED that such obligations shall not
have the "r" symbol attached to such rating by Standard & Poor's;
(b) federal funds, certificates of deposit, time deposits and bankers'
acceptances, each of which shall not have an original maturity of more than
90 days, of any depository institution or trust company incorporated under
the laws of the United States or any state; PROVIDED that the short-term
obligations of such depository institution or trust company shall be (i)
rated at least A-1+/P-1 by Standard & Poor's and Moody's, respectively
(and shall not have the "r" symbol attached to such rating by Standard &
Poor's), and (ii) if Fitch is a Rating Agency hereunder, rated at least F-1
(for investments having an original maturity of 30 days or less) or F-1+
(for investments having an original maturity of more than 30 days) by
Fitch;
(c) commercial paper (having original maturities of not more than 180
days) of any corporation incorporated under the laws of the United States
or any state thereof, PROVIDED that such commercial paper shall be (i)
rated at least A-1+/P-1 by Standard & Poor's and Moody's, respectively
(and shall not have the "r" symbol attached to such rating by Standard &
Poor's), and (ii) if Fitch is a Rating Agency hereunder, rated at least F-1
(for investments having an original maturity of 30 days
4
<PAGE>
or less) or F-1+ (for investments having an original maturity of more than
30 days) by Fitch; and
(d) money market funds rated at least "AAA"/"Aaa" by Standard & Poor's
and Moody's, respectively;
PROVIDED, HOWEVER, that no instrument shall be an Eligible Investment if such
instrument (i) is issued by a real estate investment trust, (ii) evidences a
right to receive only interest or principal payments with respect to the
obligations underlying such instrument, (iii) is a collateralized mortgage
obligation or a similar derivative security which does not have a fixed amount
of principal or which is not outstanding for a fixed term, (iv) does not bear
interest at a fixed rate or at a floating rate based on LIBOR, the federal funds
rate, a prime or base rate, a treasury bill rate, a commercial paper rate or,
with prior notice to the Rating Agencies designated in Schedule 1, any other
rate or index or (v) has a maturity date after the next Scheduled Income Payment
Date or the Principal Payment Date; and PROVIDED FURTHER, HOWEVER, that no
overnight instrument shall be an Eligible Investment unless it is an investment
in overnight federal funds.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, including, without limitation, any successor or amendatory statutes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extraordinary Expenses" has the meaning specified in Section 8.02.
"Financial Instrument" means the financial instrument described in Schedule
1 and acquired by the Trust on behalf of the Holders as described in Section
2.04 and in the Offering Circular.
"Fiscal Year" means the period from January 1 or the Closing Date, as the
case may be, to the following December 31 of a given year.
"Fitch" means Fitch Investors Service, L.P.
"Flow-Through Entity" means a partnership, a grantor trust, or an S
Corporation, more than half of the assets of which consist of Trust
Certificates.
"Funding Agreement" means the Separate Account Group Annuity Contract,
dated as of the date hereof, between the Trust and the Issuer.
"Global Trust Certificates" has the meaning specified in Section 3.02(b).
5
<PAGE>
"Holder" means the Person in whose name a Trust Certificate is registered
in the Trust Certificate Register.
"Indemnity Agreement" means the Indemnity Agreement dated as of November
25, 1997 between the Trust and Bayerische Landesbank Girozentrale, acting
through its New York Branch.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Issuer" means the insurer issuing the Financial Instrument, as specified
in Schedule 1.
"Lehman Brothers" means Lehman Brothers Inc., a Delaware corporation, and
its successors and assigns.
"Liquidity Agreement" means the Standby Trust Certificate Purchase
Agreement, dated as of the date hereof, among the Trust, the Liquidity Provider,
and the Issuer.
"Liquidity Provider" means Bayerische Landesbank Girozentrale, New York
Branch, and its successors and assigns.
"Main Collection Account" means the Main Collection Account created and
maintained pursuant to Section 6.02.
"Main Custodial Account" means the Main Custodial Account maintained by the
Custodian pursuant to the terms of the Custody Agreement.
"Main Distribution Account" means the Main Distribution Account created and
maintained pursuant to Section 6.02.
"Majority Interest of the Holders" means Holders of Trust Certificates
evidencing Percentage Interests aggregating at least 51%, without distinction as
to class.
"Market Agent" means the Market Agent under the Market Agent Agreement.
"Market Agent Agreement" means the Market Agent Agreement dated as of
November 25, 1997 between BLB and the Trust.
"Moody's" means Moody's Investors Service, Inc.
"Offering Circular" means the Offering Circular delivered by the Dealer,
including, without limitation, any Supplement delivered in conjunction
therewith, on behalf of the Trust to each prospective Holder in connection with
the private placement of Class A Trust Certificates, the sale of which shall be
effected by the Trust on the Closing Date.
6
<PAGE>
"Opinion of Counsel" means a written opinion of counsel reasonably
satisfactory to the Trustee, who may be the counsel for the Trustee.
"Participant" means a broker, dealer, bank, other financial institution or
other Persons for whom from time to time the Clearing Agency effects book entry
transfers and pledges of securities deposited with the Clearing Agency.
"Paying Agent" means the Paying Agent, if any, appointed pursuant to
Section 3.12.
"Percentage Interest" means, as to any Trust Certificate, the percentage
interest evidenced thereby in distributions required to be made on the Trust
Certificates, or, if specified herein, on a particular class of Trust
Certificates, such percentage interest being equal to the percentage obtained by
dividing the denomination of such Trust Certificate by the aggregate of the
denominations of (i) all of the outstanding Trust Certificates, regardless of
class or (ii) if specified herein, all of the outstanding Trust Certificates of
a particular class.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including, without limitation, any
beneficiary thereof), unincorporated organization or government or any agency or
political subdivision thereof.
"Principal Amount" has the meaning specified in Section 5.01(e).
"Principal Payment Date" has the meaning specified in Section 5.01(d).
"Purchase Agreement" means the Purchase Agreement dated as of the date
hereof between the Trust and Lehman Brothers Inc.
"Qualified Institutional Buyer" means qualified institutional buyer as such
term is defined in Rule 144A.
"Rating Agencies" means any of Standard & Poor's, Moody's, Fitch, and Duff
& Phelps that are designated as Rating Agencies in Schedule 1.
"Rating Agencies Condition" means, with respect to any specified action
hereunder, that the Rating Agencies shall have been given 10 days' prior written
notice thereof and that the Rating Agencies shall have notified the Trustee in
writing that such action will not result in a reduction or withdrawal of the
then-current ratings of the Trust Certificates.
"Record Date" has the meaning specified in Section 5.01(g).
"Remarketing Agent" has the meaning specified in Schedule 1 hereto.
7
<PAGE>
"Remarketing Agreement" means each remarketing agreement, if any, entered
into between the relevant Remarketing Agent and the Trust.
"Required Holders" means the Holders of Trust Certificates evidencing at
least 51% of the aggregate Percentage Interests represented by the Trust
Certificates then outstanding, without distinction as to class.
"Responsible Officer" means, (a) when used with respect to the Trustee, any
officer within the corporate trust department of the Trustee including any vice
president, assistant vice president, secretary, assistant secretary, treasurer,
assistant treasurer, trust officer or any other officer of the Trustee who
customarily performs functions similar to those performed by the Persons who at
the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such officer's knowledge or any familiarity with
the particular subject and (b) who shall have direct responsibility for the
administration of this Agreement.
"Rule 144A" means Rule 144A under the Securities Act.
"Scheduled Income Amount" has the meaning specified in Section 5.01(b).
"Scheduled Income Payment Date" has the meaning specified in Section
5.01(a).
"Scheduled Income Period" has the meaning specified in Section 5.01(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Side Letter Agreement" means the Side Letter Agreement, dated as of the
date hereof, between BLB and the Trust pursuant to which BLB agrees to pay
certain Trust Liabilities.
"Standard & Poor's" means Standard & Poor's Ratings Services.
"Supplement" means the Supplement delivered in conjunction with the
Offering Circular.
"Supporting Collection Account" means the Supporting Collection Account
created and maintained pursuant to Section 6.02.
"Supporting Custodial Account" means the Supporting Custodial Account
maintained by the Custodian pursuant to the terms of the Custody Agreement.
"Supporting Distribution Account" means the Supporting Distribution Account
created and maintained pursuant to Section 6.02.
8
<PAGE>
"Tax Matters Partner" has the meaning specified in Section 5.03(a).
"Transfer" means any direct or indirect transfer, sale, or other assignment
of any Trust Certificate or of any interest therein, as the context requires.
"Transferee" means any Person that is acquiring by Transfer any Trust
Certificate.
"Trust" means the trust established by this Agreement.
"Trust-BLB-Integrity Agreement" means the Agreement dated the date hereof,
among the Trust, BLB and the Issuer.
"Trust Certificate" means either a Class A Trust Certificate or a Class B
Trust Certificate.
"Trust Certificate Account" means the trust accounts created and maintained
pursuant to Section 6.02.
"Trust Certificate Register" means the register maintained pursuant to
Section 3.05(a).
"Trust Expenses" means any expenses incurred in administering the Trust,
including, without limitation, fees and expenses of the Trustee.
"Trust Liabilities" means any and all costs, expenses or liabilities of the
Trust, including, without limitation, Trust Expenses and Extraordinary Expenses.
"Trust Property" means all right, title and interest of the Trust in and to
any and all property acquired by the Trust, including, without limitation,
proceeds from the sale of Trust Certificates by the Dealer, any Financial
Instrument acquired with such cash proceeds, the Trust Certificate Accounts,
amounts payable to the Trust by the Dealer pursuant to the Purchase Agreement
and all proceeds directly or indirectly derived from any of the foregoing.
"Trustee" means The Bank of New York, not in its individual capacity but
solely as trustee under this Agreement, and any successor trustee hereunder.
"Trust's Agent" means, with respect to particular obligations and duties
under this Agreement, Bayerische Landesbank Girozentrale, New York Branch
(or any successor thereto), which has agreed to perform such obligations and
duties as agent for the Trust pursuant to the Agency Agreement.
"Virginia Custodian" means Signet Trust Company, a subsidiary trust company
organized under the laws of The Commonwealth of Virginia.
9
<PAGE>
"Virginia Custody Agreement" means the Virginia Custody Agreement, dated as
of the date hereof, between the Virginia Custodian and the Trust pursuant to
which the Virginia Custodian will hold the Financial Instrument on behalf of the
Trust.
ARTICLE II
ORGANIZATION
2.01. NAME. The name of the Trust shall be the name set forth in Schedule
1, in which name the Trustee may engage in transactions contemplated hereby;
make and execute contracts and other instruments; acquire the Financial
Instrument; sue and be sued; and enter into such other transactions and take
such other actions as are necessary or desirable in carrying out the provisions
hereof.
2.02. OFFICE. The office of the Trust shall be in care of the Trustee, at
the address set forth in Section 11.04 or at such other address as the Trustee
may designate by notice to Holders.
2.03. PURPOSE AND POWERS. The purposes for which the Trust is created and
established are (a) to acquire and hold the Trust Property, (b) to issue the two
classes of Trust Certificates, and (c) to enter into the Purchase Agreement,
each Remarketing Agreement, the Custody Agreement, the Liquidity Agreement, the
Market Agent Agreement, the Virginia Custody Agreement and the Agency Agreement,
as the case may be. After the date of issuance of the Trust Certificates on the
Closing Date, the Trust will not issue additional Trust Certificates or purchase
or otherwise acquire any additional financial instruments and will not dispose
of the Financial Instrument, except as described in the Supplement. The Trust
may agree to any proposed amendment to the Financial Instrument, the Purchase
Agreement, any Remarketing Agreement, the Custody Agreement, the Liquidity
Agreement, the Market Agent Agreement, the Virginia Custody Agreement and the
Agency Agreement provided that the Trust has first sought and obtained the
approval of BLB and that the Rating Agencies Condition shall have been met with
respect to such amendment. The Trust shall not have power to perform any act or
engage in any business whatsoever except for the foregoing and any activity
reasonably incidental thereto or appropriate therefor. The primary investment to
be made by the Trust is the Financial Instrument; PROVIDED that the Trust may in
no event make investments other than in the Financial Instrument and Eligible
Investments.
2.04. APPOINTMENT OF THE TRUSTEE. By this Declaration of Trust and Trust
Agreement, and effective as of the date hereof, (a) the Owners, by their
acquisition of Trust Certificates, directly or from the Dealer, do agree to the
terms and conditions of this Agreement, become a party hereto and appoint the
Trustee to act on their behalf hereunder with all the rights, powers and duties
set forth herein, and (b) the Trustee does hereby declare and agree that it
shall act as Trustee in accordance with the terms of this Agreement
10
<PAGE>
and hold and employ Trust Property in accordance with the terms hereof and, in
furtherance thereof, does hereby acknowledge that it shall acquire the Financial
Instrument on behalf of the Trust. The Bank accepts its appointment as Trustee
of the Trust. The Trustee acknowledges receipt in trust from the Dealer, as of
the date hereof, of the respective amounts of net proceeds set forth in Schedule
1 received in cash in connection with the sale of Class A Trust Certificates to
the Dealer and the sale of Class B Trust Certificates to a branch of Bayerische
Landesbank Girozentrale. The Trustee has applied all such cash on this date to
the acquisition of the Financial Instrument. The two classes of Trust
Certificates evidence all of the beneficial interest in the Trust.
2.05. DECLARATION OF TRUST. The Trustee hereby declares that it will hold
the Trust Property upon the trusts set forth herein and for the use and benefit
of the Holders. It is the intention of the parties hereto that the Trust
constitute a business trust under Title 12 of the Delaware Code, Chapter 38 and
that this Agreement constitute the governing instrument of the Trust.
Simultaneously with the execution and delivery of this Declaration, the Trustee
shall enter into the Co-Trustee Agreement with the Delaware Trustee, and the
Co-Trustee Agreement is hereby incorporated herein by reference thereto as part
of the governing instrument of the Trust. The Trustee and the Delaware Trustee
shall file a certificate of trust with the Secretary of State of the State of
Delaware pursuant to 12 Del. C. Section 3810.
2.06. TRUST OBLIGATIONS.
(a) All Trust Liabilities, to the extent not paid by BLB or any other
third party, and other than initial fees and expenses related to the
establishment of the Trust and the issuance of the Trust Certificates, which the
Initial Purchaser has agreed to pay (subject to reimbursement by the purchaser
of the Class B Trust Certificates) pursuant to the Purchase Agreement, are, and
shall be, obligations of the Trust and when due and payable shall be satisfied
out of the assets of the Trust in accordance with Article VIII. In no event may
amounts due under the Trust Certificates be paid by any third party.
(b) No Holder shall be personally liable for any Trust Liability.
2.07. TAX TREATMENT; CONSTRUCTION. It is the intention of the Trustee and
the Owners, and the Trustee and the Owners agree, that the Trust will be treated
as a partnership for federal income tax purposes. The Trustee and the Holders
agree that the Trustee shall take such actions or cause the Trust's Agent to
take such actions as to cause the Trust to be treated as a partnership under
Treasury Regulations Section 301.7701-1 through -3. The provisions of this
Agreement shall be construed, and the affairs of the Trust shall be conducted,
so as to achieve treatment of the Trust as a partnership for federal income tax
purposes. The Trustee and the Holders agree that the Trust shall be excluded
from the application of Subchapter K of the Code beginning with the first
taxable year of the Trust, consent to, and agree to take or cause to be taken
any action necessary at the reasonable request of the Trust's Agent to enable
the Tax Matters Partner to make an election under Code Section 761(a) to exclude
the Trust from the application of Subchapter K of the Code,
11
<PAGE>
and agree to report their respective shares of the items of income, deduction
and credits of the Trust on their returns (making such elections as to
individual items as may be appropriate) in a manner consistent with the
exclusion of the Trust from Subchapter K of the Code beginning with the first
taxable year of the Trust. The Trustee and the Holders agree to take any action
or cause the Trust's Agent to take any action necessary to prevent the Trust
from constituting a "publicly traded partnership" taxable as a corporation under
Section 7704(a) of the Code.
2.08. SALE. The parties hereto agree and intend that the transfer to the
Trust of the Financial Instrument shall be a sale and purchase by the Trust and
not a loan or a pledge to secure a loan. If for any reason such transfer is
deemed to be a loan or a pledge to secure a loan, the parties intend that this
Agreement shall be a security agreement pursuant to which there shall be deemed
to have been granted to the Trust a security interest in all right, title and
interest in the Financial Instrument and all proceeds of any of the foregoing.
If the Trust terminates prior to the satisfaction of the claims of any Holder
under any Trust Certificate, the security interest created hereby shall continue
in full force and effect and the Trustee shall be deemed to be the collateral
agent for the benefit of such Holder subject to the terms of this Agreement. The
Trustee shall have no duty to determine whether any filing or recording of any
document or instrument is necessary in connection with the grant of a security
interest hereunder.
ARTICLE III
ISSUANCE, OWNERSHIP AND TRANSFER OF TRUST CERTIFICATES
3.01. THE TRUST CERTIFICATES.
(a) The Certificates evidencing an interest in Class A Trust
Certificates or Class B Trust Certificates shall be substantially in the forms
annexed hereto as Exhibits A-1 and A-2, respectively, with such immaterial
changes as the Trustee deems appropriate, and, on original issue, shall be
executed by manual signature by the Trustee by any one of its President, Vice
President, Secretary or other duly authorized officer and shall generally be
issued in the name of the relevant Holder, unless otherwise arranged with the
Dealer. Upon receipt of direction from the Initial Purchaser as to the name of
the initial Holders, the Trust shall execute the Trust Certificates.
(b) The minimum denomination of each Trust Certificate issued on the
Closing Date shall be as set forth in Schedule 1, and Trust Certificates may be
issued in integral amounts in excess thereof as set forth in Schedule 1. The
minimum aggregate principal amount of Trust Certificates that may be owned by
any Beneficial Owner or Holder shall be $5,000,000 and integral multiples of
$100,000 in excess thereof, or such other minimum denominations as are set forth
in Schedule 1. No Trust Certificates will be issued by the Trust after the
Closing Date except pursuant to Section 3.05.
12
<PAGE>
(c) No Trust Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless the Certificate evidencing such
Trust Certificate has been manually executed by a duly authorized officer of the
Trustee, and such signature upon any Certificate shall be conclusive evidence,
and the only evidence, that such Certificate has been duly executed and
delivered hereunder. All Certificates shall be dated the date of their
execution.
(d) The Trustee may cause Trust Certificates to be issued in
registered form through a clearing agency.
(e) A Person shall be entitled to the rights and subject to the
obligations of a Holder hereunder upon such Person's acceptance of a Trust
Certificate duly registered in such Person's name pursuant to Section 3.05.
3.02. FORM AND DATING.
(a) The Trust Certificates and the Trustee's certificate of
authentication shall be substantially in the forms of Exhibits A-1 and A-2 which
are hereby incorporated in and expressly made a part of this Agreement.
Certificates representing the Trust Certificates may be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Trust, as evidenced by the execution thereof by the Trustee. The Trust
Certificates may have letters, "CUSIP" or other numbers, notations or other
marks of identification or designation and such legends or endorsements required
by law, stock exchange rule, agreements to which the Trust is subject, if any,
or usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Trustee, as evidenced by its execution thereof). The Trust at
the direction of the Dealer shall furnish any such legend not contained in the
applicable Exhibit to the Trustee in writing. Each Trust Certificate shall be
dated the date of its authentication. The forms of Trust Certificates set forth
in Exhibits A-1 and A-2 are part of the terms of this Agreement, and, to the
extent applicable, the Trustee, by its execution and delivery of this Agreement,
expressly agrees to such terms and provisions and to be bound thereby.
(b) Class A Trust Certificates are offered and sold to Qualified
Institutional Buyers in reliance on Rule 144A, as provided in the Purchase
Agreement, shall be issued in the form of permanent global Trust Certificates in
definitive, fully registered form without distribution coupons with the
appropriate global legends set forth in Exhibit A-1 hereto (the "Global Trust
Certificates"), which shall be deposited on behalf of the purchasers of the
Trust Certificates represented thereby with the Clearing Agency or to such other
Person as the Clearing Agency shall name for such purpose or with the Trustee,
as custodian for the clearing agency, and registered in the name of the Clearing
Agency or a nominee of the Clearing Agency, duly executed by the Trust and
authenticated by the Trustee as hereinafter provided. The number of Trust
Certificates represented by a Global Trust Certificate may from time to time be
increased or decreased by adjustments made on the records of the Trustee and the
Clearing Agency or its nominee as hereinafter provided.
13
<PAGE>
(c)(i) This Section 3.02(c) shall apply only to Global Trust
Certificates and such other Trust Certificates in global form as may be
authorized by the Trust to be deposited with or on behalf of the Clearing
Agency.
(ii) On the Closing Date, the Trustee shall execute and make
available for delivery (in addition to the one or more physical
certificates executed and made available for delivery representing $50
million of Class B Trust Certificates) initially three Global Trust
Certificates, representing the Class A Trust Certificates in the amounts of
$200 million, $200 million, and $50 million, respectively, that (x) shall
be registered in the name of Cede & Co. or other nominee of such Clearing
Agency and (y) shall be delivered by the Trustee to such Clearing Agency or
pursuant to such Clearing Agency's written instructions or held by the
Trustee as custodian for the Clearing Agency.
(iii) Members of, or participants in, the Clearing Agency
("Participants") shall have no rights under this Agreement with respect to
the Global Trust Certificates held on their behalf by the Clearing Agency
or by the Trustee as the custodian of the Clearing Agency or under such
Global Trust Certficates, and the Clearing Agency may be treated by the
Trust, the Trustee and any agent of THE Trust or the Trustee as the
absolute owner of a Global Trust Certificate for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Trustee or any agent of the Trust or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the
Clearing Agency or impair, as between the Clearing Agency and its
Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest
in a Global Trust Certificate.
(d) Except as provided in Section 3.02(g), owners of beneficial
interests in a Global Trust Certificate will not be entitled to receive physical
delivery of certificated Trust Certificates ("Certificates").
(e) The minimum denomination of each Trust Certificate issued on the
Closing Date shall be as set forth in Schedule 1 hereto and Trust Certificates
may be issued in integral amounts in excess thereof as set forth in Schedule 1
hereto. No Trust Certificates will be issued by the Trust after the Closing Date
except pursuant to Sections 3.02 and 3.05.
(f) No Trust Certificate evidenced by a Certificate shall be entitled
to any benefit under this Agreement, or be valid for any purpose, unless the
Certificate evidencing such Trust Certificate has been manually executed by a
duly authorized officer of the Trustee, and such signature upon any Certificate
shall be conclusive evidence, and the only evidence, that such Certificate has
been duly executed and delivered hereunder. All Certificates shall be dated the
date of their execution.
14
<PAGE>
(g) (i) If at any time DTC notifies the Trustee that it is unwilling
or unable to continue as depositary for any Global Trust Certificate or ceases
to be a "Clearing Agency" registered under the Exchange Act, the Trustee will
issue Certificates for interest in the Global Trust Certificates in definitive,
fully registered non-global form without interest coupons in exchange for the
Trust Certificates. In addition, upon request, the Trustee will issue
Certificates in exchange for interests in the Global Trust Certificates upon 20
days' prior written notice given to the Trustee in accordance with DTCs
customary procedures. Upon receipt of such notice, the Trustee will cause the
requested Certificates to be prepared for delivery. Certificates will be
registered in the name and issued in any approved denominations requested by DTC
in accordance with its customary procedures.
(ii) At any time and from time to time with the approval of the
Trustee in consultation with the Trust's Agent, in their sole discretion, the
Trustee may issue Certificates in definitive, fully registered non-global form
without interest coupons in exchange for interests in the Global Trust
Certificates to one or more Beneficial Owners of such interests.
3.03. PERSONS DEEMED HOLDERS. The Trustee may treat the Person in whose
name any Trust Certificate is registered as the owner of such Trust Certificate
for the purpose of receiving payments pursuant to Section 5.01 and for all other
purposes whatsoever, and the Trustee shall not be affected by notice to the
contrary.
3.04. ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES. If Holders (other
than BLB or any of its affiliates with respect to the Class A Trust
Certificates) of Trust Certificates evidencing aggregate Percentage Interests of
25% or more of either class of Trust Certificates (the "Applicants") apply in
writing to the Trustee, and such application states that the Applicants desire
to communicate with other Holders of such class with respect to their rights
under this Agreement, then the Trustee, within five Business Days after the
receipt of such application, shall afford such Applicants access during normal
business hours to the most recent list of Holders held by the Trustee. Every
Holder agrees with the Trustee that the Trustee shall not be held accountable by
reason of the disclosure of any such information as to the names and addresses
of the Holders hereunder, regardless of the source from which such information
was derived. To the extent permitted by law and this Trust Agreement, if the
Trustee becomes aware of the identity of any Beneficial Owner, the Trustee shall
keep such knowledge confidential.
3.05. TRANSFER PROCEDURES AND RESTRICTIONS.
(a) Transfer and Exchange of Certificates. The Trustee shall cause to
be kept at its Corporate Trust Office a Trust Certificate register (the "Trust
Certificate Register") in which, subject to such reasonable regulations as it
may prescribe, the Trustee shall provide for the registration of Trust
Certificates and of transfer and exchanges of Trust Certificates. When
Certificates are presented to the Trustee (x) to register the transfer of such
Certificates or (y) to exchange such Certificates which became mutilated,
destroyed,
15
<PAGE>
defaced, stolen or lost, for an equal number of Certificates of the same class
and the same aggregate denomination, the Trustee shall register the transfer or
make the exchange as requested if its reasonable requirements for such
transaction are met, and the Trustee shall execute and deliver to an Holder or
to the Clearing Agency, as the case may be, in the name of the designated
Transferee or Transferees, a Certificate of the same class and of a like
aggregate Percentage Interest; provided, however, that the Certificates
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Trust, duly executed by the Holder thereof or its attorney duly
authorized in writing accompanied by:
(1) if such Trust Certificates are being delivered to the Trustee
by an Holder for registration in the name of such Holder, without transfer,
a certification from such Holder to that effect; or
(2) if such Trust Certificates are being transferred: (i) a
certification from the transferor in a form substantially similar to the
"Assignment" attached to the Class A Global Trust Certificates or the Class
B Trust Certificates and (ii) if the Trustee so requests, evidence
reasonably satisfactory to the Trustee as to the compliance with the
restrictions set forth in the relevant legends.
(b) Transfer and Exchange of a Global Trust Certificate. Subject to
Section 3.09, the transfer and exchange of a Global Trust Certificate or
beneficial interests therein shall be effected through the Clearing Agency,
in accordance with this Agreement (including applicable restrictions on
transfer set forth herein, if any) and the procedures of the Clearing
Agency therefor.
(c) Transfer of a Beneficial Interest in a Global Trust Certificate
for a Certificate. Certificates issued in exchange for a beneficial
interest in a Global Trust Certificate in the event that DTC notifies the
Trustee that DTC is unwilling or unable to continue, as depositary for a
Global Trust Certificate or ceases to be a "Clearing Agency", shall be
registered in such names and in such authorized denominations as the
Clearing Agency, pursuant to instructions from its Participants or indirect
participants or otherwise, shall instruct the Trustee in writing. The
Trustee shall deliver such Trust Certificates to the Persons in whose names
such Trust Certificates are so registered in accordance with such
instructions of the Clearing Agency.
(d) Restrictions on Transfer and Exchange of the Global Trust
Certificate. Notwithstanding any other provisions of this Agreement, no
Global Trust Certificate may be transferred as a whole except by the
Clearing Agency to a nominee of the Clearing Agency or another nominee of
the Clearing Agency, or by the Clearing Agency or any such nominee to a
successor Clearing Agency or a nominee of such successor Clearing Agency.
(e) Cancellation or Adjustment of a Global Trust Certificate. At such
time as all beneficial interests in a Global Trust Certificate have either
been exchanged for
16
<PAGE>
Certificates to the extent permitted by this Agreement or redeemed, repurchased
or canceled in accordance with the terms of this Agreement, such Global Trust
Certificate shall be returned to the Clearing Agency for cancellation or
retained and cancelled by the Trustee. At any time prior to such cancellation,
if any beneficial interest in such Global Trust Certificate is exchanged for
Certificates, Trust Certificates represented by such Global Trust Certificate
shall be reduced and an adjustment shall be made on the books and records of the
Trustee (if it is then the custodian for such Global Trust Certificate) with
respect to such Global Trust Certificate to reflect such reduction.
(f) Obligations with Respect to Transfers and Exchanges of Trust
Certificates.
(1) To permit registrations of transfers and exchanges, the Trust
shall issue and the Trustee shall authenticate Certificates and Global
Trust Certificates in accordance with the terms of this Agreement.
(2) Registrations of transfers or exchanges will be effected
without charge, but only upon payment (with such indemnity as the
Trust may require) in respect of any tax or other governmental charge
that may be imposed in relation to such transfer or exchange.
(3) Prior to the due presentation for registration of transfer of
any Trust Certificate, the Trust, the Trustee and the Paying Agent may
deem and treat the Person in whose name a Trust Certificate is
registered as the absolute owner of such Trust Certificate for the
purpose of receiving payments on such Trust Certificate and for all
other purposes whatsoever, and none of the Trust, the Trustee, or the
Paying Agent, shall be affected by notice to the contrary.
(4) All Trust Certificates issued upon any registration of
transfer or exchange pursuant to the terms of this Agreement shall
evidence the same securities and shall be entitled to the same
benefits under this Agreement, as the Trust Certificates surrendered
upon such registration of transfer or exchange.
(g) No Obligation of the Trustee.
(1) The Trustee shall have no responsibility or obligation to any
Beneficial Owner of any Global Trust Certificate, any Participant in
the Clearing Agency or any other Person with respect to the accuracy
of the records of the Clearing Agency or its nominee or of any
Participant thereof, with respect to any ownership interest in the
Trust Certificates or with respect to the delivery to any Participant,
beneficial owner or other Person (other than the Clearing Agency) of
any notice or the payment of any amount, under or with respect to such
Trust Certificates. Except as otherwise indicated in this
17
<PAGE>
Trust Agreement, all notices and communications to be given to the
Holders and all payments to be made to Holders under the Trust
Certificates shall be given or made only to or upon the order of the
registered Holders (which shall be the Clearing Agency or its nominee
in the case of the Global Trust Certificates). The rights of
Beneficial Owners in the Global Trust Certificates shall be exercised
only through the Clearing Agency, subject to the applicable rules and
procedures of the Clearing Agency. The Trustee may conclusively rely,
and shall be fully protected in relying, upon information furnished by
the Clearing Agency or any agent thereof with respect to its
Participants and any Beneficial Owners.
(2) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on
transfer imposed under this Agreement or under applicable law with
respect to any transfer of any interest in any Trust Certificate
(including any transfers between or among Participants or beneficial
owners in a Global Trust Certificate) other than to require delivery
of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by,
the terms of this Agreement, and to examine the same to determine
substantial compliance as to form with the express requirements
hereof.
3.06. CUSIP NUMBERS. The Trust in issuing the Trust Certificates may use
"CUSIP" numbers (if then generally in use). The Dealer or Remarketing Agent will
promptly notify the Trustee of any change in the "CUSIP" numbers.
3.07. [Deliberately Omitted]
3.08. APPOINTMENT OF SUCCESSOR CLEARING AGENCY. If any Clearing Agency
elects to discontinue its services as securities depositary with respect to the
Class A Trust Certificates, the Trustee may appoint a successor Clearing Agency
with respect to such Trust Certificates.
3.09. RESTRICTION ON TRANSFERS. In addition to the restrictions set forth
in Sections 3.10 and 3.11, no transfer of a Trust Certificate shall be made
unless such transfer is exempt from the registration requirements of the
Securities Act and any applicable state securities laws and is made in
accordance with the Securities Act and such laws. The Trust and the Trust's
Agent shall cause the Trust Certificates to be eligible for transfer pursuant to
Rule 144A and deliver or cause to be delivered other information, as reasonably
available, upon request pursuant to Section (d)(4) of such Rule. The Beneficial
Owner or Holder desiring to effect any transfer shall, and does hereby agree to,
indemnify the Trustee against any liability that may result if the transfer is
not so exempt or is not made in accordance with such federal and state laws. The
Trustee shall be entitled to rely upon information relating to a beneficial
owner provided to it by the Initial Purchaser, the Liquidity Provider or the
Remarketing Agent, and shall not have a duty to verify any such information.
18
<PAGE>
3.10. ERISA RESTRICTIONS ON TRANSFERS. Trust Certificates shall not be
transferred and the Trustee shall not register any proposed transfer of Trust
Certificates unless the acquisition and holding of the relevant Trust
Certificates are in compliance with ERISA and the related provisions of the Code
and are permitted under the proposed Holder's or Beneficial Owner's constituent
documents and related policies.
3.11. PUBLICLY TRADED PARTNERSHIP RESTRICTION ON TRANSFERS. Transfers of
Trust Certificates shall be restricted so that, unless the Trustee has obtained
an Opinion of Counsel that the relevant transfer will not result in the Trust
being treated as a publicly traded partnership within the meaning of Section
7704(a) of the Code, (i) the Trust Certificates or interests in Trust
Certificates may not be or become tradeable on an "established securities
market" as defined in Treasury Regulation Section 1.7704-1(b), (ii) any transfer
that would result in there being more than 100 Beneficial Owners and Holders
shall be null and void, (iii) no Trust Certificate may be held by a Flow-Through
Entity and (iv) no Beneficial Owner or Holder shall hold less than $5 million
face amount of Class A Trust Certificates.
3.12. APPOINTMENT OF PAYING AGENT.
(a) The Trustee in consultation with the Trust's Agent may, but shall
not be obligated to, appoint a "Paying Agent" of the Trust for the purpose of
making distributions to Holders pursuant to Section 5.01. Any Paying Agent so
appointed or its parent company shall be either a bank or a trust company. In
the event of any such appointment, on or prior to each Distribution Date the
Trustee shall deposit or cause to be deposited with the Paying Agent, from
amounts in the Distribution Accounts, the amount required to be distributed
pursuant to Section 5.01 in respect of such Distribution Date, such amount to be
held in trust in Eligible Accounts for the benefit of Holders. Initially the
Trustee shall act as Paying Agent. Any Paying Agent appointed pursuant to this
Section 3.12(a) shall be rated at least investment grade with respect to its
long-term and short-term debt by the Rating Agencies.
(b) The Trust's Agent shall cause each Paying Agent (other than the
Trustee), if any, to execute and deliver to the Trust an instrument in which
such Paying Agent shall agree with the Trust that such Paying Agent is at all
times acting as agent for the Trust, such Paying Agent waives all rights of
set-off it may have with respect to the Trust, and such Paying Agent will hold
all amounts held by it for the payment to Holders, in trust, in Eligible
Accounts segregated from the general assets of the Bank for the benefit of the
Holders entitled thereto until such amounts shall be paid to such Holders. Any
fees payable to any such Paying Agent shall be deducted from the fees payable to
the Trustee in connection with this Trust.
(c) Any Paying Agent (other than the Trustee) appointed pursuant to
this Section 3.12 shall agree to give 30 days' prior written notice of its
intention to resign as Paying Agent to the Trustee. The Trustee may remove the
Paying Agent upon 30 days' prior written notice. Until a successor Paying Agent
has been appointed and assumed its duties, the Trustee shall assume the duties
of the Paying Agent.
19
<PAGE>
(d) Any Paying Agent appointed pursuant to this Section 3.12 shall
agree that at no time shall funds traceable to the Supporting Custodial Account
be commingled with funds traceable to the Main Distribution Account or be paid
to the Holder of a Class A Trust Certificate.
3.13. DEEMED AGREEMENTS AND REPRESENTATIONS. Each Beneficial Owner and
Holder shall be deemed to have agreed to the restrictions set forth in
Sections 3.09, 3.10, and 3.11 and to have made representations to the extent
necessary for such restrictions to be complied with, and the Trustee shall
have no duty to verify the accuracy of any such representations.
3.14. BOOK ENTRY INTERESTS.
The Global Trust Certificates shall initially be registered on the
books and records of the Trust in the name of Cede Co., the nominee of the
Clearing Agency, and no Beneficial Owner will receive a definitive certificate
for a Trust Certificate representing such Beneficial Owner's interests in such
Global Trust Certificate, except as provided in Section 3.02. Unless
definitive, fully registered Trust Certificates have been issued to the Trust
Certificate Beneficial Owners pursuant to Section 3.02:
(i) the provisions of this Section 3.14 shall be in full force and
effect;
(ii) the Trust and the Trustee shall be entitled to deal with the
Clearing Agency for all purposes of this Agreement (including the payment
of distributions on the Global Trust Certificates and receiving approvals,
votes or consents hereunder) as the Holder of the Class A Trust
Certificates and the sole holder of the Global Trust Certificates and shall
have no obligation to the Beneficial Owners;
(iii) to the extent that the provisions of this Section 3.14 conflict
with any other provisions of this Agreement, the provisions of this Section
3.14 shall control; and
(iv) the rights of the Beneficial Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by
law and agreements between such Beneficial Owners and the Clearing Agency
and/or the Participants and the Clearing Agency shall receive and transmit
payments of distributions on the Global Trust Certificate to such
Participants. DTC will make book entry transfers among the Participants.
20
<PAGE>
ARTICLE IV
THE TRUST'S AGENT
4.01. APPOINTMENT AS TRUST'S AGENT. Pursuant to the Agency Agreement,
Bayerische Landesbank Girozentrale, New York Branch shall act as agent for the
Trust (in such capacity, the "Trust's Agent") until such agent's resignation.
The Trustee may remove the Trust's Agent upon 30 days' prior written notice. The
Trustee shall endeavor to appoint a successor Trust's Agent upon any such
removal or resignation. The Trust's Agent shall not resign until a successor is
appointed and acting.
ARTICLE V
DISTRIBUTIONS AND REPORTS
5.01. PERIODIC PAYMENTS. Subject in all instances to the provisions of
Section 5.09 and Articles VIII and IX, on each Distribution Date the Trustee or
the Paying Agent, if any, acting in consultation with the Trust's Agent, shall
apply all of the funds in the Trust Certificate Accounts as set forth below:
(a) Distributions of the Scheduled Income Amounts in respect of each
class of Trust Certificates shall be paid in arrears in respect of each income
period described in Schedule 1 (a "Scheduled Income Period") with respect to
each such class of Trust Certificates. The first Scheduled Income Period with
respect to each class of Trust Certificates shall commence on the date set forth
in Schedule 1 with respect to such class of Trust Certificates and end on the
date set forth in Schedule 1 with respect to such class of Trust Certificates
(or the next day that is next succeeded by a Business Day, if such date is not
next succeeded by a Business Day); thereafter, Scheduled Income Periods with
respect to each class of Trust Certificates shall begin on the day next
succeeding the preceding Scheduled Income Period with respect to such class of
Trust Certificates and end on each date set forth in Schedule 1 with respect to
such class of Trust Certificates (or the next day that is next succeeded by a
Business Day, if such date is not next succeeded by a Business Day). The last
Scheduled Income Period with respect to each class of Trust Certificates shall
end on the date set forth in Schedule 1 with respect to such class of Trust
Certificates unless the Trust shall have been earlier terminated in accordance
with Article IX, in which case such Scheduled Income Period shall end on the
date of such termination. Scheduled Income Amounts with respect to each class of
Trust Certificates shall be paid on the relevant "Scheduled Income Payment Date"
with respect to such class of Trust Certificates which shall be the Business Day
on which the Trust has received distributions on the Financial Instrument with
respect to the relevant Scheduled Income Period.
(b) The "Scheduled Income Amount" in respect of each Class A Trust
Certificate for each Scheduled Income Period shall be an amount equal to such
Trust
21
<PAGE>
Certificate's Percentage Interest of the undistributed Class A Net Investment
Income for the Scheduled Income Period. The Scheduled Income Amount in respect
of each Class A Trust Certificate for each Scheduled Income Period shall only be
paid from distributions received from the Main Custodial Account. The "Scheduled
Income Amount" in respect of each Class B Trust Certificate for each Scheduled
Income Period shall be an amount equal to such Trust Certificate's Percentage
Interest of the undistributed Class B Net Investment Income for the Scheduled
Income Period.
(c) In the event that, following a Scheduled Income Payment Date and
prior to the next Scheduled Income Payment Date, the Trust receives amounts
allocable to either class of Trust Certificates arising from the payment of
overdue interest, or interest on overdue principal or interest, in connection
with the Financial Instrument, the Trustee, acting in consultation with the
Trust's Agent, shall distribute to the Holders the amount received by the
Trustee first, to Holders of the Class A Trust Certificates and second, after
all amounts due under the Class A Trust Certificates have been paid, to the
Holders of the Class B Trust Certificates and for such purpose may declare
"Additional Income Payment Dates" on which such sums (in this Section 5.01
referred to as "Additional Income Amounts") shall be payable. Any Additional
Income Payment Date shall be on or before the next succeeding Scheduled Income
Payment Date or Principal Payment Date, whichever first occurs. Any Additional
Income Amounts accruing after the Principal Payment Date shall be due and
payable immediately.
(d) Distributions of the Principal Amount payable with respect to
each class of Trust Certificate shall be payable only out of withdrawals,
principal or other final payments received in connection with the Financial
Instrument and/or any amounts received from payment at maturity of Eligible
Investments and shall be paid on a "Principal Payment Date" relating to the
Trust Certificates, which shall be the Business Day on which the Trust receives
a withdrawal, principal or other final payment under the Financial Instrument
(including, without limitation, a final payment under the Financial Instrument
resulting from the occurrence of an Early Certificate Maturity Event or an Early
Funding Agreement Termination Event under the Custody Agreement).
(e) The "Principal Amount" payable in respect of each Trust
Certificate of a given class in respect of the Principal Payment Date relating
to such class of Trust Certificates shall be such Trust Certificate's Percentage
Interest of such class' interest in the sum allocable to such class received by
the Trustee on the Principal Payment Date arising from withdrawals, principal or
other final payments under the Financial Instrument, (including, without
limitation, a final payment under the Financial Instrument resulting from the
occurrence of an Early Certificate Maturity Event or an Early Funding Agreement
Termination Event under the Custody Agreement) in all cases as allocable and
payable to the related class of Trust Certificates. The Principal Amount in
respect of each Class A Trust Certificate relating to the Principal Payment Date
shall only be paid from distributions received from the Main Custodial Account.
22
<PAGE>
(f) In the event that at any time the Trustee receives funds
allocable to either class of Trust Certificates arising from the payment of
overdue withdrawals, principal or other final payments under the Financial
Instrument, the Trustee shall distribute to the Holders the amount received by
the Trustee first, to Holders of the Class A Trust Certificates and second, to
the Holders of the Class B Trust Certificates and for such purpose shall declare
an "Additional Principal Payment Date" on which such sum (in this Section 5.01
referred to as "Additional Principal Amounts") shall be payable to the related
class of Trust Certificates. Any Additional Principal Payment Date shall be on
or before the next succeeding Scheduled Income Payment Date or Principal Payment
Date, whichever first occurs. Any Additional Principal Amounts accruing after
the final Principal Payment Date shall be due and payable immediately. If all
amounts due under the Class A Trust Certificates have been paid, any remaining
amount held by the Trust will be distributed pro rata to the Holders of the
Class B Trust Certificates. Payments of Scheduled Income Amounts, Principal
Amounts, Additional Income Amounts and Additional Principal Amounts will be made
as soon as practicable following receipt by the Trustee of funds allocable to
either class of Trust Certificates from the Custodian pursuant to the terms of
the Custody Agreement and the Funding Agreement.
(g) Payments of Scheduled Income Amounts, Principal Amounts,
Additional Income Amounts and Additional Principal Amounts in respect of a Trust
Certificate shall be paid to the person in whose name the Certificate evidencing
such Trust Certificate is registered on the relevant record date (the "Record
Date"). The relevant Record Date shall be (i) 15 calendar days prior to the
termination of the related Scheduled Income Period or the related Principal
Payment Date and (ii) 15 calendar days prior to the related Additional Income
Payment Date or the related Additional Principal Payment Date; PROVIDED that
notice of the establishment by the Trustee of any such Additional Income Payment
Date or Additional Principal Payment Date shall be provided to each then current
Holder at least 5 calendar days prior thereto or, if it is not possible to give
such notice at such time, then as soon as practicable.
(h) The Trustee may, whether or not expressly authorized so to do by
any provision of this Agreement, make from any distribution or other payment in
respect of any Trust Certificate or class of Trust Certificates such other
deductions as by law the Trustee is required or entitled to make in respect of
any taxes, charges or other assessments whatsoever (for example, assessments in
the nature of taxes), allocable to such Certificate or class.
(i) Distributions to Holders or either class of Holders shall be made
in accordance with the Percentage Interests of such Holders in the related class
evidenced by their Trust Certificates. Any final distribution of all Trust
Property to the Holders shall satisfy all obligations of the Trust to such
Holders.
5.02. TAX REPORTING. The Trustee shall file or cause to be filed federal
and state income tax returns and information statements as a partnership that is
excluded from the application of Subchapter K of the Code for each of its
taxable years. The taxable year of
23
<PAGE>
the Trust shall be its Fiscal Year or such other taxable year as may be required
under Section 706(b) of the Code. Within 90 days after the end of each of the
Trust's taxable years, the Trustee shall cause the Trust to provide to each
party that was a Holder at any time during such year an Internal Revenue Service
Form 1099 or Schedule K-1 (Form 1065), as appropriate, or any respective
successor schedule and supplemental or other information, if required or
permitted by law, to enable each party or Holder to file its federal and state
income tax returns. The Trustee is hereby authorized to retain accountants and
other financial experts in connection with any tax reporting or tax filing
required by the Trust whether under the Code or otherwise.
5.03. TAX MATTERS PARTNER.
(a) For purposes of Section 6231(a)(7) of the Code, the "Tax Matters
Partner" shall be the branch of Bayerische Landesbank Girozentrale that owns the
Class B Trust Certificates. The Tax Matters Partner, with the assistance of the
Trustee, shall use its best reasonable efforts to keep each Holder of a Class A
Trust Certificate fully informed of any inquiry, examination or proceeding.
(b) The Tax Matters Partner shall not make an election in accordance with
Section 754 of the Code.
5.04. DISTRIBUTION REPORTS. On each Distribution Date, if requested by any
Holder or its representative, the Trustee shall send to each such requesting
Holder or its representative a report (the "Distribution Report"), setting forth
the following information separated by applicable class of Trust Certificates as
and if appropriate:
(i) the amount of interest attributable to the Financial Instrument
being distributed to each class of Trust Certificates; and
(ii) the amount of withdrawal, principal or other final payment
attributable to the Financial Instrument being distributed to each class of
Trust Certificates.
5.05. FINANCIAL REPORTS. Within 90 days of termination of the Trust, the
Trustee shall distribute or cause to be distributed unaudited financial
statements of the Trust to the Holders prepared by accountants on behalf of the
Trust.
5.06. REMARKETING OF TRUST CERTIFICATES. The Remarketing Agent pursuant to
the Remarketing Agreement is required to act as remarketing agent with respect
to any Class A Trust Certificate with respect to which a Holder of a Class A
Trust Certificate has not exercised its right to extend the maturity of such
Certificate, in accordance with the terms set forth in the Supplement and the
Remarketing Agreement, and the Trustee shall act to enforce the Trust's rights
thereunder.
24
<PAGE>
5.07. PURCHASE OF TRUST CERTIFICATES BY LIQUIDITY PROVIDER. The Liquidity
Provider pursuant to the Liquidity Agreement is required to purchase Class A
Trust Certificates, in accordance with the terms set forth in the Supplement and
the Liquidity Agreement, and the Trustee shall act to enforce the Trust's rights
thereunder.
5.08. RIGHT TO EXTEND THE MATURITY OF TRUST CERTIFICATES. If, and only if,
and to the extent so permitted by the Supplement, each Holder of Class A Trust
Certificates shall have the right, upon written notice delivered to the Trustee,
to extend the maturity of any Class A Trust Certificates held by such Holders
pursuant to and in accordance with the terms set forth in the Supplement. The
maturity of all Class B Trust Certificates will automatically extend in
conjunction with extensions of Class A Trust Certificates. The maturity date
(including any extensions thereof) of the Class B Trust Certificates shall
always be the same as that of the Class A Trust Certificates. The Trustee shall
notify each such Holder of such rights.
5.09. SUBORDINATION OF THE CLASS B TRUST CERTIFICATES. With respect to any
distribution of Trust assets to Holders pursuant to any provision of this
Agreement (including, without limitation, any provision of Section 5.01 and any
provision of Section 9.01), if there is a payment shortfall, such distribution
will be made first to the Holders of Class A Trust Certificates and second,
after the Holders of the Class A Trust Certificates have received all amounts
due and payable through the relevant Distribution Date, to the Holders of Class
B Trust Certificates. If, at any time Trust assets have been paid to Holders of
Class B Trust Certificates, any Holder of a Class A Trust Certificate (a "Class
A Holder") has not been paid all interest and principal then owing on such
Certificate (the amount of such interest and principal not yet paid being the
"Class A Deficit") and there are no Trust assets then existing that are able to
be paid to such Class A Holder under the terms of this Agreement, the Holders of
Class B Certificates on a pro rata basis, in proportion to the principal amount
of Class B Trust Certificates held by them, shall pay to such Class A Holder the
Class A Deficit.
5. 10. ALLOCATIONS FOR PARTNERSHIP TAX PURPOSES. For United States federal
income tax purposes, holders of the Class A Trust Certificates will be allocated
their pro rata share of the Class A Net Investment Income. Any remaining income
of the Trust and expenses of the Trust will be allocated to the holders of the
Class B Trust Certificates.
ARTICLE VI
DUTIES AND AUTHORITY OF THE TRUSTEE
6.01. IN GENERAL. It shall be the duty of the Trustee:
(a) to establish and maintain the Trust Certificate Account, to cause
to be deposited, either directly or as promptly as practicable upon its receipt,
into the Trust
25
<PAGE>
Certificate Account all amounts received by it on the Trust Property, and to
make demand for any distributions on the Financial Instrument that are not
timely made in accordance with the terms thereof, in accordance with the terms
thereof and of this Agreement as determined by the Trustee in consultation with
the Trust's Agent;
(b) to discharge (or cause to be discharged) all responsibilities
assigned to it pursuant to the terms of this Agreement and to enforce this
Agreement if and when required;
(c) to enter into the Agency Agreement and to appoint with due care a
successor Trust's Agent, if necessary, in accordance with the terms of the
Agency Agreement;
(d) to furnish to the Trust's Agent, promptly upon receipt thereof,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished by or to the Trustee
hereunder;
(e) in the event of dissolution of the Trust, prepare, sign and file
with the Secretary of State of the State of Delaware the certificate of
cancellation;
(f) to hold the Trust Property and administer the Trust in the
interest of the Holders, in accordance with the express purpose and powers of
the Trust and the provisions of this Agreement;
(g) to acquire the Financial Instrument, as summarized in the
Supplement, and to enter into the Purchase Agreement, each Remarketing
Agreement, the Agency Agreement, the Liquidity Agreement, the Market Agent
Agreement, the Virginia Custody Agreement and the Custody Agreement, and to
perform its obligations thereunder, as summarized in the Supplement;
(h) to exercise the Trust's rights under the Financial Instrument, as
summarized in the Supplement; and
(i) to make, or cause the Paying Agent, if any, to make,
distributions to Holders or a class of Holders pursuant to Section 5.01.
The Trustee is hereby authorized:
(1) to employ in good faith consultants, accountants, attorneys
and expert persons, employ or contract for clerical and other
administrative assistance, delegate to agents and employees any matter
whether ministerial or discretionary, and act through such agents and
employees and shall not be responsible for any misconduct or negligence on
the part of any of the foregoing as long as they were appointed with due
care;
26
<PAGE>
(2) to enforce the Purchase Agreement, the Market Agent
Agreement, the Agency Agreement, the Liquidity Agreement, the Custody
Agreement, the Virginia Custody Agreement, each Remarketing Agreement, and
any other agreement for the benefit of the Trust;
(3) to take any actions incidental to the foregoing as the
Trustee may from time to time determine are necessary or advisable to
protect and conserve the Trust Property for the benefit of the Holders as a
whole (without consideration of the effect of any such action on either
class of Trust Certificates or on any particular Holders); and
(4) to preserve the status of the Trust as a partnership for
federal income tax purposes and to prevent the Trust from constituting a
"publicly traded partnership" taxable as a corporation under Section
7704(a) of the Code.
6.02. ESTABLISHMENT OF AND DEPOSITS IN TRUST CERTIFICATE ACCOUNTS.
(a) On or before the Closing Date, the Trustee shall or shall have
caused the Paying Agent to establish, and thereafter shall or shall cause the
Paying Agent to maintain, "Trust Certificate Accounts" which are Eligible
Accounts, in the form of segregated fiduciary trust accounts, each with a title
referencing the name of the Trust. The Trust Certificate Accounts shall consist
of a Main Collection Account (the "Main Collection Account"), a Supporting
Collection Account (the "Supporting Collection Account"; together with the Main
Collection Account, the "Collection Accounts"), a Main Distribution Account (the
"Main Distribution Account") and a Supporting Distribution Account (the
"Supporting Distribution Account"; together with the Main Distribution Account,
the "Distribution Accounts"). All funds received by the Trust shall be initially
held in the respective Collection Accounts and the expenses payable hereunder
shall be paid from the respective Collection Accounts. There shall be
transferred to the respective Distribution Accounts all amounts to be
distributed to Holders on or prior to each Distribution Date. Unless a Paying
Agent has been appointed pursuant to Section 3.12, the Trustee shall make
distributions from the respective Distribution Accounts to Holders pursuant to
Section 5.01. If a Paying Agent has been appointed, then the Trustee shall
deposit with the Paying Agent from the respective Distribution Accounts the
amounts required to be distributed to Holders pursuant to Section 5.01 with
instructions not to commingle the funds from the Distribution Account and to pay
Holders of Class A Trust Certificates only from the funds from the Main
Distribution Account. The Trustee shall use reasonable best efforts to invest
moneys in the Collection Accounts on behalf of the Trust in Eligible Investments
selected by the Trustee in consultation with the Trust's Agent, which shall
mature not later than the Business Day immediately preceding the Distribution
Date next following the date of such investment at which time such moneys shall
be distributed to Holders in accordance with Section 5.01 (except that, if such
Eligible Investment is an obligation of the institution that maintains the
Collection Accounts, then such Eligible Investments shall mature not later than
such Distribution Date). Eligible Investments acquired with moneys from the
Supporting
27
<PAGE>
Collection Account shall be held separately from, and not commingled with,
Eligible Investments acquired with moneys from the Main Collection Account. All
such Eligible Investments shall be made in the name of the Trust and identified
as acquired for the Main Collection Account or the Supporting Collection
Account, as the case may be. The Trustee in consultation with the Trust's Agent
shall select obligations for the investment of the Collection Accounts from
among Eligible Investments. If an account ceases to meet the requirements of an
Eligible Account as specified in the definition thereof, the Trustee or the
Paying Agent shall cause all moneys in such account to be withdrawn and invested
or deposited in an Eligible Account, within five Business Days of the Trustee's
actual knowledge or receipt of written notice of the occurrence of such
account's ceasing to meet such requirements. All net income and gain realized
from any such investments shall be added to the Collection Accounts. The Trustee
shall have no liability for any loss on investments made hereunder.
(b) The Trustee shall cause to be deposited in the Collection
Accounts, directly or upon receipt, all distributions on the Financial
Instrument received from the Custodian under the Custody Agreement. The Main
Collection Account shall only receive distributions on the Financial Instrument
that are received from the Main Custodial Account established under the Custody
Agreement. Amounts deposited in the Main Collection Account shall be transferred
to the Main Distribution Account when required to make distributions to the
Holders. The Supporting Collection Account shall only receive distributions on
the Financial Instrument that are received from the Supporting Custodial Account
established under the Custody Agreement. Amounts deposited in the Supporting
Collection Account shall be transferred to the Supporting Distribution Account
when required to make distributions to the Holders of the Class B Trust
Certificates. Amounts in the Supporting Collection Account and the Supporting
Distribution Account shall be held separately from, and not commingled with,
amounts in the Main Collection Account or the Main Distribution Account.
(c) The Trustee in consultation with the Trust's Agent shall from
time to time apply amounts in the Collection Accounts to the payment of Trust
Liabilities in accordance with Article VIII hereunder.
6.03. NO DUTIES EXCEPT AS SPECIFIED IN AGREEMENT OR INSTRUCTIONS; DISCHARGE
OF LIENS BY BANK; PERMISSIBLE INDEMNITIES; TENDER, CONVERSION AND DEFAULT UNDER
THE FINANCIAL INSTRUMENT.
(a) The Trustee shall not have any duty or obligation to manage, make
any payment in respect of, register, record, sell, dispose of or otherwise deal
with the Financial Instrument or any other part of the Trust Property, or
otherwise take or refrain from taking any action under, or in connection with,
any document contemplated hereby to which the Trustee is a party, except as
expressly provided by the terms of this Agreement, and no implied duties or
obligations of the Trustee shall be read into this Agreement. Notwithstanding
the foregoing, the Bank agrees that it will, at its own cost and expense,
28
<PAGE>
promptly take all action necessary to discharge any liens on any part of the
Trust Property or the Financial Instrument which are attributable to actions by
or claims against the Bank that are not related to the ownership of the
Financial Instrument or any other part of the Trust Property, or the
administration of the Trust Property.
(b) In connection with the purchase, sale or management of or any
other dealing with Trust Property, the Trustee may, if in the determination of
the Trustee it would, on the advice of an Opinion of Counsel, be to the benefit
of the Trust or the Holders, without the consent of Required Holders, enter into
or give such form of written agreement, indemnity, warranty or undertaking as
may be required to obtain the successful completion of that transaction;
PROVIDED that such agreement, indemnity, warranty or undertaking is considered
necessary and advisable having regard to all the relevant circumstances.
(c) The Trustee may, if, in the determination of the Trustee on the
advice of an Opinion of Counsel, it would be to the benefit of the Trust or the
Holders and necessary to preserve or protect the interest or rights of the Trust
in any Trust Property, without the consent of Required Holders, promote, or join
in, approve, acquiesce in, concur or agree to or carry into effect any scheme,
proposal or offer for or leading to the alteration of the rights attached to any
Trust Property but, notwithstanding the foregoing, the Trustee may not exercise
any conversion rights attaching to the Financial Instrument. The Trustee may not
modify or terminate the Purchase Agreement, the Agency Agreement, any
Remarketing Agreement, the Liquidity Agreement, the Custody Agreement, the
Virginia Custody Agreement or any Paying Agency Agreement except in accordance
with its respective terms and in accordance with Section 2.03 and the provisions
of the Supplement and except as approved by the Trust's Agent. The Trustee may,
in the exercise of these powers, enter into or give such form of agreement,
indemnity, warranty or undertaking (subject to Section 6.03(b)) as is required
in these circumstances. Without limiting the generality of the foregoing, in the
event of an event of default with respect to the Financial Instrument, any
Remarketing Agreement, the Liquidity Agreement, the Virginia Custody Agreement
or the Custody Agreement, the Trustee may, but is not obligated to, on the
advice of an Opinion of Counsel, take any action which the Trustee believes, in
its discretion, is in the interest of the Holders representing a Majority
Interest of the Holders. If and to the extent the Trustee in consultation with
the Trust's Agent proposes to take any legal action or other extraordinary
action hereunder, in determining whether to take such action the Trustee shall
weigh the costs of such action against the prospective benefits to the Trust of
such action.
6.04. NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR INSTRUCTIONS. The
Trustee agrees that it will not manage, control, use, sell, dispose of or
otherwise deal with the Financial Instrument or any other part of the Trust
Property except in accordance with the express terms hereof. Nothing in this
Agreement shall be construed so as to give the Trustee the power to "vary the
investment", as that term is defined in the Code, of the Holders.
6.05. NO DIRECTION BY HOLDERS. The Holders shall have no right to direct
the Trustee in the management of the Trust. The Trustee shall act, or refrain
from acting, in
29
<PAGE>
accordance with this Agreement without instructions from the Holders; PROVIDED
that the Trustee shall not be required to take or refrain from taking any action
if the Trustee shall reasonably determine that such action (i) is likely to
result in liability on the part of the Trustee for which adequate indemnity is
not reasonably assured, (ii) is contrary to the terms hereof or of any document
contemplated hereby to which the Trustee is a party or by which it is bound, or
(iii) is contrary to applicable law, and the Trustee gives notice of its
determination to the Holders.
6.06. LIMITATION ON ACTIONS OF HOLDERS. Except as otherwise required by
applicable law, no Holder shall have any right to bring an action in the right
of the Trust except in accordance with Section 3816 of the Delaware Business
Trust Act. A Holder's right to bring a derivative action is subject to the
requirement that Holders owning Trust Certificates aggregating at least 51% in
Percentage Interest join in the bringing of such derivative action. In addition,
no Holder of a Class B Trust Certificate may bring any bankruptcy, insolvency or
other similar proceeding against the Trust.
ARTICLE VII
THE TRUSTEE
7.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Trustee accepts the trusts
hereby created and agrees to perform the same but only upon the terms of this
Agreement. The Trustee also agrees to disburse all moneys actually received by
it constituting part of the Trust Property upon the terms of this Agreement. The
Trustee shall not be liable under this Agreement under any circumstances, except
(a) for its own willful misconduct or negligence, (b) in the case of the
inaccuracy of any representation or warranty contained in Section 7.02, (c) for
liabilities arising from the failure by the Bank to perform obligations
expressly undertaken by it in the last sentence of Section 6.03(a), (d) for any
investment made by the Trustee with the Bank in its commercial capacity or (e)
for taxes, fees or other charges on, based on or measured by any fees,
commissions or compensation received by the Bank in connection with any of the
transactions contemplated by this Agreement. In particular, but not by way of
limitation:
(i) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer;
(ii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by the Trustee in good faith in accordance with the
instructions of the Holders;
(iii) no provision of this Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of the Trustee's rights or powers hereunder, if the
Trustee shall have reasonable
30
<PAGE>
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured or provided to it;
(iv) under no circumstance shall the Trustee be liable for
distributions due on the Trust Certificates;
(v) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by the Trust's Agent under the Agency Agreement or
any other agreement, any Calculation Agent described in the Supplement, or
any Paying Agent hereunder if performed by a party other than the Trustee,
and the Trustee shall not be liable for performing any obligations or
duties under this Agreement which are to be performed by the Trust's Agent
under the Agency Agreement, or any Calculation Agent described in the
Supplement, or Paying Agent hereunder or any other agreement;
(vi) the Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Agreement or the form, character,
genuineness, sufficiency, value or validity of the Financial Instrument.
The Trustee shall in no event assume or incur any liability, duty or
obligation to any Holder, other than as expressly provided for herein;
(vii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Agreement; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Agreement (but need not confirm or
investigate the accuracy of mathematical calculations or other facts stated
therein); and
(viii) the Trustee shall not be deemed to have notice of any default
or event of default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact
such a default is received by the Trustee at the Corporate Trust Office of
the Trustee, and such notice references the Trust Certificates and this
Agreement.
7.02. REPRESENTATIONS AND WARRANTIES.
(a) The Bank hereby represents and warrants to the Dealer, and for
the benefit of the Holders, that:
(i) as applicable, it has been duly incorporated and is validly
existing as a banking corporation in good standing under the laws of the
State of New York and it
31
<PAGE>
holds all corporate power and all material franchises, grants,
authorizations, consents, orders and approvals from all governmental
authorities necessary under the laws of the State of New York to carry on
its trust business as now conducted;
(ii) the execution, delivery and performance by the Bank (as Trustee)
of this Agreement, the Agency Agreement, each Remarketing Agreement, the
Liquidity Agreement, the Custody Agreement, the Market Agent Agreement, the
Virginia Custody Agreement and the Purchase Agreement, and the execution of
the Trust Certificates by the Bank (as Trustee) pursuant to this Agreement,
are within the corporate power of the Bank, have been or will have been
duly authorized by all necessary corporate action on the part of the Bank
(no action by its shareholders being required) and do not and will not (A)
violate or contravene any judgment, decree or order binding on the Bank,
(B) conflict with or result in a breach of, or constitute a default under,
any provision of the articles of incorporation or by-laws of the Bank or of
any material agreement, contract, mortgage or other instrument binding on
the Bank or (C) result in the creation or imposition of any lien, charge or
encumbrance on the Trust Property resulting from actions by or claims
against the Bank except as expressly contemplated by this Agreement;
(b) The Trust (and not the Trustee) hereby represents and warrants to
the Dealer, and for the benefit of the Holders, that:
(i) no consent, approval, authorization or order of, or filing with,
any court or regulatory, supervisory or governmental agency or body is
required under New York law by or for the Trust in connection with (A) the
execution, delivery and performance by the Trustee of this Agreement or the
execution, delivery and performance by the Trustee of the Agency Agreement,
any Remarketing Agreement, the Liquidity Agreement, the Custody Agreement,
the Market Agent Agreement, the Virginia Custody Agreement, the Indemnity
Agreement and the Purchase Agreement, (B) the issuance of the Trust
Certificates by the Trustee pursuant to this Agreement or (C) the
consummation by the Trustee of the Trustee of the transactions contemplated
hereby (except as may be required by state or federal securities laws and
under 12 Del. C. Section 3810); and
(ii) this Agreement has been executed and delivered by the Trustee,
which is duly authorized to execute and deliver such document in such
capacity on the Trust's behalf.
7.03 RELIANCE; EMPLOYMENT OF AGENTS AND ADVICE OF COUNSEL.
(a) The Trustee shall incur no liability to anyone in acting upon any
signature, instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond or other document or paper reasonably believed by it to be
genuine and reasonably believed by it to be signed by the proper party or
parties. The Trustee may accept a certified copy of a
32
<PAGE>
resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter the
manner of ascertainment of which is not specifically prescribed herein, the
Trustee may for all purposes hereof rely on a certificate, signed by the
president, any vice president, the treasurer or any assistant treasurer or the
secretary or any assistant secretary of the relevant party, as to such fact or
matter, and such certificate shall constitute full protection to the Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In its exercise or administration of the trusts and powers
hereunder, including its obligations hereunder, the Trustee may employ agents
and attorneys and enter into agreements (including, without limitation, the
Purchase Agreement, the Remarketing Agreement, the Liquidity Agreement, the
Custody Agreement, the Indemnity Agreement and the Agency Agreement) with any of
them, and the Trustee shall not be answerable for the default or misconduct of
any such agents or attorneys if such agents or attorneys shall have been
selected by the Trustee in good faith.
(c) In the administration of the trusts hereunder, the Trustee may
consult with counsel, accountants and other skilled persons to be selected and
employed by it in good faith, and the Trustee shall not be liable for anything
done, suffered or omitted in good faith by it in accordance with the advice or
opinion of any such counsel, accountants or other skilled persons.
7.04 NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in this Article
VII, in accepting the trusts hereby created the Bank acts solely as trustee
hereunder and not in its individual capacity and all persons asserting any claim
against the Trustee or the Trust shall look only to the Trust Property for
payment or satisfaction thereof.
ARTICLE VIII
TRUSTEE COMPENSATION
8.01. COMPENSATION.
(a) Other than as set forth in Section 8.02(b), the Trustee and the
Virginia Custodian shall be entitled to receive, from amounts received by the
Trust under the Financial Instrument and, if insufficient, from the Trust
Certificate Accounts and, if insufficient, from the sale of Trust Property, up
to a maximum of $9,000 and $1,000, respectively, per year prior to any amounts
being distributable to Holders of Trust Certificates, as compensation for the
Trustee's and the Virginia Custodian's services hereunder, such ordinary fees as
are fair, reasonable and customary for the performance of such services and as
may heretofore and from time to time hereafter be agreed upon between BLB and
the Trustee as well as amounts referred to in Section 8.02(a). Any extraordinary
33
<PAGE>
services rendered by the Trustee hereunder shall be treated as Extraordinary
Expenses pursuant to Section 8.02(b). Once any amounts distributable to Holders
of Class A Trust Certificates have been paid, the Trust shall pay, ratably and
pro rata, any amounts referred to in the first sentence of this Section 8.01(a)
that would have been paid to the Trustee or the Virginia Custodian were it not
for the $10,000 limitation referred to therein and any compensation due to the
Custodian under the Custody Agreement, the Delaware Trustee under the Co-Trustee
Agreement, the Remarketing Agent under any Remarketing Agreement, the Market
Agent under the Market Agent Agreement, the Calculation Agent under the
Calculation Agent Agreement, and the Trust's Agent under the Agency Agreement.
Only after all of the foregoing expenses and distributions have been paid shall
any amounts be distributable to Holders of the Class B Trust Certificates. The
Trustee shall be provided on the Closing Date with a certificate of the Initial
Purchaser to the effect that the Initial Purchaser has paid or arranged to pay
(subject to reimbursement by the purchaser of the Class B Trust Certificates)
all initial fees and expenses of the Trustee, other than Extraordinary
Expenses, relating to the establishment of the Trust and the issuance of the
Trust Certificates.
8.02. REIMBURSEMENT AND INDEMNIFICATION.
(a) If not otherwise paid pursuant to Section 8.01, the Trustee shall
be entitled to be reimbursed from amounts received by the Trust under the
Financial Instrument for reasonable expenses hereunder, including, without
limitation, the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Trustee may reasonably
employ in connection with the exercise and performance of its rights and duties
under this Agreement, but not including Extraordinary Expenses.
(b) The Trustee and The Bank of New York (Delaware) and their
successors, assigns, agents, legal representatives and servants (the
"Indemnified Persons") shall be entitled to be indemnified from Trust Property
from and against any and all liabilities, obligations, losses, damages, taxes
(other than taxes incurred as the result of the payment of fees and expenses
pursuant to Section 8.01), claims, actions, suits, costs, expenses and
disbursements (including legal fees and expenses) of any kind and nature
whatsoever (collectively, "Extraordinary Expenses") which may be imposed on,
incurred by or asserted at any time against the Indemnified Persons (whether or
not indemnified against by other parties) in any way relating to or arising out
of this Agreement, the administration of the Trust or the action or inaction of
the Trustee hereunder, except only that the Indemnified Persons shall not be
entitled to indemnity for Extraordinary Expenses arising or resulting from any
of the matters described in the third sentence of Section 7.01. Except as
described in the following subsection 8.02(c), amounts paid to any Indemnified
Person shall be paid first from amounts ("Class B Amounts") that would otherwise
be distributable to Holders of Class B Trust Certificates and then, to the
extent that such amounts cannot be satisfied out of Class B Amounts, by BLB
pursuant to the Side Letter Agreement.
34
<PAGE>
(c) Notwithstanding the foregoing provisions of subsection 8.02(b),
each of the Indemnified Persons agrees that the first $25,000 of Extraordinary
Expenses shall be paid by BLB pursuant to the Side Letter Agreement and that
such Indemnified Person shall have no right to receive payment of such first
$25,000 of Extraordinary Expenses from the Trust Property. In addition, each of
the Indemnified Persons agrees that, once the subsequent Extraordinary Expenses
occurring after the first $25,000 of Extraordinary Expenses exceed amounts that
would otherwise have been payable to Holders of Class B Trust Certificates, such
Indemnified Person shall have no right to receive additional payments of
Extraordinary Expenses from the Trust Property.
8.03. SURVIVAL OF ARTICLE. The provisions of this Article VIII shall
survive termination of this Agreement and the resignation or removal of the
Trustee.
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
9.01. TERMINATION OF TRUST AGREEMENT.
(a) This Agreement and the trusts created hereby shall terminate, and
the Trust Property, after giving effect to the distributions required to be made
pursuant to Section 5.01, shall be distributed to the Holders, subject to the
provisions of Section 5.09, or to the separate classes of Holders in accordance
with their respective Percentage Interests and the provisions of this Section
9.01 (including, without limitation, the provisions of subsection (d) of this
Section), and this Agreement shall be of no further force or effect, in the
event that all amounts owed under this Agreement and the Custody Agreement in
respect of the Financial Instrument or otherwise have been received by the Trust
and distributed in accordance with the terms of this Agreement. The bankruptcy,
liquidation, dissolution, death or incapacity of any Certificateholder shall
neither (A) operate to terminate this Agreement or the Trust, nor (B) entitle
such Certificateholder's legal representatives or heirs to claim an accounting
or to take any action or proceeding in any court for a partition or winding up
of all or any part of the Trust or the Trust Property nor (C) otherwise affect
the rights, obligations and liabilities of the parties hereto.
(b) In the event that the Trust terminates, the Trustee shall make
any distributions required to be made pursuant to Section 5.01, and then the
Trustee acting in consultation with the Trust's Agent shall proceed as promptly
as practicable to wind up the affairs of the Trust and distribute the assets
thereof, PROVIDED that the assets of the Trust shall be distributed in an
orderly and businesslike manner; and PROVIDED, FURTHER, that the Trustee shall
have no duty to make any such final distribution unless and until all Trust
Liabilities, if any, have been satisfied. As part of the winding up of the
affairs of the Trust, the following steps shall be taken in the following order:
35
<PAGE>
(1) Subject to the provisions of Section 5.09, funds received
under the Financial Instrument (and any other funds or assets of the Trust
that may exist at such time under the Custody Agreement or otherwise) shall
be distributed between the Holders of Class A Trust Certificates and the
Holders of Class B Trust Certificates as provided in the Supplement and in
Schedule 1, and to the Holders pro rata within each such class in
accordance with each Holder's Percentage Interests of such class; and, to
the extent not paid by a third party, either the Holders of Class B Trust
Certificates shall be required to pay the costs and expenses of the
termination of the Trust and all other Trust Liabilities or Trust funds
that would otherwise have been paid to such Holders shall be used to pay
Trust Liabilities, in each case, in accordance with each Holder's
Percentage Interest.
(2) The Trustee shall prepare, sign and file with the Secretary
of State of the State of Delaware pursuant to 12 Del. C. Section 3810 the
certificate of cancellation for the Trust under the Delaware Business Trust
Act.
(c) No Holder shall be entitled to revoke the Trust.
(d) The provisions of this Section 9.01 are subject to the provisions
of Section 5.09.
ARTICLE X
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
10.01. RESIGNATION OF TRUSTEE; APPOINTMENT OF SUCCESSOR.
(a) The Trustee may resign by giving at least 90 days' prior written
notice to the Holders, such resignation to be effective on the acceptance of
appointment by a successor Trustee under Section 10.01(b) hereof. In case of the
resignation of the Trustee, the Trust's Agent may appoint a successor Trustee by
an instrument signed by the Trust's Agent. If a successor Trustee shall not have
been appointed within 30 days after the giving of written notice of such
resignation, the Trustee or the Trust's Agent may apply to any court of
competent jurisdiction to appoint a successor Trustee to act until such time, if
any, as a successor shall have been appointed by the Trust's Agent as
above-provided. Any successor Trustee so appointed by such court shall
immediately and without further act be superseded by any successor Trustee
appointed by the Trust's Agent as above-provided within one year from the date
of the appointment by such court.
(b) Any successor Trustee, however appointed, shall execute and
deliver to the predecessor Trustee an instrument accepting such appointment, and
thereupon such successor Trustee, without further act, shall become vested with
all the estates, properties, rights, powers, duties and trusts of the
predecessor Trustee in the trusts hereunder with like effect as if originally
named the Trustee herein and the predecessor Trustee shall be fully
36
<PAGE>
discharged from all duties and liabilities under this Agreement arising on and
after such date; PROVIDED, HOWEVER, that, upon the written request of such
successor Trustee, such predecessor Trustee shall execute and deliver an
instrument transferring to such successor Trustee, upon the trusts herein
expressed, all the estates, properties, rights, powers, duties and trusts of
such predecessor Trustee, and such predecessor Trustee shall duly assign,
transfer, deliver and pay over to such successor Trustee all moneys or other
property then held or subsequently received by such predecessor Trustee upon the
trusts herein expressed.
(c) Any successor Trustee, however appointed, shall be a bank or
trust company with its principal place of business within the State of Delaware
or New York and having a combined capital, surplus and undivided profits of at
least $50,000,000, if there be such an institution willing, able and legally
qualified to perform the duties of the Trustee hereunder upon reasonable or
customary terms. Any such successor Trustee shall be rated at least AAA/Aaa/AAA
by Standard & Poor's, Moody's, and Fitch, respectively, or shall agree to hold
all amounts held by it for payment to Holders in trust in a trust account
segregated from the general assets of such successor Trustee.
(d) Any corporation into which the Bank may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Bank shall be a party, or any
corporation to which substantially all the corporate trust business of the Bank
may be transferred, shall, subject to the terms of Section 10.01(c), be the
successor Trustee under this Agreement without further act.
10.02. APPOINTMENT OF ADDITIONAL TRUSTEES. At any time or times for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Property may at the time be located, the Trustee, by an instrument
in writing, may appoint one or more individuals or corporations to act as
separate trustee or separate trustees of all or any part of the Trust Property
to the full extent that a local law makes it necessary for such separate trustee
or separate trustees to act alone; PROVIDED that any such separate trustee which
is a corporation shall be rated at least investment grade with respect to its
long-term and short-term debt by the Rating Agencies.
10.03. DELAWARE TRUSTEE. At all times the Trust shall have at least one
trustee which meets the requirements of 12 Del. C. Section 3807.
ARTICLE XI
MISCELLANEOUS
11.01. AMENDMENTS.
(a) This Agreement may be amended from time to time by the Trustee
acting in consultation with the Trust's Agent, and without the consent of any of
the Holders, (i) to
37
<PAGE>
cure any ambiguity or to correct or supplement any provision herein which may be
inconsistent with any other provision herein, (ii) to add to the duties or
obligations of the Trustee or the Trust's Agent hereunder, (iii) to make any
other provision with respect to matters or questions arising under this
Agreement which shall not be materially inconsistent with the provisions of this
Agreement or (iv) for the purpose of adding any provision to or changing in any
manner or eliminating any provision of this Agreement or of modifying in any
manner the rights of the Holders; PROVIDED, HOWEVER, that no such amendment
shall, as evidenced by an Opinion of Counsel, (i) reduce in any manner the
amount of, or delay the timing of, distributions which are required to be made
on any Trust Certificate or otherwise materially adversely affect the Holders of
either class of Trust Certificates; or (ii) adversely affect in any material
respect the status of the Trust as a partnership for federal income tax purposes
or amend this Section 11.01(a); and PROVIDED FURTHER, HOWEVER, that, if any of
the Trust Certificates has been rated, the Rating Agencies Condition shall have
been met with respect to such amendment. The Trustee shall be entitled to rely
on such Opinion of Counsel as to the matters referred to in the first proviso to
the penultimate sentence of this paragraph.
This Agreement may be amended or supplemented from time to time by
the Trustee without the consent of any of the Holders, upon notice to Holders
sent to their registered addresses, at the discretion of the Trustee, to modify
the restrictions on and procedures for resales and other transfers of the Trust
Certificates to reflect any change in applicable law or regulation (or the
interpretation thereof) or in practices relating to the resale or transfer of
restricted securities generally, and to accommodate the issuance, if any, of
Trust Certificates in book-entry form through the facilities of a clearing
agency, and the Trustee may, in accordance with such procedure, amend or
supplement the Certificates and related documentation (including, without
limitation, this Agreement, each Remarketing Agreement and the Liquidity
Agreement), from time to time, existing restrictions upon the resale or transfer
of the Trust Certificates may be altered, and any other action may be taken, to
enable the Trust to rely upon any exemption from registration under the
Securities Act and/or the Investment Company Act (and to remove certain existing
restrictions to the extent not required under such exemptions); PROVIDED,
HOWEVER, that such action shall not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interests of any Holder; and
PROVIDED FURTHER, HOWEVER, that, if any of the Trust Certificates has been
rated, the Rating Agencies shall have provided evidence in writing that their
ratings shall not have been lowered as a result of any such amendment.
If, in the opinion of the Trustee, any amendment instrument required
to be so executed adversely affects any right, duty or liability of, or immunity
or indemnity in favor of, the Trustee under this Agreement or any of the
documents contemplated hereby to which the Trustee or the Trustee is a party, or
would cause or result in any conflict with or breach of any terms, conditions or
provisions of, or default under, the charter documents or by-laws of the Bank or
any document contemplated hereby to which the Bank or the Trustee is a party,
the Trustee may in its sole discretion decline to execute such instrument.
38
<PAGE>
(b) Notwithstanding the foregoing, the Trustee acting in consultation
with the Trust's Agent at any time and from time to time may amend this
Agreement to modify, eliminate or add to any of its provisions to such extent as
shall be necessary or helpful to maintain the treatment of the Trust as a
partnership for federal income tax purposes or to avoid or minimize the risk of
the imposition of any tax on the Trust pursuant to the Code; PROVIDED that the
Trustee has obtained an Opinion of Counsel to the effect that such action is
necessary or appropriate to maintain such treatment or to avoid or minimize the
risk of the imposition of such a tax; and PROVIDED FURTHER that such amendment
does not have a material adverse effect on the Holders of either class of Trust
Certificates as evidenced by an Opinion of Counsel; and PROVIDED FURTHER,
HOWEVER, that, if any of the Trust Certificates has been rated, the Rating
Agencies shall have provided evidence in writing that the related ratings shall
not have been lowered as a result of any such amendment.
(c) Promptly after the execution of any such amendment the Trustee
shall furnish written notification of the substance of such amendment to each
Holder.
11.02. NO LEGAL TITLE TO TRUST PROPERTY IN HOLDERS. The Holders shall not
have legal title to any part of the Trust Property and shall only be entitled to
receive distributions with respect to their undivided beneficial interest
therein pursuant to Sections 5.01 and 9.01. No transfer, by operation of law or
otherwise, of any right, title or interest of the Holders in and to their
undivided beneficial interests in the Trust Property shall operate to terminate
this Agreement or the trusts hereunder or entitle any successor transferee to an
accounting or to the transfer to such transferee of legal title to any part of
the Trust Property.
11.03. LIMITATIONS ON RIGHTS OF OTHERS. Nothing in this Agreement, whether
express or implied, shall be construed to give to any person other than the
Trustee, the Delaware Trustee, the Trust's Agent and the Holders any legal or
equitable right, remedy or claim in the Trust Property or under or in respect
of this Agreement or any covenants, conditions or provisions contained herein.
11.04. NOTICES. (a) Unless otherwise expressly specified or permitted by
the terms hereof, all notices shall be in writing and delivered by hand or
mailed by certified mail, postage prepaid: if to the Trustee, addressed to the
Trust c/o The Bank of New York, 101 Barclay Street, 12E, New York, New York,
10286, Attention: Corporate Trust Administration Asset Backed Finance Unit,
facsimile (212) 815-5544, or to such other address as the Trustee may have set
forth in a written notice to the Holders; if to the Delaware Trustee, White Clay
Center, Newark, Delaware 19711, Attention: Corporate Trust Administration; if to
the Dealer or the Remarketing Agent, addressed to Lehman Brothers Inc., 3 World
Financial Center, 12th Floor, New York, New York 10285, Attention: Commercial
Paper Program Management; if to the Trust's Agent or the Liquidity Provider,
addressed to it at the notice address provided for in the Agency Agreement or
the Liquidity Agreement, as the case may be; if to the Custodian, addressed to
it at the notice address provided for in the Custody Agreement; if to Standard &
Poor's, addressed to Standard & Poor's Ratings Services, 26 Broadway, New York,
New York 10004, Attention:
39
<PAGE>
Insurance Group Separate Account Unit; if to Moody's, addressed to Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
CBO/CLO Monitoring Group; if to Fitch, addressed to Fitch Investors Service,
L.P., One State Street Plaza, New York, New York 10004, Attention: Asset Backed
Surveillance; if to Duff & Phelps, addressed to Duff & Phelps Credit Rating Co.,
17 State Street, 12th Floor, New York, New York 10004; and, if to a Holder,
addressed to such Holder at the address set forth for such Holder in the
register maintained by the Trustee. Whenever any notice in writing is required
to be given by the Trustee, such notice shall be deemed given and such
requirement satisfied if such notice is mailed by certified mail, postage
prepaid, addressed as provided above.
(b) The Trust shall (i) promptly notify the Rating Agencies when: (A) all
amounts due with respect to all of the Class A Trust Certificates have been
paid, (B) The Trust is terminated, (C) there is a payment default or
acceleration with respect to the Financial Instrument, or (D) any Trust Property
is disposed of other than in the ordinary course of business pursuant to the
terms hereof; and (ii) notify the Rating Agencies and the Trust Certificate
Holders at least two Business Days prior to the time when: (Y) there is an
amendment or termination of this Agreement, the Purchase Agreement, the Custody
Agreement, the Agency Agreement, any Paying Agency Agreement or the Financial
Instrument, or (Z) there is a substitution for, or change in the indemnification
of, the Trustee, any Paying Agent, the Dealer, the Custodian or the Trust's
Agent. The foregoing notices may be given by the Trust's Agent on behalf of the
Trust.
(c) The Trust shall send DTC written notice with respect to the
dollar amount per $1,000 original face value (or other minimum authorized
denomination if less than $1,000 face value) payable on each Distribution Date
allocated as to the interest and principal portions thereof preferably five, but
not less than two, Business Days prior to such Distribution Date. Such notices,
which shall also contain any special adjustments to principal/interest rates
(e.g., adjustments due to deferred interest or shortfall), and Trustee contact's
name and telephone number, shall be sent by telecopy to DTC's Dividend
Department at (212) 709-1723, or, if by mail or by any other means, to Manager;
Announcements, Dividend Department, The Depository Trust Company, 7 Hanover
Square, 22nd Floor, New York, New York 10004-2695.
11.05. NO SUBDIVISION. No Holder (other than a Holder of a Global Trust
Certificate) and no Beneficial Owner shall subdivide any of its Trust
Certificates (whether by way of sale of beneficial interests or otherwise).
11.06. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
40
<PAGE>
11.07. SEPARATE COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
11.08. SUCCESSORS AND ASSIGNS. All covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the Trustee and its
successors and assigns and each Holder or Beneficial Owner and respective its
successors and permitted assigns, all as herein provided. Any request, notice,
direction, consent, waiver or other instrument or action by a Holder or
Beneficial Owner shall bind the respective successors and assigns of such Holder
or Beneficial Owner.
11.09. INCORPORATION BY REFERENCE. If and to the extent references are made
herein to terms set forth in the Supplement or Schedule 1, the relevant
provisions of the Supplement or Schedule 1 shall be deemed incorporated herein
by reference. In the event that there is a conflict between the provisions of
the Supplement and the provisions of this Agreement, the provisions of the
Supplement shall be controlling.
11.10. HEADINGS. The Table of Contents and the headings of the various
Articles and Sections herein are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof.
11.11. NO PETITION COVENANT. Notwithstanding any prior termination of this
Agreement, neither the Trustee, nor any Holder, nor any Beneficial Owner, nor
any Indemnified Person, as such term is defined in Section 8.02(b), shall, prior
to the date which is one year and one day after the termination of this
Agreement, acquiesce, petition or otherwise invoke or cause the Trust to invoke
the process of any court or governmental authority for the purpose of
commencing or sustaining a case against the Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Trust or any substantial part of its property, or making a general assignment
for the benefit of creditors, or ordering the winding up or liquidation of the
affairs of the Trust.
11.12. SECTION, SCHEDULE AND EXHIBIT REFERENCES. Except as otherwise set
forth herein, all references herein to Sections, Schedules, and Exhibits refer
to Sections hereof and Schedules and Exhibits hereto, respectively.
11.13. GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
41
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Trust Agreement to be duly
executed by its appropriate officer hereunto duly authorized, on the day and
year first above written.
THE BANK OF NEW YORK
By /s/ Cheryl L. Laser
----------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
<PAGE>
SCHEDULE 1
Set forth below are certain terms and conditions of BRAVO TRUST SERIES
1997-1 (the "Trust") which are incorporated by reference in the Declaration of
Trust and Trust Agreement (the "Trust Agreement") constituting the Trust. Terms
used herein and not defined herein shall have the respective meanings assigned
to them in the Trust Agreement.
<TABLE>
<S> <C>
Closing Date: November 25, 1997
Insurer: Integrity Life Insurance Company
Financial Instrument/Type of Trust Assets: Separate Account Group Annuity Contract
Minimum Denomination
of Trust Certificates: $5,000,000
Integral Amounts Available
in Excess of Minimum
Denomination: $100,000
Net Proceeds to Trust of Sale of
Class A Trust Certificates: $450,000,000
Net Proceeds to Trust of Sale of
Class B Trust Certificates: $50,000,000
First and Last Days of
each Scheduled
Income Period: 1. November 25, 1997 - January 14, 1998
2. January 15, 1998 - April 14, 1998
3. April 15, 1998 - July 14, 1998
4. July 15, 1998 - October 14, 1998
Extension of Maturity: The Market Agent may, but is not
required to, select (i) an "Extended
Maturity Date" on which the principal
amount of all outstanding Trust
Certificates will be due and payable, (ii)
the interest rate applicable to the Class A
Trust Certificates until the Extended
Maturity Date, (iii) the Payment Dates
applicable to the Class A Trust Certificates
until the Extended Maturity Date, (iv) the
1-1
<PAGE>
Reset Dates applicable to the Class A
Trust Certificates until the Extended
Maturity Date, (v) the Interest
Determination Dates applicable to the
Class A Trust Certificates until the
Extended Maturity Date, (vi) the Business
Day Convention applicable to the Class A
Trust Certificates until the Extended
Maturity Date, (vii) the expected rating, if
any, applicable to the Class A Trust
Certificates until the Extended Maturity
Date, and (viii) any other terms applicable
to the Class A Trust Certificates until the
Extended Maturity Date. If the Market
Agent makes such a selection, it shall give
the Trustee notice in sufficient time so that
each Holder will have at least 30 days'
notice of such selection and of the specific
terms thereof. Each Holder of the Class A
Trust Certificates will then have the option
(the "Extension Option"), exercisable no
fewer than 20 days prior to the Maturity
Date or the Extended Maturity Date, as
applicable, to have the Maturity Date of
all but not less than all of such Class A
Trust Certificates extended on the revised
terms determined as described above.
Remarketing Agent: Lehman Brothers Inc. and each additional
or substitute nationally recognized broker-
dealer chosen by the Trust in consultation
with the Trust's Agent to be a remarketing
agent for the Class A Trust Certificates.
Rating Agencies: Moody's Investors Service, Inc.
Standard & Poor's Ratings
Services
</TABLE>
1-2
<PAGE>
EXHIBIT A-1
THE TRUST CERTIFICATES (THE "TRUST CERTIFICATES") OF THE BRAVO TRUST SERIES
1997-1 (THE "TRUST") HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THE TRUST HAS NOT BEEN REGISTERED UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), IN RELIANCE UPON AN
EXCEPTION FROM REGISTRATION THEREUNDER. THE TRUST CERTIFICATES ARE BEING OFFERED
ONLY TO "QUALIFIED INSTITUTIONAL BUYERS" AS DEFINED IN AND IN RELIANCE ON RULE
144A UNDER THE SECURITIES ACT ("QUALIFIED INSTITUTIONAL BUYERS").
THIS TRUST CERTIFICATE IS A TRUST CERTIFICATE WITHIN THE MEANING OF THE TRUST
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY ("DTC") OR A NOMINEE OF DTC. THIS TRUST CERTIFICATE IS
EXCHANGEABLE FOR TRUST CERTIFICATES REGISTERED IN THE NAME OF A PERSON OTHER
THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST
AGREEMENT AND NO TRANSFER OF THIS TRUST CERTIFICATE (OTHER THAN A TRANSFER OF
THIS TRUST CERTIFICATE AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF
DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS TRUST CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC, TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY TRUST CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. ("CEDE") OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE, HAS AN INTEREST HEREIN.
THE ISSUER OF THE FINANCIAL INSTRUMENT (THE "FINANCIAL INSTRUMENT") TO BE
PURCHASED BY THE TRUST, CERTAIN OF ITS AFFILIATES, BAYERISCHE LANDESBANK
GIROZENTRALE (THE "BANK"), THE BANK OF NEW YORK (THE "TRUSTEE"), THE DEALER AND
THE REMARKETING AGENT, AS SUCH TERMS ARE DEFINED IN THE TRUST AGREEMENT REFERRED
TO BELOW, ARE EACH IN THE BUSINESS OF PROVIDING SERVICES TO BENEFIT PLANS
SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"). IN ADDITION, PLANS PURCHASING CLASS A TRUST CERTIFICATES MAY BE
DEEMED TO HAVE ENTERED INTO A LENDING OR OTHER TRANSACTION WITH THE BANK AS
OWNER OF THE CLASS B TRUST CERTIFICATES. THEREFORE, FIDUCIARIES CONSIDERING THE
PURCHASE OF TRUST CERTIFICATES ON BEHALF OF A BENEFIT PLAN SHOULD DETERMINE IF
THE ACQUISITION AND HOLDING OF TRUST CERTIFICATES IS IN COMPLIANCE WITH ERISA
(FOR EXAMPLE, SUCH ACQUISITION AND HOLDING ARE IN COMPLIANCE WITH PROHIBITED
CLASS TRANSACTION EXEMPTION 84-14, RELATING TO PLAN ASSET TRANSACTIONS
DETERMINED
1
<PAGE>
BY INDEPENDENT QUALIFIED PROFESSIONAL ASSET MANAGERS) AND RELATED PROVISIONS OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). ADDITIONALLY, EACH
ERISA BENEFIT PLAN ACQUIRING AN INTEREST IN TRUST CERTIFICATES MUST MAKE ITS OWN
DETERMINATION THAT THE ACQUISITION OF THE TRUST CERTIFICATES OR AN INTEREST IN A
FINANCIAL INSTRUMENT SIMILAR TO THE FINANCIAL INSTRUMENT IS PERMITTED UNDER SUCH
PLAN'S CONSTITUENT DOCUMENTS AND RELATED POLICIES.
BY ITS ACCEPTANCE OF THIS TRUST CERTIFICATE (THE "TRUST CERTIFICATE"), DIRECTLY
OR THROUGH A NOMINEE, THE INVESTOR WILL BE DEEMED TO HAVE REPRESENTED TO AND
AGREED WITH THE TRUSTEE AND THE DEALER THAT:
(A) (I) IT IS A QUALIFIED INSTITUTIONAL BUYER, (II) IT IS AWARE THAT THE
SALE OF THE TRUST CERTIFICATE IS BEING MADE IN RELIANCE ON RULE 144A
AND (III) THE TRUST CERTIFICATE IS BEING ACQUIRED FOR ITS OWN ACCOUNT
(OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER),
(B) ANY RESALE OR OTHER TRANSFER OF THE TRUST CERTIFICATE WILL BE MADE
ONLY (I) TO ONE OR MORE PERSONS EACH OF WHICH SUCH PURCHASER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ACQUIRING SUCH
TRUST CERTIFICATE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING WITH RULE
144A AND (II) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS,
(C) TRANSFERS OF TRUST CERTIFICATES SHALL BE RESTRICTED SO THAT, UNLESS
THE TRUSTEE HAS OBTAINED AN OPINION OF COUNSEL THAT SUCH TRANSFER WILL
NOT RESULT IN THE TRUST BEING TREATED AS A PUBLICLY TRADED PARTNERSHIP
WITHIN THE MEANING OF SECTION 7704(a) OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), (I) THE TRUST CERTIFICATES OR INTERESTS
IN THE TRUST CERTIFICATES MAY NOT BE OR BECOME TRADEABLE ON AN
"ESTABLISHED SECURITIES MARKET" AS DEFINED IN TREASURY REGULATION
SECTION 1.7704-1(b), (II) ANY TRANSFER THAT WOULD RESULT IN THERE
BEING MORE THAN 100 BENEFICIAL OWNERS OF TRUST CERTIFICATES SHALL BE
NULL AND VOID, (III) NO TRUST CERTIFICATE MAY BE HELD BY A
FLOW-THROUGH ENTITY (A PARTNERSHIP, A GRANTOR TRUST, OR AN S
CORPORATION, MORE THAN HALF OF THE ASSETS OF WHICH CONSIST OF TRUST
CERTIFICATES), AND (IV) NO BENEFICIAL OWNER OR HOLDER SHALL HOLD LESS
THAN $5 MILLION FACE AMOUNT OF TRUST CERTIFICATES, AND
(D) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR, IF IT IS, THAT
THE ACQUISITION AND HOLDING OF THE RELEVANT TRUST CERTIFICATES IS IN
COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND HOLDING ARE
IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION EXEMPTION
2
<PAGE>
84-14, RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT
QUALIFIED PROFESSIONAL ASSET MANAGERS) AND THE RELATED PROVISIONS OF
THE CODE AND IS PERMITTED UNDER SUCH PLAN'S CONSTITUENT DOCUMENTS AND
RELATED POLICIES.
THE TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING, WITHOUT
LIMITATION, THE DECLARATION OF TRUST AND TRUST AGREEMENT OF THE TRUST
(THE "TRUST AGREEMENT") AND THE PURCHASE AGREEMENT (THE "PURCHASE
AGREEMENT") BETWEEN THE TRUST AND LEHMAN BROTHERS INC. MAY BE AMENDED
OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT OF, BUT UPON
NOTICE TO, THE OWNERS OF TRUST CERTIFICATES SENT TO THEIR REGISTERED
ADDRESSES: (i) TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR
RESALES AND OTHER TRANSFERS OF THE TRUST CERTIFICATES TO REFLECT ANY
CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF)
OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED
SECURITIES GENERALLY AND (ii) TO ACCOMMODATE THE ISSUANCE, IF ANY, OF
TRUST CERTIFICATES IN BOOK-ENTRY FORM THROUGH THE FACILITIES OF A
CLEARING AGENCY. THE TRUST CERTIFICATES AND RELATED DOCUMENTATION
(INCLUDING WITHOUT LIMITATION, THE AGREEMENTS REFERRED TO ABOVE) MAY
BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, EXISTING RESTRICTIONS
UPON THE RESALE OR TRANSFER OF THE TRUST CERTIFICATES MAY BE ALTERED,
AND ANY OTHER ACTIONS MAY BE TAKEN, IN EACH CASE WITHOUT THE CONSENT
OF BUT UPON NOTICE TO THE REGISTERED OWNERS, TO ENABLE THE TRUST TO
RELY UPON ANY EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
THE INVESTMENT COMPANY ACT THAT MAY BECOME AVAILABLE (AND TO REMOVE
CERTAIN EXISTING RESTRICTIONS TO THE EXTENT NOT REQUIRED UNDER SUCH
EXEMPTION), PROVIDED THAT NO SUCH CHANGE SHALL HAVE A MATERIAL ADVERSE
EFFECT UPON THE OWNERS OF TRUST CERTIFICATES THEN OUTSTANDING. THE
OWNER OF THIS TRUST CERTIFICATE SHALL BE DEEMED, BY ACCEPTANCE HEREOF,
DIRECTLY OR THROUGH A NOMINEE, TO HAVE AGREED TO ANY SUCH AMENDMENT OR
SUPPLEMENT (EACH OF WHICH SHALL BE CONCLUSIVE AND BINDING ON SUCH
OWNER AND ALL FUTURE OWNERS OF THIS TRUST CERTIFICATE AND ANY TRUST
CERTIFICATE ISSUED IN EXCHANGE OR SUBSTITUTION FOR THIS TRUST
CERTIFICATE WHETHER OR NOT ANY NOTATION THEREOF IS MADE THEREON) AND,
IN ADDITION, TO HAVE AGREED TO EXCHANGE THIS TRUST CERTIFICATE FOR A
TRUST CERTIFICATE IN BOOK-ENTRY FORM.
NO SALE OR OTHER TRANSFER OF TRUST CERTIFICATES SHALL BE PERMITTED WHICH WOULD
REQUIRE REGISTRATION OF THE TRUST CERTIFICATES UNDER THE SECURITIES ACT, OR
REQUIRE REGISTRATION OF THE TRUST UNDER THE INVESTMENT COMPANY ACT OR RESULT IN
A VIOLATION OF ANY FEDERAL OR STATE SECURITIES LAW OR REGULATION.
3
<PAGE>
Number [XX] Face Amount
Final Principal Payment Date: October 15, 1998 $
------------
Scheduled Income Payment Dates: From November 25, 1997 until October 15, 1998
quarterly on the 15th day of January, April, July and October,
commencing on January 15, 1998.
BRAVO TRUST SERIES 1997-1
Class A Trust Certificate
evidencing a Percentage Interest in any distribution allocable to the
Class A Trust Certificates with respect to all Trust Property held by
BRAVO TRUST SERIES 1997-1
This Class A Trust Certificate does not represent an obligation of or
interest in the Trustee or any of its affiliates. Neither this Certificate nor
the Financial Instrument is guaranteed or insured by the Dealer or the Trustee.
This certifies that Cede & Co., as nominee of the Depository Trust
Company, or its registered assigns, is the registered owner of this Class A
Trust Certificate evidencing a Percentage Interest in any distribution allocated
to the Class A Trust Certificates with respect to all Trust Property as defined
in and held pursuant to a Declaration of Trust and Trust Agreement dated as of
November 25, 1997 (the "Agreement") under which The Bank of New York serves as
trustee (the "Trustee"), a summary of certain of the pertinent provisions of
which is set forth hereafter. The property of the Trust includes the Financial
Instrument. To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Agreement.
This Certificate (the "Certificate") evidences a Class A Trust Certificate
which is one of a duly authorized issue of Trust Certificates, designated as
BRAVO Trust Series 1997-1 Certificates ("Trust Certificates") and is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
On each Scheduled Income Payment Date or the Principal Payment Date, the
Trust will cause to be distributed from funds in the Main Distribution Account
to each Class A Trust Certificate Holder an amount equal to the product of the
Percentage Interest evidenced by such Class A Trust Certificate Holder's Trust
Certificates and the Class A Net Investment Income of the Trust in respect of
the period ending on such Scheduled Income Payment Date or Principal Payment
Date (as determined in
4
<PAGE>
accordance with applicable generally accepted accounting principles) which is
determined by adding all payments relating to interest and principal received by
the Trust pursuant to the Financial Instrument in the Main Collection Account
and the Main Distribution Account from the Main Custodial Account and
subtracting from the resulting sum (to the extent not otherwise discharged on
behalf of the Trust by a third party) the aggregate of any expenses of the Trust
allocable to the Class A Trust Certificates.
Payments in cash on the Class A Trust Certificate evidenced by this
Certificate will be made in immediately available funds by wire transfer to an
account designated at least 10 business days prior to the related Record Date by
the Person entitled thereto.
No transfer of this Certificate may be made unless such transfer complies
with the restrictions on transfer and related conditions set forth in the
legends on the face hereof.
The Trust undertakes that it will, either directly or through Bayerische
Landesbank Girozentrale, New York Branch, as trust's agent (the "Trust's
Agent"), provide to the Holder of this Certificate and any prospective purchaser
or transferee designated by the Holder hereof, upon request of the Holder hereof
or such prospective purchaser or transferee, such information as is required by
Rule 144A to enable resales hereof to be made pursuant to Rule 144A, to the
extent such information is reasonably available.
As provided in the Agreement, deductions and withdrawals from the Trust
Certificate Account will be made from time to time for purposes other than
payments to Trust Certificate Holders, such purposes including payment of
unreimbursed expenses incurred by the Trust.
The Trustee will cause to be kept at its main office in New York, New
York, or at the office of the Trust's designated agent, a Trust Certificate
Register in which, subject to such reasonable regulations as it may prescribe,
the Trustee will provide for the registration of Trust Certificates and of
transfers and exchanges of such Trust Certificates. Upon surrender for
registration of purchase of any Certificate at any office or agency of the Trust
maintained for such purpose, the Trustee will, subject to the limitations set
forth in the Agreement, execute and deliver, in the name of the designated
purchaser, a Certificate dated the date of execution by the Trustee.
No service charge will be made to the Class A Trust Certificate Holder for
any transfer of this Certificate, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any
5
<PAGE>
transfer of the Certificate. Prior to due presentation of a Certificate for
registration of transfer, the Trustee may treat the person in whose name any
Certificate is registered as the owner of such Certificate and the Percentage
Interest in the Trust evidenced thereby for the purpose of receiving
distributions pursuant to the Agreement and for all other purposes whatsoever,
and the Trustee will not be affected by notice to the contrary.
The Agreement may be amended from time to time by the Trustee, without the
consent of any of the Trust Certificate Holders, (i) to cure any ambiguity or to
correct or supplement any provisions therein which may be inconsistent with any
other provisions therein, (ii) to add to the duties or obligations of the
Trust's Agent or the Trustee, under the Agreement, (iii) to accommodate the
issuance, if any, of Trust Certificates through the facilities of a clearing
agency and/or to enable the Trust to rely upon any exemption from registration
under the Securities Act or the Investment Company Act (as provided in the
legend on the face hereof), (iv) to make any other provision with respect to
matters or questions arising under the Agreement which shall not be materially
inconsistent with the provisions of the Agreement or (v) for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Agreement or of modifying in any manner the rights of the
Holders of Trust Certificates; provided, however, that no such amendment shall,
as evidenced by an Opinion of Counsel, (i) reduce in any manner the amount of,
or delay the timing of, payments which are required to be made on any Trust
Certificate or otherwise materially adversely affect the Trust Certificate
Holders; or (ii) adversely affect in any material respect the status of the
Trust as a partnership for federal income tax purposes or amend Section 11.01(a)
of the Agreement; and provided further, however, that, if any of the Trust
Certificates have been rated, the Rating Agencies Condition shall have been met
with respect to such amendment. The Trustee shall be entitled to rely on such
Opinion of Counsel as to the matters referred to in the proviso to the
immediately preceding sentence.
The Agreement and the Trust will terminate and the Trust Property, after
giving effect to the payments required to be made pursuant to the Agreement,
shall be distributed to the Trust Certificate Holders in accordance with their
Percentage Interests, and the Agreement shall be of no further force or effect,
only in the event that all amounts owed under the Agreement in respect of the
Financial Instrument have been received by the Trust and payments made in
accordance with the terms of the Trust.
It is the intention of the Trustee and the Trust Certificate Holders, and
the Holder of this Certificate by its acceptance hereof agrees, that the Trust
will be treated as a partnership
6
<PAGE>
for federal income tax purposes and all transactions contemplated by the
Agreement will be reported, to the extent applicable, on all applicable tax
returns consistently with such treatment. The provisions of the Agreement shall
be construed, and the affairs of the Trust shall be conducted, so as to achieve
treatment of the Trust as a partnership for federal income tax purposes.
Unless this Certificate has been executed by the Trustee, by manual
signature, this Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose.
7
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
BRAVO TRUST SERIES 1997-1
By: THE BANK OF NEW YORK,
not in its individual
capacity, but solely as
Trustee
By
--------------------------
Name:
Title:
8
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE)
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
- ------------------
- ------------------
- --------------------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
- --------------------------------------------------------------------------
the within Certificate, and all rights thereunder, and hereby does
irrevocably constitute and appoint
Attorney
- ---------------------------------------------------------------
to transfer the within Certificate on the books kept for the registration
thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty)
-----------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as it appears upon the face of
the within Certificate in every
particular, without alteration or
enlargement or any change whatever.
9
<PAGE>
EXHIBIT A-2
THE TRUST CERTIFICATES (THE "TRUST CERTIFICATES") OF THE BRAVO TRUST SERIES
1997-1 (THE "TRUST") HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THE TRUST HAS NOT BEEN REGISTERED UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), IN RELIANCE UPON AN
EXCEPTION FROM REGISTRATION THEREUNDER. THE TRUST CERTIFICATES ARE BEING OFFERED
ONLY TO "QUALIFIED INSTITUTIONAL BUYERS" AS DEFINED IN AND IN RELIANCE ON RULE
144A UNDER THE SECURITIES ACT ("QUALIFIED INSTITUTIONAL BUYERS").
THE ISSUER OF THE FINANCIAL INSTRUMENT (THE "FINANCIAL INSTRUMENT") TO BE
PURCHASED BY THE TRUST, ITS AFFILIATES, BAYERISCHE LANDESBANK GIROZENTRALE (THE
"BANK"), THE BANK OF NEW YORK (THE "TRUSTEE"), THE DEALER AND THE REMARKETING
AGENT, AS SUCH TERMS ARE DEFINED IN THE TRUST AGREEMENT REFERRED TO BELOW, ARE
EACH IN THE BUSINESS OF PROVIDING SERVICES TO BENEFIT PLANS SUBJECT TO THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"). IN
ADDITION, PLANS PURCHASING CLASS B TRUST CERTIFICATES MAY BE DEEMED TO HAVE
ENTERED INTO A LENDING OR OTHER TRANSACTION WITH THE BANK AS OWNER OF THE CLASS
B TRUST CERTIFICATES. THEREFORE, FIDUCIARIES CONSIDERING THE PURCHASE OF TRUST
CERTIFICATES ON BEHALF OF A BENEFIT PLAN SHOULD DETERMINE IF THE ACQUISITION AND
HOLDING OF TRUST CERTIFICATES IS IN COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH
ACQUISITION AND HOLDING ARE IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION
EXEMPTION 84-14, RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT
QUALIFIED PROFESSIONAL ASSET MANAGERS) AND RELATED PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). ADDITIONALLY, EACH ERISA BENEFIT
PLAN ACQUIRING AN INTEREST IN TRUST CERTIFICATES MUST MAKE ITS OWN DETERMINATION
THAT THE ACQUISITION OF THE TRUST CERTIFICATES OR AN INTEREST IN A FINANCIAL
INSTRUMENT SIMILAR TO THE FINANCIAL INSTRUMENT IS PERMITTED UNDER SUCH PLAN'S
CONSTITUENT DOCUMENTS AND RELATED POLICIES.
BY ITS ACCEPTANCE OF THIS TRUST CERTIFICATE (THE "TRUST CERTIFICATE"), DIRECTLY
OR THROUGH A NOMINEE, THE INVESTOR WILL BE DEEMED TO HAVE REPRESENTED TO AND
AGREED WITH THE TRUSTEE AND THE DEALER THAT:
(A) (I) IT IS A QUALIFIED INSTITUTIONAL BUYER, (II) IT IS AWARE THAT THE
SALE OF THE TRUST CERTIFICATE IS BEING MADE IN RELIANCE ON RULE 144A
AND (III) THE TRUST CERTIFICATE IS BEING ACQUIRED FOR ITS OWN ACCOUNT
(OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER),
(B) ANY RESALE OR OTHER TRANSFER OF THE TRUST CERTIFICATE WILL BE MADE
ONLY (I) TO ONE OR MORE PERSONS EACH OF WHICH SUCH PURCHASER
REASONABLY BELIEVES IS A QUALIFIED
1
<PAGE>
INSTITUTIONAL BUYER ACQUIRING SUCH TRUST CERTIFICATE FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION COMPLYING WITH RULE 144A AND (II) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND
OTHER JURISDICTIONS,
(C) TRANSFERS OF TRUST CERTIFICATES SHALL BE RESTRICTED SO THAT, UNLESS
THE TRUSTEE HAS OBTAINED AN OPINION OF COUNSEL THAT SUCH TRANSFER WILL
NOT RESULT IN THE TRUST BEING TREATED AS A PUBLICLY TRADED PARTNERSHIP
WITHIN THE MEANING OF SECTION 7704(a) OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), (I) THE TRUST CERTIFICATES OR INTERESTS
IN THE TRUST CERTIFICATES MAY NOT BE OR BECOME TRADEABLE ON AN
"ESTABLISHED SECURITIES MARKET" AS DEFINED IN TREASURY REGULATION
SECTION 1.7704-1(b), (II) ANY TRANSFER THAT WOULD RESULT IN THERE
BEING MORE THAN 100 BENEFICIAL OWNERS OF TRUST CERTIFICATES SHALL BE
NULL AND VOID, (III) NO TRUST CERTIFICATE MAY BE HELD BY A FLOW-
THROUGH ENTITY (A PARTNERSHIP, A GRANTOR TRUST, OR AN S CORPORATION,
MORE THAN HALF OF THE ASSETS OF WHICH CONSIST OF TRUST CERTIFICATES),
AND (IV) NO OWNER SHALL HOLD LESS THAN $5 MILLION FACE AMOUNT OF TRUST
CERTIFICATES, AND
(D) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR, IF IT IS, THAT
THE ACQUISITION AND HOLDING OF THE RELEVANT TRUST CERTIFICATES IS IN
COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND HOLDING ARE
IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION EXEMPTION 84-14,
RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT
QUALIFIED PROFESSIONAL ASSET MANAGERS) AND THE RELATED PROVISIONS OF
THE CODE AND IS PERMITTED UNDER SUCH PLAN'S CONSTITUENT DOCUMENTS AND
RELATED POLICIES.
THE TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING, WITHOUT
LIMITATION, THE DECLARATION OF TRUST AND TRUST AGREEMENT OF THE TRUST
(THE "TRUST AGREEMENT") AND THE PURCHASE AGREEMENT (THE "PURCHASE
AGREEMENT") BETWEEN THE TRUST AND LEHMAN BROTHERS INC. MAY BE AMENDED
OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT OF, BUT UPON
NOTICE TO, THE OWNERS OF TRUST CERTIFICATES SENT TO THEIR REGISTERED
ADDRESSES: (i) TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR
RESALES AND OTHER TRANSFERS OF THE TRUST CERTIFICATES TO REFLECT ANY
CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF)
OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED
SECURITIES GENERALLY AND (ii) TO ACCOMMODATE THE ISSUANCE, IF ANY, OF
TRUST CERTIFICATES IN BOOK-ENTRY FORM THROUGH THE FACILITIES OF A
CLEARING AGENCY.
2
<PAGE>
THE TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING WITHOUT
LIMITATION, THE AGREEMENTS REFERRED TO ABOVE) MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, EXISTING RESTRICTIONS UPON THE RESALE
OR TRANSFER OF THE TRUST CERTIFICATES MAY BE ALTERED, AND ANY OTHER
ACTIONS MAY BE TAKEN, IN EACH CASE WITHOUT THE CONSENT OF BUT UPON
NOTICE TO THE OWNERS, TO ENABLE THE TRUST TO RELY UPON ANY EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OR THE INVESTMENT COMPANY
ACT THAT MAY BECOME AVAILABLE (AND TO REMOVE CERTAIN EXISTING
RESTRICTIONS TO THE EXTENT NOT REQUIRED UNDER SUCH EXEMPTION),
PROVIDED THAT NO SUCH CHANGE SHALL HAVE A MATERIAL ADVERSE EFFECT UPON
THE OWNERS OF TRUST CERTIFICATES THEN OUTSTANDING. THE OWNER OF THIS
TRUST CERTIFICATE SHALL BE DEEMED, BY ACCEPTANCE HEREOF, DIRECTLY OR
THROUGH A NOMINEE, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT
(EACH OF WHICH SHALL BE CONCLUSIVE AND BINDING ON SUCH OWNER AND ALL
FUTURE OWNERS OF THIS TRUST CERTIFICATE AND ANY TRUST CERTIFICATE
ISSUED IN EXCHANGE OR SUBSTITUTION FOR THIS TRUST CERTIFICATE WHETHER
OR NOT ANY NOTATION THEREOF IS MADE THEREON) AND, IN ADDITION, TO HAVE
AGREED TO EXCHANGE THIS TRUST CERTIFICATE FOR A TRUST CERTIFICATE IN
BOOK-ENTRY FORM.
NO SALE OR OTHER TRANSFER OF TRUST CERTIFICATES SHALL BE PERMITTED WHICH WOULD
REQUIRE REGISTRATION OF THE TRUST CERTIFICATES UNDER THE SECURITIES ACT, OR
REQUIRE REGISTRATION OF THE TRUST UNDER THE INVESTMENT COMPANY ACT OR RESULT IN
A VIOLATION OF ANY FEDERAL OR STATE SECURITIES LAW OR REGULATION.
3
<PAGE>
Number [XX] Face Amount
Final Principal Payment Date: October 15, 1998 $
-----------
Scheduled Income Payment Dates: From November 25, 1997 until October 15, 1998
quarterly on the 15th day of January, April, July and October, commencing
on January 15, 1998.
BRAVO TRUST SERIES 1997-1
Class B Trust Certificate
evidencing a Percentage Interest in any distribution allocable to the
Class B Trust Certificates with respect to all Trust Property held by
BRAVO TRUST SERIES 1997-1
This Class B Trust Certificate does not represent an obligation of or
interest in the Trustee or any of its affiliates. Neither this Certificate nor
the Financial Instrument is guaranteed or insured by the Dealer or the Trustee.
This certifies that
------------------------------------------------------
is the registered owner of this Class B Trust Certificate evidencing a
Percentage Interest in any distribution allocated to the Class B Trust
Certificates with respect to all Trust Property as defined in and held
pursuant to a Declaration of Trust and Trust Agreement dated as of November
25, 1997 (the "Agreement") under which The Bank of New York serves as trustee
(the "Trustee"), a summary of certain of the pertinent provisions of which is
set forth hereafter. The property of the Trust includes the Financial
Instrument. To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Agreement.
This Certificate (the "Certificate") evidences a Class B Trust Certificate
which is one of a duly authorized issue of Trust Certificates, designated as
BRAVO Trust Series 1997-1 Certificates ("Trust Certificates"), and is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
On each Scheduled Income Payment Date or the Principal Payment Date, the
Trust will cause to be distributed from funds in the Trust Certificate Accounts
to each Class B Trust Certificate Holder an amount equal to the product of the
Percentage Interest evidenced by such Class B Trust Certificate Holder's Trust
Certificates and the Class B Net Investment Income of the Trust in respect of
the period ending on such Scheduled Income Payment Date or the Principal Payment
Date (as determined in
4
<PAGE>
accordance with applicable generally accepted accounting principles) which is
determined by adding all payments relating to interest and principal received by
the Trust pursuant to the Financial Instrument and the Trust Certificate
Accounts and subtracting from the resulting sum (to the extent not otherwise
discharged on behalf of the Trust by a third party) the aggregate of all Class A
Net Investment Income and all Trust Expenses and Extraordinary Expenses not paid
by a third party.
Payments in cash on the Class B Trust Certificate evidenced by this
Certificate will be made in immediately available funds by wire transfer to an
account designated at least 10 business days prior to the related Record Date by
the Person entitled thereto.
No transfer of this Certificate may be made unless such transfer complies
with the restrictions on transfer and related conditions set forth in the
legends on the face hereof.
The Trust undertakes that it will, either directly or through Bayerische
Landesbank Girozentrale, New York Branch, as trust's agent (the "Trust's
Agent"), provide to the Holder of this Certificate and any prospective purchaser
or transferee designated by the Holder hereof, upon request of the Holder hereof
or such prospective purchaser or transferee, such information as is required by
Rule 144A to enable resales hereof to be made pursuant to Rule 144A, to the
extent such information is reasonably available.
As provided in the Agreement, deductions and withdrawals from the Trust
Certificate Account will be made from time to time for purposes other than
payments to Trust Certificate Holders, such purposes including payment of
unreimbursed expenses incurred by the Trust.
The Trustee will cause to be kept at its main Office in New York, New
York, or at the office of the Trust's designated agent, a Trust Certificate
Register in which, subject to such reasonable regulations as it may prescribe,
the Trustee will provide for the registration of Trust Certificates and of
transfers and exchanges of such Trust Certificates. Upon surrender for
registration of purchase of any Certificate at any office or agency of the Trust
maintained for such purpose, the Trustee will, subject to the limitations set
forth in the Agreement, execute and deliver, in the name of the designated
purchaser, a Certificate dated the date of execution by the Trustee.
No service charge will be made to the Class B Trust Certificate Holder for
any transfer of this Certificate, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer of the Certificate. Prior to due presentation of a
5
<PAGE>
Certificate for registration of transfer, the Trustee may treat the person in
whose name any Certificate is registered as the owner of such Certificate and
the Percentage Interest in the Trust evidenced thereby for the purpose of
receiving distributions pursuant to the Agreement and for all other purposes
whatsoever, and the Trustee will not be affected by notice to the contrary.
The Agreement may be amended from time to time by the Trustee, without the
consent of any of the Trust Certificate Holders, (i) to cure any ambiguity or to
correct or supplement any provisions therein which may be inconsistent with any
other provisions therein, (ii) to add to the duties or obligations of the
Trust's Agent or the Trustee, under the Agreement, (iii) to accommodate the
issuance, if any, of Trust Certificates through the facilities of a clearing
agency and/or to enable the Trust to rely upon any exemption from registration
under the Securities Act or the Investment Company Act (as provided in the
legend on the face hereof), (iv) to make any other provision with respect to
matters or questions arising under the Agreement which shall not be materially
inconsistent with the provisions of the Agreement or (v) for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Agreement or of modifying in any manner the rights of the
Holders of Trust Certificates; provided, however, that no such amendment shall,
as evidenced by an Opinion of Counsel, (i) reduce in any manner the amount of,
or delay the timing of, payments which are required to be made on any Trust
Certificate or otherwise materially adversely affect the Trust Certificate
Holders; or (ii) adversely affect in any material respect the status of the
Trust as a partnership for federal income tax purposes or amend Section 11.01(a)
of the Agreement; and provided further, however, that, if any Trust Certificates
have been rated, the Rating Agencies Condition shall have been met with respect
to such amendment. The Trustee shall be entitled to rely on such Opinion of
Counsel as to the matters referred to in the proviso to the immediately
preceding sentence.
The Agreement and the Trust will terminate and the Trust Property, after
giving effect to the payments required to be made pursuant to the Agreement,
shall be distributed to the Trust Certificate Holders in accordance with their
Percentage Interests, and the Agreement shall be of no further force or effect,
only in the event that all amounts owed under the Agreement in respect of the
Financial Instrument have been received by the Trust and payments made in
accordance with the terms of the Trust.
It is the intention of the Trustee and the Trust Certificate Holders, and
the Holder of this Certificate by its acceptance hereof agrees, that the Trust
will be treated as a partnership for federal income tax purposes and all
transactions contemplated
6
<PAGE>
by the Agreement will be reported, to the extent applicable, on all applicable
tax returns consistently with such treatment. The provisions of the Agreement
shall be construed, and the affairs of the Trust shall be conducted, so as to
achieve treatment of the Trust as a partnership for federal income tax purposes.
Unless this Certificate has been executed by the Trustee, by manual
signature, this Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose.
7
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
BRAVO TRUST SERIES 1997-1
By: THE BANK OF NEW YORK,
not in its individual
capacity, but solely as
Trustee
By
-----------------------------
Name:
Title:
8
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE)
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
- ------------------
- ------------------
- --------------------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
- --------------------------------------------------------------------------
the within Certificate, and all rights thereunder, and hereby does
irrevocably constitute and appoint
Attorney
- ---------------------------------------------------------------
to transfer the within Certificate on the books kept for the registration
thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty)
-----------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as it appears upon the face of
the within Certificate in every
particular, without alteration or
enlargement or any change whatever.
9
<PAGE>
EXHIBIT B
CO-TRUSTEE AGREEMENT
This Co-Trustee Agreement (this "Co-Trustee Agreement"), dated as of
November 25, 1997, between The Bank of New York (the "Trustee"), and The Bank of
New York (Delaware) (the "Delaware Trustee").
WITNESSETH
WHEREAS, the holders of the Trust Certificates from time to time
thereunder and the Trustee have entered into a Declaration of Trust and Trust
Agreement dated as of November 25, 1997 (as the same may be further amended or
restated from time to time, the "Trust Agreement") with the intention of forming
BRAVO Trust Series 1997-1, a Delaware business trust (the "Trust") pursuant to
the Delaware Business Trust Act, 12 DEL. C. Section 3801, ET SEQ. (the "DBTA");
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Trust Agreement; and
WHEREAS, the DBTA requires that at least one trustee of the Trust have
its principal place of business in the State of Delaware; and
WHEREAS, the Delaware Trustee has its principal place of business in
the State of Delaware.
NOW, THEREFORE, the parties hereto hereby agree as follows:
FOR VALUABLE CONSIDERATION RECEIVED it is mutually covenanted and
agreed pursuant to the terms of Section 2.05 of the Trust Agreement that the
Delaware Trustee has been and by this document is, appointed to serve as the
trustee of the Trust in
<PAGE>
the State of Delaware pursuant to Section 3807 of the DBTA. It is understood and
agreed that (a) the duties and responsibilities of the Delaware Trustee shall be
limited to the execution and delivery of all documents, and the maintenance of
all records, necessary to form and maintain the existence of the Trust under the
DBTA, and (b) the Delaware Trustee shall be entitled to all of the benefits,
immunities and protections provided to the Trustee in the Trust Agreement and
any other related documents. By the execution hereof, the Delaware Trustee
accepts the trust created hereinabove and in the Trust Agreement; PROVIDED,
HOWEVER, that the Delaware Trustee shall owe no other fiduciary duties to the
holders of the Trust Certificates other than as expressly provided for in this
Co-Trustee Agreement.
This Co-Trustee Agreement may be executed in separate counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument. This Co-Trustee Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Co-Trustee
Agreement as of the day and year first above written.
THE BANK OF NEW YORK
By:
-------------------------
Name:
Title:
THE BANK OF NEW YORK
(DELAWARE)
By:
-------------------------
Name:
Title:
<PAGE>
SECURITIES PROCESSING SERVICES
THE CORPORATE TRUST
BANK OF
NEW
YORK
REVISED
PROPOSAL
FOR
BAYERISCHE LANDESBANK GIROZENTRALE
REPACKAGED ASSET VEHICLE OBLIGATIONS TRUST
Trustee, Custodian and Paying Agent Services
SEPTEMBER 8, 1997
ACCEPTANCE FEE.......................................................$5,000.00
This one time charge is payable at the time of the closing and includes the
following services:
/ / review of the Indenture and all supporting documents
/ / receipt of collateral
/ / establishment of administrative and operational
account procedures
/ / attendance at the pre-closing and closing, if required
ANNUAL ADMINISTRATION FEE............................................$7,500.00
This fee is payable in advance and subsequently on each anniversary date. The
following services are included:
/ / normal administrative functions under the Indenture
/ / safekeeping of collateral
/ / collections of principal and interest payable on the
collateral, if required
/ / calculation of applicable interest rates
/ / payments of principal and interest
/ / weekly valuation of collateral
/ / preparation and mailing of year-end tax reports to
the security holders and to the Internal
Revenue Service
<PAGE>
SECURITIES PROCESSING SERVICES
THE CORPORATE TRUST
BANK OF
NEW
YORK
PAGE 2
OUT-OF-POCKET EXPENSES
Fees quoted do not include any out-of-pocket expenses including, but not limited
to, travel, facsimile, stationery, postage, telephone, overnight courier, and
messenger costs. These expenses will be billed, at our cost, when incurred. In
the event the transaction terminates before closing, all out-of-pocket expenses
incurred, including our counsel fees, if applicable, will be billed to the
account.
EXTERNAL COUNSEL FEES
Fees quoted do not include external counsel fees. A bill for counsel fees
incurred up to closing will be presented for payment on the closing date.
MISCELLANEOUS SERVICES
The charges for performing services not contemplated at the time of the
execution of the documents or not specifically covered elsewhere in the schedule
will be determined by appraisal in amounts commensurate with the service.
TERMS OF PROPOSAL
The Bank of New York's final acceptance of this appointment is subject to the
full review and approval of all related documentation and financials and our
conflict investigation.
This offer shall be deemed terminated if we do not enter into a written
agreement within three months from the date of transmittal.
<PAGE>
AGENCY AGREEMENT
AGREEMENT made this 25th day of November, 1997, by and between (a) BRAVO
Trust Series 1997-1 (the "Trust"), a trust established under the laws of the
State of Delaware pursuant to the Declaration of Trust and Trust Agreement
dated November 25, 1997 (the "Trust Agreement") with The Bank of New York, a
New York banking corporation, as trustee (the "Trustee" and in its individual
capacity, the "Bank"), and (b) Bayerische Landesbank Girozentrale, New York
Branch (the "Trust's Agent").
W I T N E S S E T H:
WHEREAS, the Trust wishes to engage the Trust's Agent to act as agent for
the Trust and in such capacity to perform certain administrative services on its
behalf for the Trust; and
WHEREAS, the Trust's Agent is willing to perform such services and to act
in such capacity as aforesaid, subject to and in accordance with the provisions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS
Capitalized terms used herein, unless otherwise defined, shall have
the same meanings ascribed thereto in the Trust Agreement.
2. APPOINTMENT OF THE TRUST'S AGENT
The Trust hereby appoints the Trust's Agent to act as agent for the
Trust in accordance with the Trust Agreement and in such capacity to furnish, or
arrange for affiliates to furnish, the administrative services described below
for the period and on the terms and conditions set forth in this Agreement. The
Trust's Agent hereby accepts such appointment and agrees during such period to
render, or arrange for the rendering of, such services and to assume the
obligations herein set forth. The Trust's Agent shall act as an agent of the
Trust in an administrative capacity and not a fiduciary capacity. The Trust's
Agent shall have no agency or other relationship hereunder directly with any
Holder.
<PAGE>
3. DUTIES OF TRUST'S AGENT
The Trust's Agent shall perform (or supervise the performance of) the
duties of the Trust's Agent contemplated by the Trust Agreement to be delegated
by the Trustee to the Trust's Agent, including but not limited to the following:
(i) determining and communicating to the Trustee any tax or
governmental charge that may be imposed in connection with any
transfer or exchange of Certificates as required by Section 3.05 of
the Trust Agreement;
(ii) appointing a successor Trustee upon the resignation of
the Trustee pursuant to Section 10.01(a) of the Trust Agreement;
(iii) causing the Certificates to be eligible for transfer
under Rule 144A promulgated under the Securities Act of 1933, as
amended (the "1933 Act"), and arranging for the preparation and
delivery of information with respect to the Trust in connection with
Certificate transfers pursuant to Rule 144A(d)(4) under the 1933 Act
in accordance with Section 3.09 of the Trust Agreement to the extent
such information is reasonably available;
(iv) appointing a Paying Agent, if and as required pursuant to
Section 3.12 of the Trust Agreement and causing any such Paying Agent
to execute any instruments or agreements pursuant to Section 3.12 of
the Trust Agreement;
(v) consulting with the Trustee as to the matters set forth
in Sections 5.01, 6.01, 6.02, 9.01 and 11.01 of the Trust Agreement;
and
(vi) approving any modification or termination of the Basic
Documents proposed by the Trustee pursuant to Section 6.03 of the
Trust Agreement.
4. INDEPENDENT CONTRACTOR
For all purposes of this Agreement, the Trust's Agent shall be an
independent contractor. Nothing contained in this Agreement shall (i) constitute
the Trust's Agent and the Trust or the Trustee as partners or joint venturers of
one another, (ii) be construed to impose any liability as such on either of
them, or (iii) be deemed to confer on either of them any express, implied or
apparent authority to incur any obligation or liability on behalf of the other.
Unless expressly authorized by the Trust, the Trust's Agent shall have no
authority to act for or represent the Trust in any way and shall not otherwise
be deemed an agent of the Trust.
2
<PAGE>
5. LIMITS OF TRUST'S AGENT'S RESPONSIBILITY; INDEMNIFICATION
(a) The Trust's Agent, its directors, officers, shareholders and
employees and its affiliates shall not be liable to the Trustee, the Trust or
the Holders or others for actions or omissions in the performance of their
duties hereunder in compliance with the terms of this Agreement, except by
reason of acts or omissions constituting bad faith, willful misfeasance, gross
negligence or reckless disregard of their duties (the "Standard of Care"). The
Trust's Agent assumes no responsibility under this Agreement other than to
render the services called for hereunder in accordance with the Standard of
Care.
(b) The Trust hereby agrees to indemnify and hold harmless the
Trust's Agent and each person who controls the Trust's Agent within the
meaning of the federal securities laws, and their respective affiliates,
directors, officers, shareholders, employees and agents, from and against any
and all expenses (including but not limited to reasonable fees and expenses
of counsel), losses, damages, liability, demands, charges and claims of any
nature whatsoever which may be imposed on or incurred by any such person in
respect of or arising from any acts or omissions performed or omitted by the
Trust's Agent in compliance with the terms of this Agreement and in
accordance with the Standard of Care; PROVIDED, HOWEVER, that such
indemnification shall be provided solely from the Trust Property and the Bank
shall not be liable in its individual capacity for any such amounts.
(c) The Trust's Agent agrees that any amount payable to it under
subsection 5(b) hereof shall be only to the extent of any excess funds of the
Trust after payment of all other Trust Liabilities and all amounts due under the
Trust Certificates and that the obligation of the Trust to pay any such amount
to the Trust's Agent shall be expressly subordinate in right of payment to
amounts due to Holders under the Trust Certificates.
6. TERM OF AGREEMENT; TERMINATION
Unless previously terminated in accordance with this Section, this
Agreement shall terminate upon the termination of the Trust in accordance
with Section 9.01 of the Trust Agreement. The Trustee may terminate this
Agreement at any time upon 30 days' prior written notice to the Trust's
Agent. The Trust's Agent may resign its duties hereunder by providing the
Trustee with at least 60 days' written notice, provided that a successor
Trust's Agent, approved by the Trustee, has agreed in writing to assume all
of the obligations and duties of the Trust's Agent hereunder, and PROVIDED,
FURTHER, that the Trust's Agent may assign its rights and delegate its
obligations hereunder pursuant to Section 10 hereof. The Trustee shall notify
Standard & Poor's Ratings Services and Moody's Investors Service Inc. of any
such termination of this Agreement.
The Trust's Agent shall not resign unless it is prohibited from acting
hereunder by virtue of any insolvency proceeding involving it or because of the
likelihood of the imposition against it of any state or federal rule, regulation
or administrative order or because in the opinion of counsel it would be illegal
for the Trust's Agent to perform any or all of its
3
<PAGE>
duties hereunder. The Trustee shall have no duty or obligation to assume the
role as successor Trust's Agent unless the Trust's Agent is prohibited, for a
reason set forth in the preceding sentence, from acting hereunder. If the
Trust's Agent is so prohibited from acting hereunder, then the Trustee shall use
its best efforts to appoint a successor Trust's Agent. If no successor Trust's
Agent is appointed, the Trustee shall assume the role of the Trust's Agent until
such time as a successor Trust's Agent shall have been appointed and begun
acting as Trust's Agent. In no event, however, shall the Trustee, in its
capacity as successor Trust's Agent, be obligated to perform the duties set
forth in Section 3(iii) of this Agreement.
7. NON-EXCLUSIVITY
The nature of the duties of the Trust's Agent hereunder shall not
preclude the Trust's Agent from providing services of a like nature to any other
person, firm or corporation.
8. NOTICES
Any direction, notice, report or other communication required or
permitted hereunder shall be furnished or given in writing (which may be a
facsimile transmission) to the Trust or the Trust's Agent, as the case may be,
at the following addresses:
If to the Trust:
BRAVO TRUST SERIES 1997-1
c/o The Bank of New York
101 Barclay Street,
New York, New York 10286
Attention: Corporate Trust Administration/
Asset Backed Finance
Telecopier: (212) 815-5544
If to the Trust's Agent:
Bayerische Landesbank Girozentrale, New York Branch
560 Lexington Avenue
New York, New York 10022
Attention: James M. Peterson
Telecopier: (212) 310-9870
If to Standard & Poor's Ratings Services:
Standard & Poor's Ratings Services
26 Broadway
New York, New York 10004
4
<PAGE>
Attention: Insurance Group-Separate
Account Unit
Telecopier: (212) 412-0323
If to Moody's Investors Service, Inc.:
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: Asset Backed Surveillance
Telecopier: (212) 553-0355
9. ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, inducements and
conditions, express or implied, oral or written, of any nature whatsoever with
respect to the subject matter hereof. The express terms hereof control and
supersede any course of performance and/or usage of the trade inconsistent with
any of the terms hereof. This Agreement may not be modified or amended other
than by an agreement in writing signed by each party hereto.
10. ASSIGNMENT; SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of and bind the parties
hereto and their respective successors and assigns; provided that the Trust's
Agent may not assign its rights and delegate its obligations hereunder without
the prior written consent of the Trustee unless such assignment is to a
wholly-owned, direct or indirect subsidiary of Bayerische Landesbank
Girozentrale, New York Branch, which shall not require the consent of the
Trustee; PROVIDED, FURTHER, that the Trust's Agent shall not assign or delegate
its obligations under Section 5(c) hereof without the prior written consent of
the Bank.
11. EXECUTION, DELIVERY AND PERFORMANCE BY TRUST'S AGENT
The execution, delivery and performance of this Agreement, to the best
of the knowledge of the Trust's Agent, after reasonable investigation, will not
conflict with or constitute a default under any order, judgement, decree,
agreement, injunction or other instrument binding on or affecting the property
or assets of the Trust's Agent.
12. EXECUTION OF BASIC DOCUMENTS
The Trust's Agent acknowledges that the Trustee is executing the Basic
Documents on behalf of the Trust.
5
<PAGE>
13. NON-PETITION
Notwithstanding any prior termination of this Agreement, the Trust's
Agent shall not acquiesce, petition or otherwise invoke or cause the Trust to
invoke the process of any court or governmental authority for the purpose of
commencing or sustaining a case against the Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Trust or any substantial part of its property, or making a general assignment
for the benefit of creditors, or ordering the winding up or liquidation of the
affairs of the Trust.
14. GOVERNING LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH JURISDICTION.
15. NO LIABILITY OF BANK
The Bank of New York is executing this Agreement on behalf of the
Trust solely as Trustee under the Trust Agreement and not in its individual
capacity, and in no case whatsoever shall the Bank be liable for the statements
or agreements of the Trust hereunder. All persons asserting any claim against
the Bank, the Trustee or the Trust by reason of the transactions contemplated by
this Agreement shall look solely to the Trust Property for payment or
satisfaction thereof.
16. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agency
Agreement to be duly executed as of the day and year first above written.
BRAVO TRUST SERIES 1997-1
By: The Bank of New York, not in its individual
capacity but solely as Trustee under the Trust
Agreement
By: /s/ Cheryl L. Laser
----------------------------------------------
Name CHERYL L. LASER
Title: Assistant Vice President
BAYERISCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
By: /s/ Bert von Stuelpnagel
----------------------------------------------
Bert von Stuelpnagel
Executive Vice President
and Manager
By: /s/ Ron Bertolini
----------------------------------------------
Ron Bertolini
First Vice President and
Treasury Manager
<PAGE>
CO-TRUSTEE AGREEMENT
This Co-Trustee Agreement (this "Co-Trustee Agreement"), dated as of
November 25, 1997, between The Bank of New York (the "Trustee"), and The Bank
of New York (Delaware)(the "Delaware Trustee").
W I T N E S S E T H
WHEREAS, the holders of the Trust Certificates from time to time
thereunder and the Trustee have entered into a Declaration of Trust and Trust
Agreement dated as of November 25, 1997 (as the same may be further amended
or restated from time to time, the "Trust Agreement") with the intention of
forming BRAVO Trust Series 1997-1, a Delaware business trust (the "Trust")
pursuant to the Delaware Business Trust Act, 12 DEL. C. Section 3801, ET SEQ.
(the "DBTA"); capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Trust Agreement; and
WHEREAS, the DBTA requires that at least one trustee of the Trust have
its principal place of business in the State of Delaware; and
WHEREAS, the Delaware Trustee has its principal place of business in
the State of Delaware.
NOW, THEREFORE, the parties hereto hereby agree as follows:
FOR VALUABLE CONSIDERATION RECEIVED it is mutually covenanted and agreed
pursuant to the terms of Section 2.05 of the Trust Agreement that the
Delaware Trustee has been and by this document is, appointed to serve as the
trustee of the Trust in
<PAGE>
the State of Delaware pursuant to Section 3807 of the DBTA. It is understood
and agreed that (a) the duties and responsibilities of the Delaware Trustee
shall be limited to the execution and delivery of all documents, and the
maintenance of all records, necessary to form and maintain the existence of
the Trust under the DBTA, and (b) the Delaware Trustee shall be entitled to
all of the benefits, immunities and protections provided to the Trustee in the
Trust Agreement and any other related documents. By the execution hereof,
the Delaware Trustee accepts the trust created hereinabove and in the Trust
Agreement; PROVIDED, HOWEVER, that the Delaware Trustee shall owe no other
fiduciary duties to the holders of the Trust Certificates other than as
expressly provided for in this Co-Trustee Agreement.
This Co-Trustee Agreement may be executed in separate counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument. This Co-Trustee Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Co-Trustee Agreement
as of the day and year first above written.
THE BANK OF NEW YORK
By: /s/ Cheryl L. Laser
---------------------------------
Name: CHERYL L. LASER
Title: Assistant Vice President
THE BANK OF NEW YORK
(DELAWARE)
By: /s/ Reyne A. Macadaeg
---------------------------------
Name: REYNE A. MACADAEG
Title: Assistant Vice President
<PAGE>
[LOGO]
INTEGRITY LIFE INSURANCE COMPANY
WORTHINGTON, OHIO
PRINCIPAL EXECUTIVE OFFICE:
515 West Market Street, 8th Floor
Louisville, KY 40202
Integrity Life Insurance Company, in consideration of the Contribution
specified herein, agrees to make the payments as provided under this
agreement, subject to all provisions of this agreement.
The provisions of this agreement shall be construed in accordance with the
laws of the issuer's state of domicile (that is, Ohio) without regard to the
conflicts of law provision thereof.
Signed by our President and Secretary on the Effective Date.
/s/ [ILLEGIBLE] /s/ John R. Lindholm
-------------------------------- -------------------------------
Secretary President
SEPARATE ACCOUNT GROUP ANNUITY CONTRACT
INDEXED INTEREST RATE
NONPARTICIPATING
POLICY FORM NUMBER SAFUNDAGR-INT-97
<PAGE>
SCHEDULE PAGE
OWNER - BRAVO Trust Series 1997-1
AGREEMENT NUMBER - IFA00141ST
EFFECTIVE DATE - November 25, 1997
MATURITY DATE - October 15, 2002 (or the latest date to
which this Agreement has been extended
pursuant to Section 8.11 hereof or
such earlier date on which a full
withdrawl under the provisions of the
Custody Agreement (as defined below)
has occurred).
INITIAL CONTRIBUTION - $500,000,000.00
EXPENSE OR SERVICE CHARGES - None (except as may be agreed upon by the
parties hereto)
INTEREST ACCUMULATION PERIODS - Interest payable shall be accumulated
on a quarterly basis as follwos: (i)
the Effective Date through January
14,1998 (the "Initial Stub Period"),
(ii) after the Initial Stub Period,
each quarter thereafter beginning from
15th day of such quarter thereafter
through the 14th day following the end
of such calendar quarter (i.e.,
January 15th through April 14th, April
15th through July 14th, July 15th
through October 14th, October 15th
through January 14th, and (iii) the
stub period, if any, from the 15th day
after the end of the final full
quarter prior to this agreement's
applicable Maturity Date through such
Maturity Date (the "Final Stub
Period").
SAFUNDAGR-INT-97
ii
<PAGE>
INTEREST PAYMENT DATES - Interest shall be paid no later than
noon, Eastern Time, on each October
15th, January 15th, April 15th and
July 15th, and on the Maturity Date,
provided that, if any such day is not
a Business Day, then on the next
Business Day thereafter.
INDEX VALUE - Three Month LIBOR + 25 basis points
(i.e., three month LIBOR + .25%).
Three Month LIBOR (London Interbank
Offered Rate) shall be the British
Bankers Association fixing of the
three month LIBOR rate at 11:00 a.m.
(London time) on that day which is two
LIBOR-Based Business Days prior to the
beginning of the applicable Interest
Accumulation Period, as reported on
Bloomberg L.P.'s Financial Markets
Commodities News ("Bloomberg") under
the Ticker Symbol US0003M, on display
page 3750 (or such other page as may
replace that page on that service) on
the Dow Jones Telerate Service
("Telerate"), or on any other
nationally recognized service approved
by You. Should there be a discrepancy
between the Bloomberg and Telerate
reporting of the three month LIBOR
rate mentioned above, then the
Telerate rate shall be used.
GROUP - Beneficial owners of Trust Certificates
issued by BRAVO Trust Series 1997-1
SAFUNDAGR-INT-97
iii
<PAGE>
TABLE OF CONTENTS PAGE
Section 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2 Deposit Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3 Credits to and Value of Deposit Fund. . . . . . . . . . . . . . . 4
Section 4 Payments and Withdrawals. . . . . . . . . . . . . . . . . . . . . 5
Section 5 Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7 Annuity Purchases . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 8 General Provisions. . . . . . . . . . . . . . . . . . . . . . . . 9
SAFUNDAGR-INT-97
iv
<PAGE>
SECTION 1 - DEFINITIONS
1.01 DEFINITIONS
"BUSINESS DAY" means any calendar day that is not (a) a Saturday, (b) a
Sunday, (c) a federally-declared national bank holiday, (d) a
federally-declared national holiday, or (e) an official holiday declared
by and recognized in either The Commonwealth of Kentucky or the State of
Minnesota.
"COMBINED ASSETS" means the Separate Account assets and the Supporting
Separate Account assets held in the Custody Account.
"CONTRIBUTION" means a cash payment pre-approved by Us which You make to
Us, and We accept, for credit to the Deposit Fund.
"CUSTODIAN" means First Trust National Association or its successor
under the Custody Agreement.
"CUSTODY ACCOUNT" means the Main Custodial Account and the Supporting
Custodial Account.
"CUSTODY AGREEMENT" means the custodial agreement among You, Us, the
Custodian and Bayerische Landesbank Girozentrale, New York Branch which
governs the terms of the Custody Account.
"DEPOSIT FUND" means the liability account established by Us on Our
books and records in accordance with Section 2 hereof for the purpose of
providing payments pursuant to Section 4 hereof.
"EARLY CERTIFICATE MATURITY EVENT" has the meaning set forth in the
Custody Agreement.
"EARLY FUNDING AGREEMENT TERMINATION EVENT" has the meaning set forth in
the Custody Agreement.
"EFFECTIVE DATE" means the first Business Day upon which the
Contribution has been received by Us prior to 10:00 a.m. EST, as set
forth on the Schedule Page.
"INTEREST ACCUMULATION PERIOD" means the quarterly period between
scheduled interest payments as set forth on the Schedule Page.
"INTEREST PAYMENT DATES" mean the dates upon which interest payments are
to be made under this agreement as set forth on the Schedule Page.
SAFUNDAGR-INT-97
1
<PAGE>
"INVESTMENT GUIDELINES" means the guidelines agreed upon from time to
time by Us and the Liquidity Provider for the Senior Securities (subject
to any applicable Rating Agency parameters) which govern the asset
classes and amounts in which the Combined Assets supporting the amount
of the Deposit Fund and any accumulations thereon may be invested.
"LIBOR-BASED BUSINESS DAY" means any day that LIBOR is calculated and
published publicly (electronically or otherwise).
"LIQUIDITY AGREEMENT" means the Standby Trust Certificate Purchase
Agreement dated as of November 25, 1997, among the Trust, Bayerische
Landesbank Girozentrale, New York Branch, and Integrity Life Insurance
Company.
"LIQUIDITY PROVIDER" means Bayerische Landesbank Girozentrale, New York
Branch, or any successor thereto as liquidity provider under the
Liquidity Agreement.
"MAIN CUSTODIAL ACCOUNT" means that certain segregated custodial
sub-account maintained with the Custodian pursuant to the terms of the
Custody Agreement which, in combination with the Supporting Custodial
Account, contains the assets supporting the Deposit Fund.
"MARKET AGENT" means Bayerische Landesbank Girozentrale, New York
Branch, or any successor thereto under the Market Agent Agreement.
"MARKET AGENT AGREEMENT" means the Market Agent Agreement dated the date
hereof between the Market Agent and You.
"MATURITY DATE" refers to the Maturity date set forth on the Schedule
Page.
"RATING AGENCIES" means Standard & Poor's Ratings Services and Moody's
Investors Service, Inc.
"SCHEDULE PAGE" means the pages designated as such which immediately
follow this agreement's initial, manually signed cover page.
"SENIOR SECURITIES" means the Class A Trust Certificates issued by the
Trust.
"SEPARATE ACCOUNT" means Separate Account IV established by Us pursuant
to the provisions of Section 3907.15 of the Ohio Revised Code to hold,
inter alia, the assets which, in combination with the assets held in the
Supporting Separate Account, support the Deposit Fund.
"SUBORDINATE SECURITIES" means the Class B Trust Certificates issued by
the Trust.
SAFUNDAGR-INT-97
2
<PAGE>
"SUPPORTING CUSTODIAL ACCOUNT" means that certain segregated custodial
sub-account maintained with the Custodian pursuant to the terms of the
Custody Agreement which holds any amounts contributed to such account in
support of Our payment obligations under this agreement which are
additional to any amounts held in the Main Custodial Account.
"SUPPORTING SEPARATE ACCOUNT" means Separate Account V established by Us
pursuant to the provisions of Section 3907.15 of the Ohio Revised Code
to support Our payment obligations under this agreement which Separate
account shall be additional to, and established in support of, the
Separate Account.
"TRUST" means the BRAVO Trust Series 1997-1.
"WE", "US, AND "OUR" refers to Integrity Life Insurance Company.
"WEEKLY VALUATION" means the valuation of the assets held in the Main
Custodial Account and the Supporting Custodial Account which is to be
performed by the Custodian pursuant to the Custody Agreement on a weekly
basis and to be provided to You on the last Business Day of each week
during the term of this Agreement.
"YOU", "YOUR", AND "YOURS", refers to the Owner named on the Schedule
Page.
SECTION 2 - DEPOSIT FUND
2.01 CONTRIBUTIONS
A Deposit Fund shall be established by Us on Our books and records
upon receipt by Us of the payment of the Initial Contribution.
Contributions shall be credited to the Deposit Fund (i) on the date
received by the Custodian if prior to 12:00 NOON, Eastern Standard
Time, provided that notice is received by the Custodian in writing
at least one day prior thereto and (ii) otherwise on the following
Business Day.
2.02 STATEMENTS
Once a week on the last Business Day of the week, We will provide or
cause to be provided to You, the Liquidity Provider and any other
person You or the Liquidity indicates to Us a statement comparing
the market value of the Combined Assets with the amount of the
Deposit Fund, both compared as of the penultimate Business Day of
such week. In addition, We will cause the Custodian to supply You
and Us a copy of (or electronic access to) the Weekly Valuation
promptly upon its completion.
SAFUNDAGR-INT-97
3
<PAGE>
2.03 CURRENCY
All payments of cash made to or by Us shall be payable in U.S
Dollars.
SECTION 3 - CREDITS TO AND VALUE OF DEPOSIT FUND
3.01 INDEX VALUE
The Daily Factor used to determine interest credited hereunder
shall be calculated as follows: DAILY FACTOR = (INDEX VALUE) /360.
3.02 AMOUNT OF DEPOSIT FUND
On the 15th day following the end of any calendar quarter (except any
quarter following the Maturity Date), the amount of the Deposit
Fund shall be equal to (a), plus (b), minus (c) minus (d), where;
(a) is the amount of the Deposit Fund as of the close of business
on, as applicable, the Effective Date (in the case of the first
such determination hereunder) or the 15th day following the end of
the previous calendar quarter (i.e., October 15th in the case of a
January 15 determination, January 15th in the case of an April
15th determination, April 15th in the case of a July 15th
determination, and July 15th in the case of an October 15th
determination);
(b) is (a) times the actual number of days in the previous
Interest Accumulation Period times the Daily Factor applicable to
such Interest Accumulation Period;
(c) is any authorized payment, charge or withdrawal during the
previous Interest Accumulation Period; and
(d) is (c) times the Daily Factor applicable to such Interest
Accumulation Period times the actual number of days from the date
such payment, charge or withdrawal was effective through the end of
such Interest Accumulation Period, inclusive.
Interest shall be credited daily and paid out in cash on the
Interest Payment Dates. On any day other than the 15th day of a
quarter, the amount of the Deposit Fund shall be determined on a
basis consistent with that used in this Section 3.02. The amount
of the Deposit Fund will never be less than the total amount of the
Initial Contribution; plus interest credited; less payments and
withdrawals with interest (based on the Index Value).
3.03 NONPARTICIPATING
This is a nonparticipating contract. It will not share in Our
surplus or profit. Our obligation to credit interest to the amount
of the Deposit Fund is absolute and unconditional and does not
depend on Our surplus or profit. If the Combined Assets are
insufficient to pay You the
SAFUNDAGR-INT-97
4
<PAGE>
amount of the Deposit Fund, then We have an obligation to pay any
such shortfall from Our general account.
SECTION 4 - PAYMENTS AND WITHDRAWALS
4.01 PAYMENTS
Interest payments shall be made on the Interest Payment Dates.
Except as set forth in Section 6.01 hereof, the then-existing
amount of the Deposit Fund shall be paid on the Maturity Date.
4.02 PAYEE
We will make all payments to the payee You designate in writing,
unless prohibited by law.
4.03 METHOD OF PAYMENT
Payments shall be charged against the Deposit Fund as of the date
they are made. Payments (other than to purchase annuities) shall
be made by wire transfer. If on a due date the Federal Reserve
Wire Transfer system is closed, payment will be made on the first
Business Day such system is subsequently open.
4.04 WITHDRAWALS
Withdrawal of the assets supporting the Deposit Fund prior to the
maturity of this agreement may not be made except as provided in the
Custody Agreement, as it may be amended from time to time, and
shall be made at the times required for such withdrawals by the
Custody Agreement, as so amended.
4.05 CERTIFICATION OF TRANSFERS AND WITHDRAWALS
Prior to or concurrently with the allocation of a transfer of any
general account asset of Integrity to the Separate Account or the
Supporting Separate Account and the transfer of such assets to the
Main Custodial Account and the Supporting Custodial Account, we
shall deliver a certificate to the Custodian and Rating Agencies to
the effect that:
1. The allocation and transfer have been approved by the
superintendent of insurance of Our then-current state of domicile;
or
SAFUNDAGR-INT-97
5
<PAGE>
2. The allocation and transfer are made solely to support the
guarantees of the policies, annuities, or other contracts identified
with the Separate Account and the Supporting Separate Account; and
in addition that:
(i) such transfer is of cash or securities having a readily
determinable market value;
(ii) no Early Certificate Maturity Event has occurred and is
continuing;
(iii) Integrity has received fair consideration for such transfer
under this agreement; and
(iv) Integrity is not insolvent.
Prior to or concurrent with a withdrawal by Integrity of any cash from
the Separate Account or the Supporting Separate Account or from the Main
Custodial Account or the Supporting Custodial Account, we shall deliver
a certificate to the Custodian and the Rating Agencies to the effect
that:
1. (i) The withdrawal is approved by such superintendent of
insurance; or
(ii) The withdrawal is of amounts previously allocated to the
Separate Account or the Supporting Separate Account which
are no longer needed to support the guarantees of the
policies, annuities, or other contracts identified
therewith; and in addition that:
(A) such withdrawal is of cash;
(B) no Early Certificate Maturity Event has occurred and is
continuing; and
(C) Integrity is not insolvent.
2. The withdrawal will not result in the market value (as determined by
the Custodian) of the assets in the Separate Account and the
Supporting Separate Account falling below 102% of the
then-applicable value of the Deposit Fund.
SECTION 5 - SEPARATE ACCOUNTS
5.01 NATURE OF THE SEPARATE ACCOUNTS
We shall allocate the Initial Contribution to the Separate Account, and
transfer same to the Main Custodial Account, immediately upon receipt.
Concurrently therewith We shall
SAFUNDAGR-INT-97
6
<PAGE>
allocate an additional $10 million to the Supporting Separate Account and
transfer same to the Supporting Custodial Account. As a result, the
Combined Assets equal to the reserves and other contractual liabilities
under this agreement shall not be chargeable with liabilities arising
out of any other business of Ours. In addition, the income, gains, and
losses on such assets shall only be credited to or charged against the
assets held in the respective Separate Accounts without regard to Our
other income, gains or losses. Under Ohio law (and subject to the
foregoing stipulations), We will own the assets placed in the Separate
Account and the Supporting Separate Account, and We will not be, or hold
ourselves out to be, a trustee in respect of such assets.
5.02 REQUIRED ASSET MAINTENANCE LEVEL
Subject to the provisions of Section 2.7(a)(ii)(B) of the Custody
Agreement, during the term of this Agreement the market value of the
Combined Assets (based upon the then-applicable Weekly Valuation) shall
be maintained at not less than 102% of the then-applicable amount of
the Deposit Fund (the "Required Asset Maintenance Level"), provided,
however, that after the date hereof it shall not be a breach of this
agreement or an "Early Certificate Maturity Event" or a "Margin Deficit"
under the Custody Agreement as long as Integrity maintains the market
value of the Combined Assets at no more than $1 million below the
Required Asset Maintenance Level. In the event that the market value of
the Combined Assets declines below the Required Asset Maintenance Level
in an amount greater than $1 million, We shall within the time period
required by the Custody Agreement add sufficient additional assets to
the Supporting Custodial Account so that the market value of the
Combined Assets is again equal to or greater than the Required Asset
Maintenance Level.
SECTION 6 - TERMINATION
6.01 PROCEDURE AND TIMING
Upon the occurrence of an "Early Certificate Maturity Event" or an "Early
Funding Agreement Termination Event", on the appropriate dates set forth
in Section 2.8 of the Custody Agreement, the Custodian shall pay the
then-applicable amount of the Deposit Fund to You. Except upon payment
of the full then-applicable amount of the Deposit Fund as set forth in the
preceding sentence, this Agreement shall not be terminated prior to the
Maturity Date.
6.02 EFFECT OF TERMINATION
On and after the date written notice of termination is received by us:
(1) No further Contributions shall be pre-approved or accepted by Us
under this agreement except upon Our written consent; and
SAFUNDAGR-INT-97
7
<PAGE>
(2) We shall continue to credit the Deposit Fund with interest as
described in Section 3 hereof, up to but not including the date of
termination.
6.03 METHOD OF DISTRIBUTION
Subject to the provisions of Section 8.12 hereof, the amount of the
Deposit Fund as determined by such Section 3 shall be paid to You in
cash in one lump sum, or by another method if mutually agreed upon by Us
and You.
6.04 DISCHARGE OF LIABILITY
Full distribution of assets equal to the amount of the Deposit Fund by
Us in accordance with this Section 6 or Section 4 hereof shall
constitute a full discharge of Our liability with respect to this
Agreement.
SECTION 7 - ANNUITY PURCHASES
7.01 PURCHASE PROVISIONS
Upon Your duly authorized written direction, We shall apply cash
payments to purchase an annuity or annuities for such person or persons
who are members of the Group in such manner and amounts and upon such
terms and conditions as are specified by You and agreed upon by Us. Such
annuity shall be purchased on the date of the cash payment at Our annuity
purchase rate in effect on that date.
7.02 MAXIMUM ANNUITY PURCHASE RATES
The maximum annuity purchase rate at attained age 65 is $191.20 per each
$1.00 if monthly benefit guaranteed to be paid for 10 years, and for as
long thereafter as the designated life survives. This rate does not
include premium taxes, if any.
Actual purchase rates available at the time of an annuity election may
result in a larger benefit amount. In no case will these purchase rates
exceed the maximum rates. Additional payment plans may also be
available.
7.03 SMALL ANNUITIES
We reserve the right to make annuity payments at three-, six-, or
twelve-month intervals, or in a single lump sum, if necessary to comply
with Our minimum payment rules in effect at the time the annuity option
is selected.
SAFUNDAGR-INT-97
8
<PAGE>
7.04 PROOF OF AGE AND SURVIVAL
We reserve the right to request proof that any person or persons for
whom an annuity has been requested is living on the date of the cash
payment. We also reserve the right to request proof of age of any such
person or persons.
7.05 SUPPLEMENTAL CONTRACTS
We shall issue to the Owner for delivery to each person for whom an
annuity has been provided or purchased pursuant to this agreement a
supplemental contract summarizing the principal provisions of such
annuity.
SECTION 8 - GENERAL PROVISIONS
8.01 SYNCHRONIZED MATURITY PERIODS
Each maturity period applicable to the Senior Securities shall end on an
Interest Payment Date. You agree that, although You or any Market Agent
with respect to the Senior Securities may from time to time change the
length of the maturity period(s), all Senior Securities issued by You at
any particular time shall have identical (i.e. "synchronized") maturity
periods. Any and all remarketing agents utilized with respect to the
Senior Securities shall be appointed by You in consultation with the
Liquidity Provider but only with Our consent with respect to identity
and compensation, which consent shall not be unreasonably withheld.
8.02 NOTIFICATION OF REMARKETING RESULTS
You agree to notify Us in writing of the results of each failed
remarketing effort with respect to the Senior Securities within a
reasonable time thereafter.
8.03 PRIOR APPROVAL OF USE OF OUR NAME
You agree that You will obtain Our approval of any marketing or other
materials containing references to Our (or Our affiliates') name(s),
logo(s), trademark(s) or product(s) prior to use of such material in any
manner whatsoever.
8.04 ISSUANCE OF SECURITIES
You agree that, during the term of this agreement, the Trust shall not
engage in the issuance of more than $500 million of combined value of
Senior Securities and Subordinated Securities without Our prior
approval. Any securities issued by the Trust shall be without recourse
to any of Our assets. In addition, any Senior Securities issued by the
Trust during
SAFUNDAGR-INT-97
9
<PAGE>
the term of this agreement (including any and all remarketings thereof)
shall bear interest at a rate equal to a rate that is determined by the
Market Agent, in consultation with the then-current remarketing agent(s)
applicable to the Senior Securities, and Integrity each using their
reasonable good-faith judgment and based upon then-comparable issuers
and securities.
8.05 AMENDMENT OF AGREEMENT
The terms and conditions of this agreement, including, without limitation,
its Maturity Date, may be changed at any time by written agreement
between You (and/or Your designee) and Us. Changes are not valid
unless made in writing and signed by one of Our officers and Your
Trustee. Unless otherwise required by applicable state insurance
regulatory authorities, no amendment may be made if a Rating Agency
determines (after receiving prior written notice of such contemplated
amendment) such amendment would adversely affect the rating it has
assigned to the Senior Securities. If any such amendment is required by
a state insurance regulatory authority and results in one or both of the
Rating Agencies lowering or withdrawing their then-current rating of the
Senior Securities, then the provisions of Section 2.7(a)(iii)(C) of the
Custody Agreement shall be applicable. No agent, broker, or other
representative has the authority to change this agreement or to waive
any of its provisions.
8.06 NOTICE
Any notice, directive, certificate, or other writing required by the
provisions of this agreement to be delivered to Us shall be delivered at
Our Principal Executive Office at 515 West Market Street, 8th Floor,
Louisville, Kentucky 40202. Any notice, certification or other writing
required by the provisions of this agreement to be delivered to You
shall be delivered at Your address as designated in writing by You.
8.07 ASSIGNMENT
No resale, transfer, pledge or other assignment shall be effective
without (i) Our consent and Our prior notice to You and the Rating
Agencies, and (ii) Your surrender of this Agreement and our issuance of
a new agreement to the new owner or owners.
8.08 ENTIRE CONTRACT
The entire contract is made up of this agreement, the Schedule Page and
amendments hereto.
8.9 INCONTESTABILITY
We cannot contest this agreement.
SAFUNDAGR-INT-97
10
<PAGE>
8.10 SEVERABILITY
Any provisions of this agreement which are or become prohibited or
unenforceable in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction, nor shall such
action invalidate or impair the remaining provisions hereof.
8.11 MATURITY
After this Agreement has been in effect for five years, this Agreement
shall be automatically extended for additional one-year periods
beginning at the completion of the then-current period. These
extensions shall occur automatically unless either party hereto notifies
the other party hereto otherwise in writing 60 days prior to the
then-applicable extension date. In no event, however, shall this
Agreement extend beyond October 15, 2007.
8.12 INCORPORATION OF CUSTODY AGREEMENT BY REFERENCE
All provisions of the Custody Agreement are hereby incorporated herein
by reference and made a part hereof.
SAFUNDAGR-INT-97
11
<PAGE>
STANDBY TRUST CERTIFICATE PURCHASE AGREEMENT
dated as of November 25, 1997
among
BRAVO TRUST SERIES 1997-1
BAYERISCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
and
INTEGRITY LIFE INSURANCE COMPANY
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Accounting Terms and
Determinations. . . . . . . . . . . . . . . . . . . . 4
SECTION 1.03. Interpretation. . . . . . . . . . . . . . . . . . . . 4
SECTION 1.04. Section and Article References. . . . . . . . . . . . 4
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
COMMITMENT TO PURCHASE CLASS A TRUST CERTIFICATES . . . . . . . . . . . 4
SECTION 2.01. Commitment to Purchase Class A
Trust Certificates . . . . . . . . . . . . . . . . . 4
SECTION 2.02. Method of Purchasing . . . . . . . . . . . . . . . . 5
SECTION 2.03. Termination and Reduction of
Available Commitment . . . . . . . . . . . . . . . . 5
SECTION 2.04. Sale of Class A Trust Certificates
by The Bank. . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.05. Facility Fee . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.06. General Provisions as to Payments. . . . . . . . . . 6
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CONDITIONS TO EACH PURCHASE . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3.01. Conditions to Each Purchase . . . . . . . . . . . . . 6
ARTICLE IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 4.01. Notification. . . . . . . . . . . . . . . . . . . . . 6
SECTION 4.02. Compliance with Laws. . . . . . . . . . . . . . . . . 7
SECTION 4.03. Related Agreement Obligations . . . . . . . . . . . . 7
SECTION 4.04. Financial Reporting . . . . . . . . . . . . . . . . . 7
SECTION 4.05. Amendments. . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4.06. Requirements to Purchase
Class B Certificates. . . . . . . . . . . . . . . . . 7
SECTION 4.07. Right of First Refusal. . . . . . . . . . . . . . . . 8
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 5.01. Events of Default . . . . . . . . . . . . . . . . . . 8
ARTICLE VI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 6.01. Notices. . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 6.02. No Waivers. . . . . . . . . . . . . . . . . . . . . . 9
SECTION 6.03. Expenses. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 6.04. Amendments and Waivers. . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 6.05. Successors and Assigns. . . . . . . . . . . . . . 10
SECTION 6.06. Term of this Agreement; Resignation
by Bank; Replacement of Bank by
Integrity . . . . . . . . . . . . . . . . . . . . 10
SECTION 6.07. Indemnification . . . . . . . . . . . . . . . . . 11
SECTION 6.08. Governing Law . . . . . . . . . . . . . . . . . . 11
SECTION 6.09. Counterparts. . . . . . . . . . . . . . . . . . . 12
SECTION 6.10. No Petition Covenant. . . . . . . . . . . . . . . 12
</TABLE>
ii
<PAGE>
STANDBY TRUST CERTIFICATE PURCHASE AGREEMENT
This STANDBY TRUST CERTIFICATE PURCHASE AGREEMENT, dated as of
November 25, 1997 (this "Agreement"), is among BRAVO TRUST SERIES 1997-1 (the
"Trust"), BAYERISCHE LANDESBANK GIROZENTRALE, acting through its New York Branch
(the "Bank"), and INTEGRITY LIFE INSURANCE COMPANY ("Integrity").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
The following terms, as used herein, have the following meanings:
"ARM" means ARM Financial Group, Inc.
"Available Commitment," when used with respect to the Bank, initially
means $450 million and thereafter means such initial amount adjusted from time
to time as follows: (i) downward by the principal amount of any Class A Trust
Certificates purchased by the Bank pursuant to Section 2.02; and (ii) upward by
the principal amount of any Class A Trust Certificates, theretofore purchased by
the Bank pursuant to Section 2.02, which are sold by the Bank (regardless of the
purchase price received for such Class A Trust Certificates). Each of the
foregoing adjustments shall take effect immediately upon the occurrence of the
event causing the adjustment described in clause (i) or clause (ii) above.
"Business Day" means a day other than (i) a Saturday, Sunday or legal
holiday or (ii) a day on which commercial banks located in New York City are
authorized or required by law or regulation to close.
"Certificate" means any Class A Trust Certificate or Class B Trust
Certificate.
"Class A Trust Certificates" means the Trust's Class A Trust
Certificates.
"Class B Trust Certificates" means the Trust's Class B Trust
Certificates.
"Commitment" means the Bank's Available Commitment.
<PAGE>
"Contractual Obligation" means, as to any Person, any provision of any
agreement, instrument or undertaking to which such Person is a party or by which
such Person is bound or any of its Property is encumbered.
"Custody Agreement" means the Custody Agreement, dated November 25,
1997, among the Trust, Integrity, First Trust National Association and
Bayerische Landesbank Girozentrale, New York Branch.
"Disclosure Documents" means: (i) the Offering Circular, (ii) all
other materials used in connection with the offering or subsequent
remarketing of any of the Class A Trust Certificates, and (iii) all
amendments and supplements to any of the foregoing.
"Effective Date" means the date hereof.
"Event of Default" has the meaning specified in Section 5.01.
"Funding Agreement" means that certain separate account group annuity
contract issued by Integrity to the Trust as of the date hereof.
"Initial Purchaser" means Lehman Brothers Inc.
"Market Agent" means the Market Agent referred to in the Market Agent
Agreement dated as of the date hereof between the Trust and the Bank and any
successor thereunder.
"Maturity Date", with respect to any Class A Trust Certificate, means
the date that the principal amount thereof is due from the Trust.
"Notice of Bank Purchase" has the meaning specified in Section 2.02.
"Offering Circular" means the Offering Circular, dated November 25,
1997, including, without limitation, the Supplement thereto, relating to the
Class A Trust Certificates.
"Participant" has the meaning specified in Section 6.05(b).
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including, without
limitation, a government or political subdivision or an agency or
instrumentality thereof.
2
<PAGE>
"Prime-1-Rated Bank" means a bank the short-term debt of which is
given the highest ratings then granted to short-term securities by the Rating
Agencies.
"Purchase Agreement" means the Purchase Agreement, dated November 25,
1997, between the Trust and the Initial Purchaser, as from time to time amended,
supplemented or modified.
"Purchase Date" means any Maturity Date during the Purchase Period
with respect to which the Bank has received a Notice of Bank Purchase pursuant
to Section 2.02.
"Purchase Period" means the period from the Effective Date to and
including the earliest of: (i) 360 days from the date hereof, provided that such
expiration date shall be automatically extended by one day with the passage of
each day and provided, further, that no such extension shall go beyond October
15, 2007, (ii) the date of the termination of the Available Commitment pursuant
to Section 2.03, and (iii) the date on which no Class A Trust Certificates are
outstanding; PROVIDED that, if the last day of the Purchase Period (determined
under clause (i) above) is not a Business Day, the Purchase Period shall be
extended to the next succeeding Business Day.
"Purchase Price" means 100% of the principal amount of any Class A
Trust Certificates tendered for purchase.
"Purchased Certificate" means any Class A Trust Certificate purchased
by the Bank pursuant to Section 2.02, which Class A Trust Certificate shall be a
Purchased Certificate from the date of such purchase until the sale thereof by
the Bank pursuant to Section 2.04 or Article V.
"Rating Agencies" means Standard & Poor's Ratings Services and Moody's
Investors Service, Inc.
"Related Agreements" means the Trust Agreement, the Purchase
Agreement, the Remarketing Agreement, the Funding Agreement, the Custody
Agreement, and any other agreement executed and delivered in connection with the
issuance of the Class A Trust Certificates or related to the transactions
contemplated hereby or thereby.
"Remarketing Agent" means Lehman Brothers Inc. or one or more
nationally recognized broker-dealers selected by the Bank from time to time in
consultation with Integrity and subject to the approval of the Trustee under the
Trust Agreement to remarket Class A Trust Certificates.
3
<PAGE>
"Remarketing Agreement" means each remarketing agreement between the
Trust and the relevant Remarketing Agent, as from time to time amended,
supplemented or modified.
"Securities Act" means the Securities Act of 1933, as amended.
"Trust Agreement" means the Declaration of Trust and Trust Agreement
by and between The Bank of New York, as Trustee, and the beneficial owners of
the BRAVO Trust Series 1997-1 Certificates, dated as of November 25, 1997.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made and all financial statements
required to be delivered hereunder shall be prepared in accordance with
accounting principles, as in effect from time to time, applicable to financial
statements required to be filed by insurance companies in Integrity's
domiciliary state, applied on a basis consistent with the most recent audited
financial statements of Integrity delivered or required to be delivered to the
Bank pursuant to this Agreement.
SECTION 1.03. INTERPRETATION. All covenants, representations and
Events of Default contained herein shall be given independent effect, so that,
if any action or condition would violate any of such covenants, would breach any
of such representations or would constitute any of such Events of Default, the
fact that such action or condition would not violate or breach another covenant
or representation or constitute another Event of Default shall not avoid the
violation of such covenant or representation or such Event of Default.
SECTION 1.04. SECTION AND ARTICLE REFERENCES. Except as otherwise
indicated herein, all references herein to Sections and Articles refer to
Sections and Articles hereof.
ARTICLE II
COMMITMENT TO PURCHASE CLASS A TRUST CERTIFICATES
SECTION 2.01. COMMITMENT TO PURCHASE CLASS A TRUST CERTIFICATES. The
Bank agrees, on the terms and subject to the conditions contained in this
Agreement, to purchase Class A Trust Certificates in an amount not exceeding the
Bank's Available Commitment from time to time during the Purchase Period at the
Purchase Price.
4
<PAGE>
SECTION 2.02. METHOD OF PURCHASING. On any Maturity Date, pursuant to
the Remarketing Agreement the Remarketing Agent shall be required to give to the
Bank a telephonic notice not later than noon (local time in New York City)
confirmed promptly in writing (such notice to be referred to as a "Notice of
Bank Purchase"), specifying (i) that Series A Trust Certificates are to be
purchased by the Bank on such Maturity Date pursuant to this Section (a
"Purchase"), and (ii) the aggregate Purchase Price of such Class A Trust
Certificates.
Each Purchase shall be on a Maturity Date. The Bank agrees to make the
Purchase Price available to the Remarketing Agent at the office of the
Remarketing Agent designated for such purpose in the Remarketing Agreement in
immediately available funds prior to the time that the Fed Wire System closes
on the Purchase Date, subject to the conditions precedent set forth in Section
3.01. Any provision herein to the contrary notwithstanding, the Bank (in its
capacity as purchaser of Class A Trust Certificates pursuant to this Agreement)
shall not have any responsibility for, or incur any liability in respect of, any
act, or any failure to act, by the Remarketing Agent which results in the
failure of the Remarketing Agent to effect the purchase for the account of the
Bank of Class A Trust Certificates with such funds pursuant to this Section. The
Remarketing Agent shall take such actions as are necessary to reflect the
ownership of BLB in all of such Trust Certificates on the books and records of
the Remarketing Agent.
SECTION 2.03. TERMINATION AND REDUCTION OF AVAILABLE COMMITMENT. Upon
any prepayment or other payment of all or any portion of the principal amount of
any Class A Trust Certificates, the aggregate Available Commitment shall
automatically be reduced by the principal amount of the Class A Trust
Certificates so prepaid or otherwise paid, as the case may be. If at any time an
Event of Default shall have occurred and be continuing for 10 days, upon
delivery by the Bank of a written notice (a "Termination Notice") to the
Trustee, the Available Commitment under this Agreement shall immediately
terminate, and the Bank shall have no further obligation to purchase any Class A
Trust Certificates hereunder, effective upon receipt by the Trustee of the
Termination Notice. If the Available Commitment is terminated in its entirety,
all accrued Facility Fees, as such term is defined in Section 2.05, shall be
payable on the effective date of such termination. The Bank's obligation to
purchase Class A Trust Certificates prior to the termination of the Commitment
shall be subject to the conditions specified in Section 3.01. The Bank will
notify the Remarketing Agent and Integrity in writing that this Agreement is
terminated; a failure in the delivery of such written notice of termination
shall not operate to prevent this Agreement from terminating.
5
<PAGE>
SECTION 2.04. SALE OF CLASS A TRUST CERTIFICATES BY THE BANK. The Bank
expressly reserves the right to sell, at any time, Class A Trust Certificates
held by it pursuant to this Agreement. The Bank agrees that such sales will be
made in accordance with applicable securities laws and any other selling
restrictions contained in the Trust Agreement, the Offering Circular and any
Remarketing Agreement. The Bank agrees to notify promptly the Trust and each
then-current Remarketing Agent about any such sale.
SECTION 2.05. FACILITY FEE. Integrity shall pay to the Bank a facility
fee (a "Facility Fee") for each day at a rate equal to 0.05% (I.E., 5 basis
points) per annum of the initial amount (without regard to any subsequent
reduction or reductions) of the Available Commitment. Such facility fee shall
accrue from and include the Effective Date to but exclude the last day of the
Purchase Period and shall be payable quarterly in arrears on the last Business
Day of each calendar quarter during the Purchase Period (commencing on the last
Business Day of December, 1997) and on the last day of the Purchase Period. Such
fee shall be computed on the basis of a 365- or 366-day year, as applicable, and
paid for the actual number of days elapsed.
SECTION 2.06. GENERAL PROVISIONS AS TO PAYMENTS. All payments to be
made to the Bank under this Agreement shall be made, on the day when due, by
wire transfer of federal or other immediately available funds in U.S. Dollars to
the Bank at its address referred to in Section 6.01.
ARTICLE III
CONDITIONS TO EACH PURCHASE
SECTION 3.01. CONDITIONS TO EACH PURCHASE. The obligation of the Bank
to purchase any Class A Trust Certificate hereunder on any Purchase Date is
subject to: (i) the fact that the Purchase Period shall not have terminated;
(ii) the receipt by the Bank of a Notice of Bank Purchase as required by Section
2.02 and (iii) such purchase being permissible under all applicable law.
ARTICLE IV
COVENANTS
SECTION 4.01. NOTIFICATION. The Trustee shall give prompt notice in
writing to the other parties hereto of the occurrence of any Event of Default
and of the occurrence of any event actually known to the Trustee which, with the
lapse of time, the giving of notice or both, would constitute an Event of
Default
6
<PAGE>
other than an Event of Default described in Section 5.01(c) relating to
Integrity. Integrity shall give prompt notice in writing to the other parties
hereto of the occurrence of an Event of Default described in Section 5.01(c)
relating to Integrity. The Bank shall give prompt notice in writing to all
parties hereto as to any action taken by or with respect to it under any of
Sections 2.03, 6.05 and 6.06.
SECTION 4.02. COMPLIANCE WITH LAWS. To the extent necessary to
maintain its power and authority to execute this Agreement, to perform its
obligations hereunder, to execute and deliver the Related Agreements, and to
perform its obligations thereunder, the Trust shall comply with all laws, rules
and regulations, and with all final orders, writs, judgments, injunctions,
decrees or awards to which it may be subject; PROVIDED, HOWEVER, that the Trust
may contest the validity or application thereof and appeal or otherwise seek
relief therefrom, and exercise any and all of the rights and remedies which it
may have with regard thereto.
SECTION 4.03. RELATED AGREEMENT OBLIGATIONS. The Trust shall comply
with the Trust Agreement, the Purchase Agreement, the Remarketing Agreement, and
every other Related Agreement to which it is a party. Integrity shall comply
with the Funding Agreement, the Custody Agreement and every other Related
Agreement to which it is a party. The Bank shall comply with every Related
Agreement to which it is a party.
SECTION 4.04. FINANCIAL REPORTING. Integrity shall, at the request of
the Bank, provide to the Bank all public portions of the quarterly, annual and
other filings made by ARM with the U.S. Securities and Exchange Commission and
by Integrity with the Department of Insurance of Integrity's domiciliary state
and such other information as the Bank may reasonably request.
SECTION 4.05. AMENDMENTS. The Trust shall not appoint a successor to
any Remarketing Agent, or amend, modify, terminate or grant, or permit the
amendment, modification, termination or grant of, any waiver under, or consent
to, or permit or suffer to occur any action or omission which results in, or is
equivalent to, an amendment, modification, or grant of a waiver under, the
Purchase Agreement, any Remarketing Agreement, the Trust Agreement, the Funding
Agreement, or the Custody Agreement without the prior written consent of the
Bank and Integrity other than as specifically permitted by and in accordance
with the terms of the Trust Agreement and which would not be materially adverse
to the Bank and Integrity.
7
<PAGE>
SECTION 4.06. REQUIREMENT TO PURCHASE CLASS B CERTIFICATES. On the
Effective Date the Bank or another Branch of Bayerische Landesbank Girozentrale
(the "Class B Purchaser") shall purchase all of the Trust's Class B
Certificates. Subject to the provisions of Section 4.07, the Class B Purchaser
will be entitled to sell one or more of such Certificates at any time and from
time to time to any one or more qualified institutional buyers, as such term is
defined in the Securities Act. The Bank agrees that such sales will be made in
compliance with applicable securities laws.
SECTION 4.07. RIGHT OF FIRST REFUSAL. At any time that the Class B
Purchaser proposes to sell any of the Trust's Class B Trust Certificates, it
shall give Integrity at least three Business Days' notice (a "Sale Notice") of
the proposed sale, sale price, and other key terms and, if Integrity so chooses,
Integrity shall be entitled to buy such Certificates on the day (the "Sale Day")
and at the price and on such other terms specified in the Sale Notice by giving
notice of such choice to the Class B Purchaser at least one Business Day prior
to the Sale Day.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.01. EVENTS OF DEFAULT. Each of the following is an "Event of
Default" hereunder:
(a) an Early Certificate Maturity Event described in clause (C) or
clause (D) of Section 2.7(a)(ii) of the Custody Agreement shall have occurred
or an Early Funding Agreement Termination Event described in clause (A) of
Section 2.7(a)(iii) of the Custody Agreement shall have occurred; or
(b) the Trust shall fail, wholly or partially, to make a payment with
respect to the Class A Trust Certificates or the Class B Trust Certificates when
due pursuant to the Trust Agreement.
If any Event of Default shall occur, the Bank may give immediate
notice in writing to the Trustee of the possibility of the termination of the
Available Commitment. If such Event of Default continues for 10 days, the Bank
shall have the right to deliver a Termination Notice pursuant to Section 2.03.
8
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including, without limitation, bank
wire, telex, telecopy, fax or other similar means of immediate written
transmission) and shall be given to such party at its address or telecopy or fax
number set forth on the signature pages hereof or such other address or telecopy
or fax number as such party may hereafter specify for the purpose by notice to
the other party. Each such notice, request or other communication shall be
effective (i) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid, or (ii)
if given by any other means, when delivered at the address specified pursuant to
this Section; PROVIDED that notices to the Bank under Sections 2.02 and 6.06
shall not be effective until received.
SECTION 6.02. NO WAIVERS.
(a) The obligations of the Trust hereunder shall not in any way be
modified or limited by reference to any other document, instrument or agreement.
The rights of the Bank hereunder are separate from and in addition to any rights
that any holder of any Class A or Class B Trust Certificate may have under the
terms of such Certificate or any Related Agreement or otherwise.
(b) No failure or delay by the Bank in exercising any right, power or
privilege hereunder or under the Class A or Class B Trust Certificates or any
Related Agreements shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
provided herein and in the Related Agreements shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 6.03. EXPENSES.
Integrity shall pay, or cause to be paid, on demand (i) all reasonable
costs and expenses, including, without limitation, the fees and expenses of
legal counsel for the Bank, in connection with any waivers, consents, amendments
or supplements relating hereto requested by Integrity and (ii) all out-of-pocket
expenses incurred by the Bank, including, without limitation, reasonable fees
and expenses of legal counsel, in connection with any Early Certificate Maturity
Event described in Section 2.7(a)(ii) of the Custody Agreement.
9
<PAGE>
SECTION 6.04. AMENDMENTS AND WAIVERS . Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and signed by all parties hereto and does not result in a lowering in the rating
assigned by either of the Rating Agencies (after receiving prior written notice
thereof) to the Class A Trust Certificates.
SECTION 6.05. SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Trust may not assign or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the Bank and Integrity.
(b) The Bank may at any time grant to one or more banks or other
institutions (each, a "Participant") participating interests in its Commitment
or any or all of its Purchased Certificates. In the event of any such grant by
the Bank of a participating interest to a Participant, the Bank shall remain
responsible for the performance of its obligations hereunder, and the Trust and
Integrity shall continue to deal solely and directly with the Bank in connection
with the Bank's rights and obligations under this Agreement. In the event of the
grant by the Bank of a participating interest to any Participant, all amounts
payable hereunder shall be calculated as if no such participating interest had
been granted. Any agreement pursuant to which the Bank may grant such a
participating interest shall provide that the Bank shall retain the sole right
and responsibility to enforce the obligations of the Bank hereunder, including,
without limitation, the right to approve any amendment, modification or waiver
of any provision of this Agreement; PROVIDED that such participation agreement
may provide that the Bank will not agree to any modification, amendment or
waiver of any provision of this Agreement relating to (i) an increase in the
Commitment, (ii) a change in the Purchase Period, (iii) the date for payment of
principal of or interest on the Class A or Class B Trust Certificates, (iv) the
interest rate payable on the Class A or Class B Trust Certificates, or (v)
Section 2.05 without the consent of the Participant.
10
<PAGE>
SECTION 6.06. TERM OF THIS AGREEMENT; RESIGNATION BY BANK; REPLACEMENT
OF BANK BY INTEGRITY.
(a) The term of this Agreement shall be until the latest of (i) the
last day of the Purchase Period, (ii) payment in full of the principal of and
interest on all Certificates held by the Bank on the last day of the Purchase
Period or (iii) the final Maturity Date; PROVIDED that, notwithstanding any
termination of this Agreement, the provisions of Section 6.03 and all other
provisions in this Agreement relating to sums payable to the Bank shall survive
payment or purchase of the Certificates and termination of this Agreement for
any reason, to the extent rights have accrued to the Bank under such provision
prior to or upon such termination, and shall remain in full force and effect.
(b) The Bank may resign hereunder at any time for any reason
(including, without limitation, failure of Integrity to pay the Facility Fee) or
for no reason, in any such case upon giving notice of such resignation to the
other parties hereto at least 360 days prior to the effective date of such
resignation.
Provided that the Bank has given the required notice referred to above, the Bank
shall have no further obligations hereunder after the date specified in the
relevant notice. Integrity shall find a replacement for the Bank and enter into
an agreement with such replacement that is substantially similar to this
Agreement to be effective upon the date that the Bank's resignation becomes
effective. Any such replacement bank must be a Prime-1-Rated Bank.
(c) Integrity (i) may at any time, and (ii) shall at any time that the
Bank is no longer a Prime-1-Rated Bank, replace the Bank hereunder. The
following provisions shall be applicable to any such replacement: (i) the
replacement shall be a Prime-1-Rated Bank, (ii) the replacement shall have all
of the obligations of the Bank hereunder, (iii) such obligations shall become
effective as of the day of the replacement of the Bank hereunder and (iv) the
Bank shall still be entitled to all rights that have accrued to it hereunder up
to the date of replacement.
(d) Anything in subsection (b) or (c) to the contrary notwithstanding,
no resignation or replacement of the Bank shall be effective if the proposed
replacement would cause either of the Rating Agencies to lower or withdraw its
rating of the Class A Trust Certificates.
SECTION 6.07 INDEMNIFICATION. The Bank and its successors, assigns,
agents, legal representatives and servants (the "Indemnified Persons") shall be
entitled to be indemnified by Integrity from and against any and all
liabilities, obligations, losses, damages, taxes (other than taxes on the Bank's
income),
11
<PAGE>
claims, actions, suits, costs, expenses and disbursements (including, without
limitation, legal fees and expenses) of any kind and nature whatsoever
(collectively, "Extraordinary Expenses") which may be imposed on, incurred by or
asserted at any time against the Indemnified Persons (whether or not indemnified
against by other parties) in any way relating to or arising out of this
Agreement, except only that no person shall be entitled to indemnity for its
obligations under Section 2.01 or Extraordinary Expenses arising or resulting
from its own gross negligence or willful misconduct.
SECTION 6.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.09. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 6. 10. NO PETITION COVENANT. Notwithstanding any prior
termination of this Agreement, neither the Bank nor Integrity shall, prior to
the date which is one year and one day after the payment in full of the Class A
Trust Certificates and the termination of this Agreement, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial part of
its property, or making a general assignment for the benefit of creditors, or
ordering the winding up or liquidation of the affairs of the Trust.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Standby Trust
Certificate Purchase Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date first above
written.
BRAVO TRUST SERIES 1997-1
By: THE BANK OF NEW YORK, Not in its
Individual Capacity but Solely as
Trustee of the Trust
By: /s/ Cheryl L. Laser
---------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
Address:
101 Barclay Street
Floor 12 East
New York, New York 10286
Telecopy: (212) 815-5544
Telephone:(212) 815-5286
BAYERISCHE LANDESBANK GIROZENTRALE,
acting through its New York Branch
By: /s/ Bert von Stuelpnagel
-----------------------------------
Bert von Stuelpnagel
Executive Vice President and
Manager
By: /s/ Ron Bertolini
-----------------------------------
Ron Bertolini
First Vice President and Treasury
Manager
Address:
560 Lexington Avenue,
17th Floor
New York, NY 10022
Telecopy: (212) 310-9870
Telephone: (212) 310-9891
Payment/wire transfer instructions:
ABA Number 02100021
The Chase Manhattan Bank
For the Benefit of: Bayerische
Landesbank New York
ACCT #: 544707960
INTEGRITY LIFE INSURANCE
COMPANY
By: /s/ Daniel R. Gattis
-----------------------------------
Name: Daniel R. Gattis
Title: Executive Vice President
Address:
Telecopy:
Telephone:
<PAGE>
CUSTODY AGREEMENT
This is a CUSTODY AGREEMENT (this "Agreement") made and effective as of
November 25, 1997 by and among FIRST TRUST NATIONAL ASSOCIATION, a national
banking association organized under the laws of the United States ("Custodian"),
BRAVO Trust Series 1997-1, a trust organized as a business trust under the laws
of the State of Delaware (the "Trust"), INTEGRITY LIFE INSURANCE COMPANY, a life
insurance company organized under the laws of the State of Ohio, as an entity
and for the benefit of the Account referred to below ("Customer" and
"Integrity"), and BAYERISCHE LANDESBANK GIROZENTRALE, acting through its New
York Branch and in its capacity as Trust's Agent for the Trust (the "Trust's
Agent"). This Agreement is for the benefit of the Trust and will be administered
accordingly.
In consideration of the premises, undertaking and covenants herein, the
parties agree as follows:
1. APPOINTMENT AND ACCEPTANCE; DEFINITIONS; SECTION REFERENCES.
1.1. Appointment and Acceptance. Customer and the Trust hereby appoint Custodian
as their agent to provide custody and other services in connection with
securities, cash and other property delivered from time to time to Custodian
hereunder by, or at the direction of, Customer, and income, distributions and
payments received by Custodian with respect thereto (collectively "Assets");
Custodian hereby agrees to act in such capacity, and perform such services, and
hold the Assets in a custody account established in the name of Customer for the
benefit of the Trust (the "Account"), upon the terms and conditions set forth
below. The Assets to be held in the Account will be deposited in connection with
that certain Integrity Life Insurance Company Separate Account Group Annuity
Contract (Contract #IFA00141ST) issued to the Trust, which Group Annuity
Contract has an initial maturity date of October 15, 2002 (the "Funding
Agreement"). The Account shall be divided into two segregated sub-accounts,
consisting of (a) the Main Custodial Account and (b) the Supporting Custodial
Account (both as defined below). For purposes of this Agreement, all references
contained herein to actions, instructions and responsibilities (other than the
obligations set forth in Sections 12 and 14) of Customer shall include, apply to
and be binding upon Customer's agents, including any investment manager or
advisor, appointed and authorized by Customer to direct Custodian or otherwise
take actions on behalf of Customer in connection with Custodian's services and
responsibilities hereunder. Customer shall provide written notice to Custodian
of the identity of all such appointed agents and the scope of their authority to
act hereunder. Customer shall be
<PAGE>
responsible for providing to each such agent a copy of this Agreement and all
written policies and procedures of Custodian governing its performance of
services hereunder that Customer shall receive from time to time.
Notwithstanding the foregoing, Customer shall not terminate any investment
sub-advisor hired by it to help manage the Assets without providing the Trust
and the Rating Agencies with at least 180 days' prior written notice of such
intended termination.
1.2. Definitions. "BUSINESS DAY" means any calendar day that is not (a) a
Saturday, (b) a Sunday, (c) a federally-declared national bank holiday, (d) a
federally-declared national holiday, or (e) an official holiday declared by and
recognized in either The Commonwealth of Kentucky or the State of Minnesota.
"COMBINED ASSETS" means the Assets in the Main Custodial Account
and the Assets in the Supporting Custodial Account.
"DEPOSIT FUND" means the liability account established by Customer on its books
and records in accordance with Section 2 of the Funding Agreement for the
purpose of providing payments pursuant to Sections 4 and 6 thereof.
"EARLY CERTIFICATE MATURITY EVENT" has the meaning set forth in
Section 2.7(a)(ii).
"EARLY FUNDING AGREEMENT TERMINATION EVENT" has the meaning set
forth in Section 2.7(a)(iii).
"ELIGIBLE INVESTMENTS" means one or more of the following:
(a) obligations of, or guaranteed as to both full and timely payment of
principal and interest by, the United States or any agency or instrumentality
thereof when such obligations are backed by the full faith and credit of the
United States; PROVIDED that such obligations shall not have the "r" symbol
attached to such rating by Standard & Poor's;
(b) federal funds, certificates of deposit, time deposits and bankers'
acceptances, each of which shall not have an original maturity of more than 90
days, of any depository institution or trust company incorporated under the laws
of the United States or any state; PROVIDED that the short-term obligations of
such depository institution or trust company shall be (i) rated at least
A-1+/P-1 by Standard & Poor's and Moody's, respectively (and shall not have the
"r" symbol attached to such rating by Standard & Poor's), and (ii) if Fitch is
a Rating Agency hereunder, rated at least F-l (for investments having an
original maturity of 30 days or less) or F-l+ (for investments having an
original maturity of more than 30 days) by Fitch;
2
<PAGE>
(c) commercial paper (having original maturities of not more than 180 days)
of any corporation incorporated under the laws of the United States or any state
thereof; PROVIDED that such commercial paper shall be (i) rated at least
A-1+/P-1 by Standard & Poor's and Moody's, respectively (and shall not have the
"r" symbol attached to such rating by Standard & Poor's), and (ii) if Fitch is a
Rating Agency hereunder, rated at least F-l (for investments having an original
maturity of 30 days or less) or F-l+ (for investments having an original
maturity of more than 30 days) by Fitch; and
(d) money market funds rated at least "AAA"/"Aaa" by Standard & Poor's and
Moody's, respectively;
PROVIDED, HOWEVER, that no instrument shall be an Eligible Investment if such
instrument (i) is issued by a real estate investment trust, (ii) evidences a
right to receive only interest or principal payments with respect to the
obligations underlying such instrument, (iii) is a collateralized mortgage
obligation or a similar derivative security which does not have a fixed amount
of principal or which is not outstanding for a fixed term, (iv) does not bear
interest at a fixed rate or at a floating rate based on LIBOR, the federal funds
rate, a prime or base rate, a treasury bill rate, a commercial paper rate or,
with prior notice to the Rating Agencies, any other rate or index or (v) has a
maturity date after the next Scheduled Income Payment Date or the Principal
Payment Date, as such terms are defined in the Trust Agreement; and PROVIDED
FURTHER, HOWEVER, that no overnight instrument shall be an Eligible Investment
unless it is an investment in overnight federal funds.
"FITCH" means Fitch Investors Service, L.P.
"FORCE MAJEURE EVENT" means any cause or condition beyond the control of a party
to this Agreement which wholly or partially prevents the performance of such
party's obligations hereunder, including a general strike, a war (declared or
not), a revolution or a natural disaster such as a fire, storm, flood or
earthquake.
"FUNDING AGREEMENT" has the meaning set forth in Section 1.1.
"INVESTMENT GUIDELINES" means the guidelines agreed upon by Integrity and the
Liquidity Provider (subject to any then-applicable Rating Agency parameters
necessary to maintain with respect to the Senior Securities the highest ratings
then granted to short-term securities by such Agency) which govern the asset
classes and amounts in which the Assets supporting the Deposit Fund and any
accumulations thereon may be invested, which guidelines (and all amendments
thereto) shall be attached hereto as Exhibit A and are hereby incorporated
herein by reference.
3
<PAGE>
"LIQUIDITY AGREEMENT" means the Standby Trust Certificate Purchase Agreement
dated as of the date hereof among the Trust, the Liquidity Provider, and
Integrity.
"LIQUIDITY PROVIDER" means Bayerische Landesbank Girozentrale, New York Branch
and any subsequent providers of liquidity to the Senior Securities program.
"MAIN CUSTODIAL ACCOUNT" means that certain segregated custodial sub-account to
the Account maintained with Custodian pursuant to the terms of this Agreement
which, in combination with the Supporting Custodial Account, contains the assets
supporting the Deposit Fund.
"MARGIN DEFICIT" has the meaning set forth in Section
2.7(a)(ii)(B).
"MARKET AGENT" means the Market Agent under the Market Agent Agreement between
the Trust and Bayerische Landesbank Girozentrale, New York Branch.
"MOODY'S" means Moody's Investors Service, Inc.
"PRIME-1 RATED BANK" means a bank the short-term debt of which is given the
highest ratings then granted to short-term securities by the Rating Agencies.
"RATING AGENCIES" means Standard & Poors and Moody's.
"REMARKETING AGENT" means Lehman Brothers Inc. or any other entity
or entities chosen from time to time by the Liquidity Provider as
provided in Section 8.01 of the Funding Agreement to remarket the
Senior Securities subsequent to their original placement.
"SENIOR SECURITIES" means the Class A Trust Certificates issued by
the Trust (as defined below).
"SEPARATE ACCOUNT" means Separate Account IV established by Integrity pursuant
to the provisions of Section 3907.15 of the Ohio Revised Code as to which
Integrity will allocate the assets which, in combination with the assets
allocated by Integrity to the Supporting Separate Account, support Integrity's
payment obligations under the Funding Agreement.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services.
"SUPPORTING CUSTODIAL ACCOUNT" means that certain segregated custodial
sub-account maintained with Custodian pursuant to the terms of this Agreement
which holds any amounts contributed to such account in support of Integrity's
payment obligations under the Funding Agreement which are additional to any
amounts held in the Main Custodial Account.
4
<PAGE>
"SUPPORTING SEPARATE ACCOUNT" means Separate Account V established by Integrity
pursuant to the provisions of Section 3907.15 of the Ohio Revised Code to
support Integrity's payment obligations under the Funding Agreement, which
separate account shall be additional to, and established in support of, the
Separate Account.
"TRUST" means the BRAVO Trust Series 1997-1.
"TRUST AGREEMENT" means the Declaration of Trust and Trust Agreement by and
among the Trustee and the Owners of the Trust's Certificates, dated as of
November 25, 1997.
"TRUST CERTIFICATE PROCEEDS" means the $500 million received by Customer from
the Trust to purchase the Funding Agreement, which money constitutes the
proceeds received by the Trust from the sale of the Senior Securities and the
Trust's Class B Trust Certificates.
"TRUSTEE" means The Bank of New York, as Trustee of the BRAVO Trust
Series 1997-1.
"UNSUCCESSFUL REMARKETING" means any remarketing of the Senior Securities as to
which the Remarketing Agent is unable to remarket to third parties (that is,
parties other than the Liquidity Provider) at least 90% of such securities.
"WEEKLY VALUATION" means the valuation of the assets held in the Main Custodial
Account and the Supporting Custodial Account which is to be performed by
Custodian pursuant to this Agreement on a weekly basis and to be provided to
Integrity, the Trust, the Rating Agencies and the Liquidity Provider on the last
Business Day of each week during the term of this Agreement.
Capitalized terms not defined above shall have the meanings ascribed thereto in
the Trust Agreement.
1.3. Section References. Except as otherwise indicated herein, all
section references herein refer to sections hereof.
5
<PAGE>
2. ASSET DELIVERY, TRANSFER, CUSTODY AND SAFEKEEPING.
2.1. Except as provided otherwise herein, Customer will from time to time
deliver (or cause to be delivered) Assets to Custodian, which Assets Custodian
shall receive and accept for the Account upon appropriate instructions from the
Customer. All transactions involving Assets shall be recorded in the Account.
The Initial Contribution allocated to the Separate Account pursuant to Section
5.01 of the Funding Agreement and any Assets acquired with the Initial
Contribution or any proceeds therefrom shall be deposited in the Main Custodial
Account and shall be held separately from, and not commingled with, Assets in
the Supporting Custodial Account. The amount allocated to the Supporting
Separate Account pursuant to Section 5.01 of the Funding Agreement and any
Assets acquired with this amount, any proceeds therefrom or any transfers
thereto pursuant to Section 5.02 of the Funding Agreement shall be deposited in
the Supporting Custodial Account and shall be held separately from, and not
commingled with, Assets in the Main Custodial Account. Assets may not be
invested in securities issued by Customer or any affiliate of Customer. Assets
acquired from Customer or any affiliate of Customer shall be subject to Section
4.05 of the Funding Agreement. As a condition to any transfer to the Supporting
Custodial Account to be made pursuant to Section 5.02 of the Funding Agreement,
Customer shall provide to Custodian a transfer certificate complying with the
requirements of Section 4.05 of the Funding Agreement.
2.2. Upon receipt of appropriate instructions (as described in Section 11),
Custodian shall release Assets to Customer, Customer's Depository (as that term
is defined in Section 3.3) account or accounts, the Trust, or otherwise deliver
Assets to such location or third party, as such instructions may indicate,
provided that, in connection therewith, it is the sole responsibility of
Customer or the Trust, as the case may be, to provide any transfer documentation
as may be required by Customer's or Trust's (as the case may be) Depository or
third party recipient. Anything in the preceding sentence to the contrary
notwithstanding, under no circumstances shall Custodian release, assign,
hypothecate, pledge or otherwise dispose of any Assets, except as provided in
Sections 2.7, 2.8, and 2.9.
2.3. Custodian shall furnish Customer, the Liquidity Provider and the Rating
Agencies, as part of the services for which Custodian charges its basic fee
hereunder, with monthly Account statements reflecting all Asset transactions in
the Account during the reporting month and month-end Asset holdings.
2.4. Custodian shall forward to Customer all information Custodian receives with
respect to any of the Assets concerning redemption rights that are exercisable
at Customer's option, tender or exchange offers, class action lawsuits and other
special matters, shall follow Customer's written instructions with respect
thereto
6
<PAGE>
as consistent with Custodian's governing policies and procedures and, in the
absence of such instructions, shall take no action. Unless otherwise instructed
in writing by Customer, Custodian shall forward to Customer all proxy material
Custodian receives with respect to securities included among the Assets. Proxies
so forwarded shall be executed by the registered holder of the securities, if
registered in the name of Custodian or its nominee, but without indicating the
manner in which such proxies are to be voted.
2.5. Absent specific investment instructions to the contrary from Customer,
Custodian shall place all uninvested cash and all uninvested checks and
drafts (when collected funds are received) received from, as proceeds of or
with respect to, Assets in the Main Custodial Account or the Supporting
Account in investments described in clause (d) of the definition of "Eligible
Investments". Eligible Investments acquired with funds received from or with
respect to Assets in the Supporting Custodial Account shall be held
separately from, and not commingled with, Eligible Investments acquired with
funds received from or with respect to Assets in the Main Custodial Account.
Such uninvested deposit amounts shall also include, but not by way of
limitation, cash amounts received into the Account or pending distribution
from the Account. Anything in this Agreement to the contrary
notwithstanding, any liquidation of assets in the form of investments
described in such clause (d) shall begin at least one Business Day prior to
the relevant Distribution Date.
2.6. Customer hereby authorizes Custodian's performance of its services and
duties hereunder consistent with the terms and conditions of the Custodian's
duly adopted policies and procedures, as established and modified from time to
time, related to the subject matter hereof, provided that, to the extent that
there is any inconsistency between a provision of this Agreement and a provision
of such policies and provisions, the former provision shall prevail.
2.7. Permitted Transfers. (a) Except as provided otherwise herein,
Custodian shall transfer assets out of the Account only under the
following circumstances:
(i) Subject to the provisions of Section 2.7(b) (i), to the Trust in an
amount equal to the then-existing amount of the Deposit Fund upon the final
maturity of the Funding Agreement, no later than such final maturity;
(ii) In consultation with the Trust's Agent, to the Trust in an amount
equal to the then-existing amount of the Deposit Fund upon the occurrence of any
of the following (each such event, an "Early Certificate Maturity Event"):
7
<PAGE>
(A) If any material violation of the Investment Guidelines remains
uncured for 14 Business Days following Custodian's determination
that a violation of such Investment Guidelines has occurred
(which determination shall be based on the reports provided
under Section 10.3 (b)) and its written notice to Integrity, the
Trust and the Rating Agencies thereof; or if Integrity fails to
provide on a timely basis any of the reports required by Section
10.3(b);
(B) If the total market value of the Combined Assets (based upon the
then-applicable Weekly Valuation) falls below 102% of the
then-applicable value of the Deposit Fund by more than $1,000,000
as of any Weekly Valuation (a "Margin Deficit") and Integrity
does not transfer sufficient assets from its general account to
the Supporting Custodial Account to cure such shortfall within
one Business Day (I.E., prior to Custodian's close of business on
the next Business Day) after receiving written notification from
Custodian regarding the occurrence of the Margin Deficit,
provided that, if, under any such circumstances and in spite of
Integrity's good-faith efforts, it is unable to transfer any such
assets from its general account to the Supporting Custodial
Account within such one-Business Day period due to a Force
Majeure Event, Integrity's obligation to make such asset
transfer, and any withdrawal rights or transfer obligations which
the Trust and Custodian may have under this Agreement
(collectively, the "Parties' Respective Rights and Duties"),
shall be suspended until the shorter of such time as the Force
Majeure Event ceases to exist or one week has elapsed since the
occurrence of such Force Majeure Event; or if Integrity fails to
provide on a timely basis the reports required by Sections
10.3(b) and 10.4;
(C) If Integrity becomes subject to (1) seizure or receivership by
its domiciliary state insurance department or (2) rehabilitation
or liquidation proceedings or (3) conservatorship
or similar proceedings; or
(D) If Integrity fails to pay any principal or interest owed by it
under the Funding Agreement, by 3:00 P.M. ET on the Business Day
following receipt by Integrity of notice from the Trust of such
failure.
(iii) To the Trust in an amount equal to the then-existing amount of the
Deposit Fund upon the occurrence of any of the
8
<PAGE>
following (each such event, an "Early Funding Agreement Termination Event"):
(A) If, at any time following the initial issuance of Senior
Securities, the Liquidity Provider has owned, for at least 360
consecutive days, more than $45 million of Senior Securities as
the result of Unsuccessful Remarketings and has given at least 90
days' notice, on or after the 270th such day, to Custodian,
Customer, and the Rating Agencies of Liquidity Provider's desire
to terminate its obligations under the Liquidity Agreement;
(B) If, at any time within 30 days of the initial or any subsequent
maturity date of the Senior Securities, (1) there is not or on
such maturity date there will not be a Liquidity Provider in
place due to (x) the insolvency of the then-existing Liquidity
Provider, or (y) the resignation (including, without limitation,
any failure by the Liquidity Provider to honor its obligations
under the Liquidity Agreement) or termination of the
then-existing Liquidity Provider (other than under the
circumstances contemplated by clause (A) of this Section
2.7(a)(iii)) without the replacement thereof within a reasonable
period of time, but in no event beyond the next Interest Payment
Date (as defined in the Funding Agreement) by a Prime-l- Rated
Bank or (2) the Market Agent has not selected an extended
maturity date on which the principal amount of all outstanding
Senior Securities will be due and payable;
(C) If, following a change of control of Integrity or an assignment
by Integrity of any of its obligations under the Funding
Agreement or an amendment to the Funding Agreement required by
applicable state insurance regulatory authorities, one or both of
the Rating Agencies lowers or withdraws its then-current rating
of the Senior Securities; or
(D) If Custodian gives notice of resignation or is notified of its
termination as Custodian and the Customer and the Trust are not
able to agree upon a successor within 120 days after such notice
of resignation or termination is given.
(iv) Subject to the provisions of Section 2.7(b) (iv), to the Trust in an
amount equal to the periodic interest payments due on the amount of the Deposit
Fund;
9
<PAGE>
(v) To Integrity, upon the written request of Integrity accompanied by a
certificate of Integrity stating that the requirements of this section have been
met, within one Business Day after its receipt of the Weekly Valuation from
Custodian to the extent that the market value of the Combined Assets exceeds
102% of the then applicable value of the Deposit Fund by more than $1,000,000 as
of any Weekly Valuation (which amount(s) shall be withdrawn first from the
Supporting Custodial Account and, when no Assets remain in such account, then
from the Main Custodial Account), to the extent permitted by Section 3907.15(B)
of the Ohio Revised Code, provided that no such withdrawal from the Supporting
Custodial Account shall result in the market value of the Combined Assets
falling below 102% of the then-applicable value of the Deposit Fund and no such
withdrawal from the Main Custodial Account shall result in either the market
value or the book value (as determined in accordance with accounting principles
utilized by Integrity that are consistent with those required, or permitted, as
the case may be, by the insurance commissioner of Integrity's then-current
domiciliary state) of the assets in the Main Custodial Account falling below
102% of the then-applicable value of the Deposit Fund; and
(vi) To Integrity to the extent that any assets remain in the Account after
full payment to the Trust of the amount of the Deposit Fund.
(b) Liquidation of sufficient assets in the Account to permit the transfers
referred to herein shall occur as follows:
(i) With respect to amounts necessary to make transfers pursuant to
Section 2.7(a) (i), Customer shall direct the Custodian to start, beginning no
later than 30 Business Days prior to the final maturity referred to therein,
to liquidate the Combined Assets in an amount sufficient to pay the Deposit
Fund in cash. To the extent that by the fifth Business Day prior to such
maturity date Customer has not arranged sales transactions for the purpose of
such liquidation, Custodian shall, instead, carry out such liquidation. Any
such liquidation shall be conducted so as to comply with the requirements set
forth in Section 2.7(e).
(ii) With respect to amounts necessary to make transfers pursuant to
Section 2.7(a)(ii), the provisions of Section 2.8 (a) shall be followed.
(iii) With respect to amounts necessary to make transfers pursuant to
Section 2.7(a)(iii), the provisions of Section 2.8(b) shall be followed.
(iv) (A) With respect to amounts necessary to make transfers pursuant
to Section 2.7(a)(iv), to the extent that such amounts correspond to the
Scheduled Income Amount in respect of the Senior Securities, as certified to
Custodian by the Trust's Agent,
10
<PAGE>
Custodian shall pay such amounts to the Trust from cash held in, or proceeds of
the liquidation of Assets in, the Main Custodial Account. Custodian shall
indicate to the Trust the source of such payment and that such payment relates
to the Senior Securities.
(B) With respect to amounts necessary to make transfers pursuant
to Section 2.7(a) (iv), to the extent that such amounts correspond to the
Scheduled Income Amount in respect of the Class B Trust Certificates, as
certified to the Custodian by the Trust's Agent, Custodian shall pay such
amounts to the Trust (separately from amounts payable in respect of the Senior
Securities) from cash held in, or proceeds of the liquidation of Assets in, the
Main Custodial Account to the extent that, immediately following such payment,
neither the market value nor the book value of the assets in the Main Custodial
Account would fall below the value of the Deposit Fund, and then from cash held
in, or the proceeds of the liquidation of Assets in, the Supporting Custodial
Account. Custodian shall indicate to the Trust the source of such payment and
that such payment relates to the Class B Trust Certificates.
(v) With respect to amounts necessary to make transfers pursuant to
any other provision of Section 2.7(a), Customer shall direct Custodian to
liquidate the appropriate amount in the Account.
(c) Should the Trust so elect, payments from the Account may be in the form
of an annuity as described in Section 7 of the Funding Agreement.
(d) Integrity or the Trust shall have the right, acting in good faith,
to object to any price (or lack thereof) assigned to any of the Assets by
Custodian on any Weekly Valuation within one Business Day following receipt
thereof by notifying Custodian in writing of such objection, in which case
Custodian shall obtain bids from two independent dealers who make a market in
such security(ies) and use as the valuation of the questioned Assets the
average of such bids. In addition, Integrity or the Trustee shall have the
right, acting in good faith, to notify Custodian of any clerical errors in
any Weekly Valuation, as to which the Custodian shall promptly correct and
reissue the Weekly Valuation. Under such circumstances, the Parties'
Respective Rights and Duties shall be suspended until such time as such bids
have been obtained or clerical errors have been corrected, provided that the
maximum suspension of the Parties' Respective Rights and Duties shall not
exceed three Business Days following receipt of any Weekly Valuation.
(e) Any payments to be made by the Trust to holders of Senior Securities
shall come from the liquidation of Assets in the Main Custodial Account.
Custodian shall assist the Trust in accomplishing this requirement by never
commingling any proceeds
11
<PAGE>
from the liquidation of Assets in the Main Custodial Account with proceeds from
the liquidation of Assets in the Supporting Custodial Account, making payments
to the Trust that consist only of the former proceeds or the latter proceeds, as
the case may be, and indicating to the Trust the source of any payment made to
the Trust.
2.8. Transfer of Assets Upon Occurrence of an Early Certificate Maturity Event
or an Early Funding Agreement Termination Event.
(a) Upon the occurrence of an Early Certificate Maturity Event, the
Custodian shall not permit any transfer of the Combined Assets (including any
withdrawals thereof by Integrity) except to liquidate the Combined Assets as
follows: if the Early Certificate Maturity Event occurs as a result of an event
described in Section 2.7(a) (ii) (C), to the extent that the Custodian is not
prevented or stayed from doing so by reason of the order or action of any court
or regulator having authority over Integrity, the Custodian shall liquidate the
Combined Assets in an amount sufficient to pay the value of the Deposit Fund to
the Trust in cash as soon as possible (provided that such liquidation shall be
performed in a manner designed to maximize the amount of the Combined Assets to
the extent reasonably practicable). If the Early Certificate Maturity Event
occurs as a result of the occurrence of any other event described in Section
2.7(a)(ii), the Custodian shall liquidate the Combined Assets in an amount
sufficient to pay the value of the Deposit Fund to the Trust in cash in an
orderly and expedient manner over a reasonable time period (provided that such
liquidation shall be performed in a manner designed to maximize the amount of
the Combined Assets to the extent reasonably practicable) but no later than the
earlier of (i) the day that is 30 days after the occurrence of the Early
Certificate Maturity Event (or, if such day is not a Business Day, on the next
Business Day) and (ii) the then-current maturity date of the Senior Securities.
Any such liquidation shall be conducted so as to comply with the requirements
set forth below in Section 2.8(d). Subject to the provisions of Section 2.8(d),
Custodian shall pay the amount of the Deposit Fund to the Trust as follows: (a)
first from Assets in the Main Custodial Account, and, if such Assets are
insufficient to pay the full amount of the Deposit Fund or otherwise
unavailable, then (b) from the Assets in the Supporting Custodial Account. After
such payment to the Trust, the Custodian shall transfer the remaining Combined
Assets, if any, to Integrity. Nothing herein shall be construed so as to prevent
liquidation of the Supporting Custodial Account being effected simultaneously
with the liquidation of the Main Custodial Account.
(b) Upon the occurrence of an Early Funding Agreement Termination Event,
Custodian shall not permit any transfer of the Combined Assets (including any
withdrawal thereof by Integrity) except as follows: Integrity shall direct
Custodian to liquidate the Combined Assets in an amount sufficient to pay the
value of the
12
<PAGE>
Deposit Fund to the Trustee in cash in an orderly and expedient manner over a
reasonable time period (provided that such liquidation shall be performed in a
manner designed to maximize the value of the Combined Assets to the extent
reasonably practicable) but in no event later than the then-current maturity
date of the Senior Securities. If liquidation has not already commenced,
Integrity shall direct Custodian to start, beginning no later than 30 Business
Days prior to such maturity date, to liquidate the Combined Assets in an amount
sufficient to pay the Deposit Fund in cash. To the extent that by the fifth
Business Day prior to such maturity date Integrity has not arranged sales
transactions for the purpose of such liquidation, Custodian shall, instead,
carry out such liquidation. Any such liquidation shall be conducted so as to
comply with the requirements set forth in Section 2.8(d). Provided that prior
written approval is received from the Ohio Department of Insurance, Integrity
may transfer cash from its general account in lieu of all or part of any amount
to be paid to the Trustee and Custodian shall simultaneously transfer to
Integrity such of the Combined Assets as Integrity may designate in writing
equal in value (as determined by Custodian in accordance with Custodian's
then-current pricing procedures) to such amount (I.E., subject to the prior
written approval described above, Integrity may engage in a substitution of cash
for securities to be liquidated pursuant to a request for a full withdrawal by
the Trustee if Integrity so chooses). Subject to the provisions of Section
2.8(d), Custodian shall pay the amount of the Deposit Fund to the Trust as
follows: (i) first from Assets in the Main Custodial Account and, if such Assets
are insufficient to pay the full amount of the Deposit Fund, then (ii) from the
assets in the Supporting Custodial Account. After such payment to the Trust,
Custodian shall transfer the remaining Combined Assets, if any, to Integrity.
During any such liquidation period, compliance with the Investment Guidelines
will be computed by including the value of any cash transferred to the Trust
prior to final payment and Integrity shall instruct Custodian to make partial
payments (and Custodian shall make any such partial payments requested) of the
amount of the Deposit Fund via transfers of cash from time to time as the
Combined Assets are converted into cash . Anything in this Section 2.8(b) to
the contrary notwithstanding, if, at any time after an Early Funding Agreement
Termination Event occurs, an Early Certificate Maturity Event occurs, the
provisions of Section 2.8(a) shall thereafter take precedence over the
provisions of this Section 2.8(b).
(c) Any transfers of cash to the Trust pursuant to this Section 2.8 shall
reduce the amount of the Deposit Fund by the value of such cash on the date of
transfer.
(d) Any payments to be made by the Trust to holders of Senior Securities
shall come from the liquidation of Assets in the Main Custodial Account.
Custodian shall assist the Trust in accomplishing this requirement by never
commingling any proceeds from the liquidation of Assets in the Main Custodial
Account with
13
<PAGE>
proceeds from the liquidation of Assets in the Supporting Custodial Account,
making payments to the Trust that consist only of the former proceeds or the
latter proceeds, as the case may be, and indicating to the Trust the source of
any payment made to the Trust.
2.9. Substitutions of Securities. The Trust hereby authorizes Custodian from
time to time to release to Customer securities held in the Account, provided,
however, that Customer shall simultaneously deliver to Custodian for transfer to
the Account cash or securities having a market value (as determined by
Custodian) equal to or greater than the then-aggregate market value (as
determined by Custodian) of the securities released hereunder, and provided,
further, that prior written approval of such transactions has been received from
the Ohio Department of Insurance. To effect a substitution hereunder, Customer
shall provide Custodian a description of the securities (and a CUSIP number, if
applicable) to be released and, if applicable, a description of the securities
(and CUSIP number, if applicable) to be substituted therefor.
3. POWERS OF CUSTODIAN. In the performance of its duties hereunder, Custodian
shall have the following powers:
3.1. To register any of the Assets in the name of the Customer or in the
Custodian's name or in the name of a nominee of Custodian or in the name of the
Custodian's agent bank or to hold any of the Assets in unregistered form or in
such form as will pass title by delivery, provided that such Assets shall at all
times be recorded in Customer's Account hereunder as one of the Assets and
provided further that any such designation shall make it clear that the Assets
are owned by Customer and held for the benefit of the Trust. In consideration of
Custodian's registration of any securities or other property in the name of
Custodian or its nominee or agent, Customer agrees to pay on demand to Custodian
or to Custodian's nominee or agent the amount of any loss or liability for
stockholders' assessments or otherwise, claimed or asserted against Custodian or
Custodian's nominee or agent by reason of such registration.
3.2. To make, execute, acknowledge and deliver any and all documents of transfer
and conveyance and any or all other instruments that may be necessary or
appropriate to carry out the duties described and powers granted herein.
3.3. To maintain qualifying Assets in such registered clearing agency or in a
Federal Reserve Bank (a "Depository"), as Custodian may select, and to permit
such deposited Assets to be registered in the name of Custodian or Custodian's
agent or nominee on the records of such Federal Reserve Bank or such registered
clearing agency or the nominee of either, and to employ and use securities
depositories, clearing agencies, clearance systems, sub-custodians
14
<PAGE>
or agents located outside the United States in connection with transactions
involving foreign securities, provided that such Assets shall at all times be
recorded in Customer's Account herein as one of the Assets and provided further
that any such registration shall make it clear that the Assets are owned by
Customer and held for the benefit of the Trust.
3.4. To employ agents and to delegate duties to them as it sees fit and to
employ or consult with experts, advisors and legal counsel and to rely on
information and advice received from such agents, experts, advisors, and legal
counsel.
3.5. To perform any and other ministerial acts deemed by Custodian necessary or
appropriate to the proper discharge of its duties hereunder.
4. PURCHASES. Subject to the provisions of Section 2.1, upon availability of
sufficient funds and receipt of appropriate instructions from Customer,
Custodian shall pay for and receive Assets purchased for the Account by or for
Customer, payment for which is to be made in the amount specified in such
instructions and only upon receipt by Custodian of the Assets in satisfactory
form for transfer. Custodian shall have no obligation to confirm the adequacy or
fairness of the Assets' purchase price.
5. SALES. Subject to the provisions of Section 2.1, upon receipt of appropriate
instructions from Customer, Custodian will deliver Assets held by it as
Custodian hereunder and sold by or for Customer against payment to Custodian of
the amount specified in such instructions in accordance with the then-current
securities industry practices and in form satisfactory to Custodian. Customer
acknowledges that the current securities industry practice is delivery of
physical securities against later payment on delivery date. Custodian agrees to
use its best efforts to obtain payment therefor during the same business day,
but Customer confirms its sole assumption of all risks of payment for such
deliveries . Custodian may accept checks, whether certified or not, in payment
for securities delivered on Customer's instruction, and Customer assumes sole
responsibility for the risks of collectibility of such checks. Custodian shall
have no obligation to confirm the adequacy or fairness of the Assets' sales
price.
6. SETTLEMENTS.
6.1. Custodian shall provide Customer with settlement of all purchases and
sales of Assets in accordance with Custodian's then-prevailing settlement
policies, provided that (a) appropriate instructions for purchases and sales
are received by Custodian in accordance with Custodian's then-current
published instruction deadline schedule, and (b) Custodian has all other
information, funds and/or Assets necessary to complete the transaction.
15
<PAGE>
6.2. The Custodian shall not be liable or responsible for or on account of any
act or omission of any broker or other agent designated by Customer to purchase
or sell securities for the Account of Customer.
7. CORPORATE ACTIONS. In connection with any mandatory conversion of
securities included in Assets pursuant to their terms, reorganization,
recapitalization, redemption in kind, consolidation, or other exchange
transaction that does not require or permit approval by the owner of the
affected Assets, Custodian will tender or exchange securities held for other
securities, for other securities and cash, or for cash alone.
8. COLLECTIONS. Custodian shall collect all income, principal and other
distributions due and payable on securities held either by Custodian or a
Depository but shall be under no obligation or duty to take action to effect
collection of any amount if the Assets upon which such payment is due are in
default, or if payment is refused after due demand and presentation. Custodian
shall have no responsibility to notify Customer in the event of such default
or refusal to pay, but, if Custodian receives notice of default or refusal to
pay from an issuer or transfer agent, Custodian shall so advise Customer
promptly. Collections of monies in foreign currency, to the extent possible,
are to be converted into United States dollars at customary rates through
customary banking channels, including, without limitation, Custodian's own
banking facilities, and in accordance with Custodian's prevailing policies for
foreign funds repatriation. All risk and expense incident to such foreign
collection and conversion is the responsibility of the Account, and Custodian
shall have no responsibility for fluctuations in exchange rates affecting such
collections or conversion.
9. NO DISCRETIONARY AUTHORITY; STANDARD OF CARE. Customer, Trust and Custodian
acknowledge that, except to the extent set forth in any separate instrument
signed by the parties with respect to this Agreement, Custodian's duties
hereunder do not include any discretionary authority, control or responsibility
with respect to the management or disposition of any Asset; that, except as may
be provided otherwise herein, Custodian has no authority or responsibility to
render investment advice with respect to any Asset; and that Custodian is not a
trustee with respect to Customer. In addition, it is agreed that:
9.1. Custodian shall have no duty to make any evaluation or to advise anyone of
the suitability or propriety of any action or proposed action of Customer in any
particular transaction involving an Asset or the suitability or propriety of
retaining any particular investment as an Asset. Custodian shall have no duty or
authority to review, question, approve or make inquiries as to any investment
instructions given pursuant hereto. Except as otherwise provided herein,
Custodian shall be under no duty or obligation to
16
<PAGE>
review the securities or other property held in the Account with respect to
prudence or diversification.
9.2. Custodian shall not be liable for any loss or diminution of Assets by
reason of investment experience or for its actions taken in reliance upon an
instruction from Customer.
9.3. Except as specifically provided herein, Custodian shall have no duty or
responsibility to monitor or otherwise investigate the actions or omissions of
Customer or the Trust.
9.4. Except as otherwise provided herein, in the performance of its services
hereunder Custodian shall exercise care similar to that which is standard in its
industry and no less care than it would use for supervising its own accounts. In
no event shall Custodian be liable for indirect or consequential damages.
Custodian shall only be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by its own actions or omissions and within its
reasonable control. No such failure or delay shall give Customer the right to
terminate this Agreement, except as provided in Section 15.
10. BOOKS, RECORDS AND ACCOUNTS.
10.1. BOOKS AND RECORDS. Custodian will make and maintain proper books of
account and complete records of all Assets and transactions in the Account
maintained by Custodian hereunder on behalf of Customer. Custodian will preserve
for the periods prescribed by applicable federal or state statute or regulation
all records required to be maintained.
10.2. INSPECTIONS. On at least four Business Days' notice, Custodian will make
available to and permit inspection during Custodian's regular business hours
by Customer and its auditors of all books, records and accounts retained by
Custodian (or, to the extent practicable, its agents) in connection with its
duties hereunder on behalf of Customer.
10.3. VALUATION AND INVESTMENT GUIDELINE REPORTS.
(a) By 3:00 p.m. ET of the last Business Day of each week, and the first
Business Day of each month, Custodian will provide Integrity, the Trust, the
Rating Agencies and the Liquidity Provider with a written asset valuation report
setting forth the market valuation (including, without limitation, accrued
interest) of each Asset in the Account as of the close of business on the
penultimate Business Day of such week and the last Business Day of such month,
respectively.
17
<PAGE>
(b) On the second Business Day of the week following receipt of each
Weekly Valuation, Integrity shall provide Custodian and the then-applicable
Liquidity Provider a weekly report certified by a duly authorized
representative of Integrity detailing, on a book value basis (in sufficient
detail to enable Custodian to verify independently the reasonableness of such
report), the compliance of the Combined Assets with the Investment Guidelines
as of the penultimate Business Day of the preceding week (other than duration,
which shall be provided monthly). In addition, Integrity shall provide
Custodian and the then-applicable Liquidity Provider with a monthly report
certified by a duly authorized representative of Integrity detailing such
compliance on a market value basis as of the last Business Day of the
preceding month (in sufficient detail to enable Custodian to verify
independently the reasonableness of such report), within 10 Business Days
following the end of each calendar month during the term of this Agreement.
Integrity shall promptly provide copies of the quarterly and annual financial
statements filed with the Ohio Department of Insurance to the Rating Agencies.
10.4. DEPOSIT FUND LIABILITY REPORTS. Integrity shall provide Custodian,
the Liquidity Provider, and the Rating Agencies with a report prospectively
setting forth the daily amounts of the Deposit Fund for each quarter the
Funding Agreement is in effect (in sufficient detail to allow independent
verification through recalculation) as soon as practicable following the
calculation of such quarter's Index Value (as such term is defined in the
Funding Agreement).
10.5. NOTIFICATION RESPONSIBILITIES.
(a) The Trust shall or shall cause an agent to notify Custodian, the
Trust's Agent, the Remarketing Agent and the Rating Agencies promptly after it
becomes aware that an event described in Section 2.7(a) (ii) (C) or (D) has
occurred.
(b) Integrity shall notify Custodian, the Remarketing Agent and the
Rating Agencies promptly after it becomes aware that an event described in
Section 207(a)(iii)(A), (a)(iii)(B) or (a)(iii)(C) has occurred.
(c) Promptly following the occurrence of an Early Certificate Maturity
Event, or an Early Funding Agreement Termination Event, Custodian shall notify
Integrity, the Trust, the Remarketing Agent and the Rating Agencies in writing
of such occurrence.
(d) Promptly following notification from the Trust of the existence of a
Margin Deficit, Custodian will notify Integrity, the Trust, the Liquidity
Provider, and the Rating Agencies in writing as to whether such Margin Deficit
has been cured by Integrity.
18
<PAGE>
11. INSTRUCTIONS AND DIRECTIONS.
11.1. Custodian shall be deemed to have received appropriate "instructions" or
"directions" upon receipt of written instructions or directions or, in the case
of cash movement, written (or oral instructions confirmed in writing) or
directions, (a) signed or given by any person(s) whose name(s) and signature(s)
are listed on the most recent certificate delivered by Customer or the Trust or
the Trust's Agent to Custodian which lists those persons authorized to give
orders, corrections and instructions in the name of and on behalf of the
Customer or the Trust or the Trust's Agent, respectively, or (b) signed or given
by any other person(s) duly authorized by Customer or the Trust, respectively,
to give instructions or directions to Custodian hereunder or whom Custodian
reasonably believes to be so authorized.
11.2. Appropriate instructions or directions shall include instructions or
directions sent to Custodian or its agent by letter, memorandum, telegram,
cable, telex, telecopy, facsimile, video (CRT) terminal or other "on-line"
system, or similar means of communication, or, in the case of cash movement,
given orally over the telephone (and confirmed in writing) or in person.
11.3. In the event that Custodian is instructed to deliver Assets to any party
other than Customer or Customer's agent pursuant hereto, appropriate
instructions shall include, and Customer shall supply, customary transfer
documentation as required by such party, and, to the extent that such
documentation has not been supplied, Custodian shall not be deemed to have
received appropriate instructions.
12. COMPENSATION; SECURITY.
12.1. The Trust shall pay to Custodian fees for its services under this
Agreement and shall reimburse Custodian for costs incurred by it hereunder as
set forth in Exhibit B hereto.
12.2. If any advance of funds is made by Custodian on behalf of Customer to
purchase, or to make payment on or against delivery of securities or there
shall arise for whatever reason an overdraft in Customer's account, or if
Customer is for any other reason indebted to Custodian, including, but not
limited to, any advance of immediately available funds to Customer with
respect to payments to be received by Custodian in next-day funds (which
Customer acknowledges Customer is liable to repay if Custodian does not
receive final payment), Customer agrees to repay Custodian on demand the
amount of the advance, overdraft or other indebtedness, and accrued interest
at a rate per annum (based on a 360-day year for the actual number of days
involved) equal to the Federal Funds effective rate in effect from time to
time.
19
<PAGE>
12.3. In the event of an advance of funds by Custodian, or if any overdraft is
created by Account transactions, Custodian may directly charge the relevant
sub-account of the Account and receive such payment therefrom. In the event that
a compensation payment due Custodian is past due by more than 30 days, such
amount may be charged to the Supporting Custodial Account and Custodian may
receive such payment therefrom and such amount shall be automatically deducted
from and reduce the amount of the Deposit Fund allocable to Class B Trust
Certificates.
13. CUSTOMER RESPONSIBILITY. Except as provided otherwise herein, Customer shall
be responsible for the review of all reports, accountings and other statements
provided thereto by the Custodian and shall within 90 days following receipt
thereof notify the Custodian of any mistakes, defects or irregularities
contained or identified therein, after which time all such matters shall be
presumed to be ratified, approved and correct and shall not provide any basis
for claim or liability against the Custodian.
14. INDEMNIFICATION. Customer as an entity hereby agrees to indemnify
Custodian and its controlling person, officers, directors, employees and
agents (each an "Indemnified Party") and hold each Indemnified Party harmless
from and against any costs, losses, claims, liabilities, fines, penalties,
damages and expenses (including reasonable attorneys' and accountants' fees)
(collectively, a "Claim") arising out of (i) Customer's actions or omissions
or (ii) Custodian's action taken or omitted hereunder in reliance upon
Customer's instructions or upon any information, order, indenture, stock
certificate, power of attorney, assignment, affidavit or other instrument
delivered hereunder to Custodian, reasonably believed by Custodian to be
genuine or bearing the signature of a person or persons authorized by Customer
to sign, countersign or execute the same; provided, that Customer shall not
indemnify an Indemnified Party for any Claim arising from the Indemnified
Party's willful misfeasance, bad faith or negligence in the performance of its
duties, or reckless disregard or breach of its duties under this Agreement.
15. TERMINATION.
15.1. This Agreement will remain in effect until terminated by Customer or
Custodian giving prior written notice to the other parties hereto and the
Rating Agencies at least 180 days in advance of the termination date. Customer
shall not terminate this Agreement without having first obtained a replacement
Custodian which is acceptable to the Trust in its reasonable discretion. In
addition, if Customer receives written notice from Custodian of its intent to
terminate this Agreement, then Customer and the Trust shall select a mutually
agreeable replacement Custodian as soon as reasonably practicable thereafter.
In any event, Custodian may not resign or be terminated until an appropriate
successor Custodian is selected and assumed its position as successor. No
replacement of
20
<PAGE>
a Custodian shall be effective if such replacement would cause either of the
Rating Agencies to lower or withdraw its then-current rating of the Senior
Securities.
15.2. Upon termination of this Agreement, Custodian shall follow such
reasonable Customer instructions concerning the transfer of Assets' custody and
records; provided, that, unless this Agreement is terminated due to Custodian's
breach hereof, (a) Custodian shall have no liability for shipping and insurance
costs associated therewith; (b) Custodian shall not be required to make any such
delivery or payment until full payment shall have been made by Customer of all
liabilities constituting a charge on or against Custodian and until full payment
shall have been made to Custodian of all its compensation, costs, including
special termination costs, if any, and expenses hereunder; and (c) Custodian
shall have been reimbursed for any advances of monies or securities made
hereunder to Customer. If any Assets remain in the Account, Custodian may
designate Customer as successor Custodian hereunder and deliver the same
directly to Customer.
15.3. Upon termination of this Agreement, all obligations of the parties
hereunder shall cease, except that all rights and obligations that have accrued
to the time of such termination shall survive such termination.
16. BINDING OBLIGATIONS. Customer, Custodian, and the Trust each hereby
represents that this Agreement constitutes its legal, valid and binding
obligation enforceable in accordance with the terms hereof, subject, as to
enforcement of remedies, to applicable bankruptcy and insolvency laws, and to
general principles of equity.
17. GENERAL PROVISIONS.
17.1. NOTICES. Except as provided in Section 11, any notice or other
communication under this Agreement shall be in writing and shall be considered
effective upon receipt if by mail, or on the date of personal delivery (by
private messenger, courier service or otherwise) or telex or facsimile,
whichever occurs first, to the addresses indicated below. The below addresses
and individuals may be changed at any time by an instrument in writing executed
by the party giving same and given to the other parties hereto and to the Rating
Agencies, in accordance with the procedure set forth above. Notices to any party
hereto shall be given to such party at its respective address set forth on
the signature pages hereof. Notices to the Rating Agencies shall be given as
follows:
21
<PAGE>
If to Moody's, to:
Moody's Investors Service, Inc,
99 Church Street
New York, NY 10007
Attention: Ann Joyce Holtwick
Phone No.: (212) 553-4143
Fax No.: (212) 553-0881
If to Standard & Poor's, to:
Standard & Poor's Ratings Services
25 Broadway
New York, NY 10007
Attention: Michael K. Vernier
Phone No.: (212) 208-8832
Fax No.: (212) 208-0077
17.2. NO TAX RESPONSIBILITY. Notwithstanding any other terms or conditions
contained herein, Custodian shall not be responsible for, and Customer does
hereby waive all duties or functions of Custodian (imposed by law or otherwise)
relating to, the withholding and government deposit of any and all taxes, or
amounts with respect thereto, that may be incurred or payable in connection with
the Account established hereunder, income or gain realized on Assets held
therein or transactions undertaken with respect thereto. Except as required by
law in such manner that cannot be delegated to or assumed by Customer, Custodian
shall have no re sponsibility to undertake any federal, state, or local tax
reporting in connection with Assets, the Account or transactions therein,
17.3. COMPLETE AGREEMENT; MODIFICATION. This Agreement contains a complete
statement of all the arrangements among the parties hereto with respect to its
subject matter, supersedes all existing agreement(s) among them concerning such
subject matter, and cannot be amended or modified in any manner except by a
written agreement executed by the parties hereto; provided, however, that
subsequent to the initial placement of the Senior Securities, the Investment
Guidelines may be amended only at the time of any subsequent remarketing of such
Senior Securities upon the mutual agreement of Customer and the then-applicable
Liquidity Provider following prior written notice to each of the Rating Agencies
disclosing the extent and nature of any such proposed changes to the Investment
Guidelines. Notwithstanding the foregoing, if, at any time, Custodian is
holding assets or property of Customer pursuant to any other custodial, pledge
or agency agreement with Customer (or which Customer has acknowledged in
instructions to Custodian) and one or more third parties that involves
Custodian's duties or obligations to a third party (which may be affiliates of
Custodian) with respect to Assets, the terms and requirements of the other
agreement(s) concerning such Assets shall supersede and control the
22
<PAGE>
provisions and duties set forth herein. Further notwithstanding the foregoing,
any amendments to this Agreement which may affect the rights of the holders of
the Senior Securities shall only take effect at the time of a remarketing of
such Senior Securities and no amendment shall become effective that would cause
either of the Rating Agencies to lower or withdraw its then-current rating of
the Senior Securities.
17.4. GOVERNING LAW. This Agreement shall be interpreted, construed, enforced
and administered in accordance with the internal substantive laws (and not the
choice of law rules) of the State of New York.
17.5. ASSIGNMENT. No party may assign any of its rights hereunder without the
consent of the other, which consent shall not be unreasonably withheld. The
foregoing consent requirement does not apply if either party shall merge or
consolidate with or sell substantially all of its assets to another corporation,
provided that such other corporation shall assume without qualification or
limitation all obligations of that party hereunder either by operation of law
or by contract.
17.6. SEPARABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and, if any
provision is inapplicable to any person or circumstances, it shall nevertheless
remain applicable to all other persons and circumstances.
17.7. NO THIRD PARTY RIGHTS. In performing its services hereunder, Custodian is
acting solely on behalf of Customer and the Trust. No agency, contractual or
service relationship shall be deemed to be established hereby between Custodian
and any other persons.
17.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts , each of which shall be considered an original, but all of
which together shall constitute the same instrument.
17.9. CONFIDENTIALITY. Each party hereto shall hold confidential and not divulge
to third parties without the prior written consent of the other parties hereto
any information obtained by such party in connection with such party's
performance of its duties or obligations under this Agreement, unless either (a)
the information was at the time of disclosure to such party or thereafter
becomes part of the public domain (but not as a result of acts by such party);
or (b) the information was obtained by such party from a third party which did
not receive the same, directly or indirectly, from a party hereto and which
third party had, to such party's best knowledge and belief, the right to
disclose the same. Upon termination of this Agreement, each party shall return
to the other parties to this Agreement any and all materials or
23
<PAGE>
information of any type supplied to such party by such other parties in respect
of this Agreement. Notwithstanding the provisions of this Section 17.9, no party
shall be prohibited from producing Account documents or providing Account
information as required pursuant to any duly issued summons, subpoena, or court
order, or as required by a regulator supervising such party.
17.10. NO PETITION COVENANT. Notwithstanding any prior termination of this
Agreement, neither the Custodian nor Integrity nor the Trust's Agent shall,
prior to the date which is one year and one day after the payment in full of the
Senior Securities and the termination of this Agreement, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial part of
its property, or making a general assignment for the benefit of creditors,
or ordering the winding up or liquidation of the affairs of the Trust.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative as of the date and year first
above written.
<TABLE>
<S> <C>
INTEGRITY LIFE INSURANCE COMPANY
AS AN ENTITY AND FOR THE BENEFIT
OF THE ACCOUNT REFERRED TO ABOVE FIRST TRUST NATIONAL ASSOCIATION
By: /s/ Daniel R. Gattis By: /s/ Laurie A. Howard
----------------------------- -----------------------------
Laurie A. Howard
Name: /s/ Daniel R. Gattis Vice President
--------------------------
Title: Executive Vice President
-------------------------
Customer Address: Custodian Address:
515 West Market St., First Trust National Association
8th Floor 180 East Fifth Street, Suite 200
Louisville, KY 40202 St. Paul, MN 55101
Attention: Madison C. McCarty Attention: Laurie A. Howard
Phone No.: (502) 582-7945 Phone No.: (612) 244-0714
Fax No.: (502) 582-7903 Fax No.: (612) 244-5847
BAYERISCHE LANDESBANK
BRAVO TRUST SERIES 1997-1 GIROZENTRALE, ACTING
By: The Bank of New York, THROUGH ITS NEW YORK
Not in its Individual BRANCH AND AS TRUST'S
Capacity but as Trustee AGENT FOR THE TRUST
By: /s/ Cheryl L. Laser By: /s/ Bert von Stuelpnagel
----------------------------- ------------------------------
Bert von Stuelpnagel
Name: CHERYL L. LASER Executive Vice President
--------------------------- and Manager
Title: Assistant Vice President
--------------------------
By: /s/ Ron Bertolini
-----------------------------
Trust's Address: Ron Bertolini
First Vice President and
101 Barclay Street Treasury Manager
Floor 12 East
New York, New York 10286 Trust Agent's Address:
Phone No.: (212) 815-5286 560 Lexington Avenue
Fax No.: (212) 815-5544 17th Floor
New York, New York 10022
Phone No.: (212) 310-9891
Fax No.: (212) 310-9870
</TABLE>
<PAGE>
EXHIBIT A
SHORT-TERM PORTFOLIO GUIDELINES
Trust/Integrity Separate Account Portfolio
<TABLE>
<CAPTION>
MIN/MAX. MAX. PER MAX. PER
ASSET CLASS EXP. ISSUE ISSUER
- ------------------------------------- ------- -------- --------
<S> <C> <C> <C>
U.S. Gov't & Agencies 0/100% unlimited unlimited
Mortgage-backed Securities
Agency CMOs 0/50% 5% 15%
Non-agency CMOs 0/50% 5% 10%
Agency Pass Throughs 0/50% 5% 15%
Support Tranches 0/10% 5% 10%
Asset-backed Securities 0/30% 2.5% 10%
Auto Loans
Credit Card Receivables
Home Equity
Manufactured Housing
Corporate Debt 0/60% 5% 5%
Public Utilities
Corporate Bonds
144A/Private Placements 0/30% 2.5% 2.5%
Foreign Debt 0/20% 2.5% 2.5%
(U.S. Dollar Denominated only)
Non-Investment Grade Securities 0/3% 1% 1%
(No lower than BB/NAIC "3"
rated)
Cash and Cash Equivalents 0/100% 5% 5%
Non-Speculative Hedging Instruments 0/3% 1% 1%
(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)
</TABLE>
A-1
<PAGE>
SHORT TERM PORTFOLIO GUIDELINES
PAGE TWO
GENERAL
1. The average effective duration of the portfolio cannot exceed 1.75 years.
2. The average credit quality of the portfolio cannot be less than AA/NAIC "1"
3. The portfolio cannot contain investments in real estate, direct
commercial mortgages, common stocks, leveraged futures or other
leveraged/speculative derivatives.
4. Any derivative position must be used for hedging only and must result in
the portfolio still being in compliance with all other investment
guidelines.
A-2
<PAGE>
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 for
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 a 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.
A-3
<PAGE>
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 unregistered security issued under SEC Rule 144A.
PRIVATE PLACEMENTS
Privately negotiated debt transactions between an issuer and buyer.
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:
- U.S. Government or agency securities
- Certificates of deposit
- Commercial paper
A-4
<PAGE>
- Bankers acceptances
- Repurchase agreements
- Corporate debt rated AA or better
- Money market funds
- Loan participation notes
NON-SPECULATIVE HEDGING INSTRUMENTS
Caps, floors or swaps may only be used as part of a hedging program to
explicitly manage the risk profile of the portfolio, and will only be written
against specified securities (i.e. caps/floors at lifetime maximums/minimums for
ARMs). They may not be used for speculative purposes. This does not imply that
all such security structures in the portfolio will be hedged at all times.
Credit quality of acceptable counterparties will be AA or better. Caps and
floors exposure will be calculated as the lesser of cost or market value. Swap
exposure for determining compliance with investment guideline limitations will
be calculated as the absolute value of the swap market value. Any such
derivative position will be included in the portfolio when determining
compliance with all other investment guidelines.
ADDITIONAL DEFINITIONS
Newly issued and TBA securities as well as extended settlements on purchases of
permitted securities are explicitly allowed as long as the securities involved
otherwise comply with these stated investment guidelines. Such transactions are
not considered to be forward contacts.
PROHIBITED ASSET CLASSES
The following asset classes are prohibited investments:
Interest only CMO class
Principal only CMO class
Inverse floater CMO class
Forwards*
Futures*
Options*
* Except as explicitly discussed under Permitted Asset Classes.
A-5
<PAGE>
EXHIBIT B
CUSTODIAN FEES AND COSTS
<PAGE>
FIRST TRUST NATIONAL ASSOCIATION
Proposed Fee Schedule For Acting As
Custodian
ARM FINANCIAL, INC.
I. INITIAL FEE: $5,000
This fee covers the examination of the Custody Agreement and supporting
documents, acceptance, execution and delivery of the Custody Agreement,
and establishment of necessary records. It does not include Counsel Fees,
if necessary, or any out-of-pocket expenses incurred as a result of the
closing.
II. ANNUAL ADMINISTRATION FEE:
FIRST $250,000,000 1.50 BASIS POINTS
$250,000,000 TO $400,000,000 1.00 BASIS POINTS
OVER 400,000,000 .50 BASIS POINTS
LESS 30% DISCOUNT
Covers ordinary services of the Custodian for maintaining records, and
performing one (1) valuation per week. If daily valuations are required,
they will be charged at $5 each.
III. OTHER FEES:
* Other fees may be charged for additional services depending upon the work
involved. Our fee does not include extraordinary services, default
administration, secondary disclosure, investment services outside of the CT
Treasury and CT Government Money Market Funds, tax reporting, or other
duties that maybe mandated by future laws or regulatory agencies. First
Trust also reserves the right to charge a fee relating to the termination
of the Trust and the final distribution of the property held by the Trust,
such fee to be determined at the time of termination.
<PAGE>
* For investments in First American CT Treasury or CT Government money market
funds, fund expenses will not exceed 60 Basis Points on average daily balances,
netted from investment earnings. See enclosed prospectus. Settlement of trades
in open market at direction of Obligor per transaction (buy or sell)- $10.00.
Free delivery or free receipt of book-entry securities, per transaction - $10.00
* In addition to any other fees described in this schedule and reimbursement for
miscellaneous postage, insurance, and other out-of-pocket expenses exclusive of
large mailings and as reimbursement for all direct and indirect overhead and
cost of operation, an additional charge not to exceed $225 per year.
* All fees are billed quarterly in advance based on the amount outstanding at
the beginning of each quarterly billing period. All fees are nonrefundable and
will not be prorated in the event of an early termination of the Trust.
* The above fees are subject to document review and periodic review and
adjustment (annual increases may be based on the annual CPI).
* 1-1/2% fee charged on amounts over 30 days past due.
Dated: October 1, 1997
<PAGE>
CUSTODY AGREEMENT
between
SIGNET TRUST COMPANY
and
BRAVO TRUST SERIES 1997-1
Dated as November 25, 1997
<PAGE>
CUSTODY AGREEMENT ("Custody Agreement" or "Agreement") made this 25th day of
November, 1997 by and between SIGNET TRUST COMPANY, a subsidiary trust company
organized and existing under the laws of The Commonwealth of Virginia through
its Corporate Trust Department ("Custodian") and BRAVO TRUST Series 1997-1, a
trust organized pursuant to a Declaration of Trust and Trust Agreement dated
November 25, 1997 (the "Trust Agreement"), acting through The Bank of New
York (the "Trust"). Capitalized terms not otherwise defined herein shall
have the meanings ascribed thereto in the Trust Agreement.
The Trust and Custodian hereby agree that, in consideration of the mutual
promises and covenants contained herein, Custodian shall hold in custody and
shall distribute the Custodial Property (as defined herein) in accordance
with and subject to the following Instructions and Terms and Conditions:
I. INSTRUCTIONS:
1. CUSTODIAL PROPERTY
The property deposited with Custodian is the Separate Account Group
Annuity Contract as set forth in Schedule 1 to the Trust Agreement,
the receipt of which is acknowledged by the Custodian by its delivery
of a written receipt to the Trust.
The foregoing property is referred to herein as "Custodial Property."
2. DISTRIBUTION OF CUSTODIAL PROPERTY
Custodian is directed to hold the Custodial Property until receipt of
written instructions from the Trustee under the Trust Agreement.
3. ADDRESSES
Notices, instructions and other communications shall be sent to
Custodian, Signet Trust Company, Attention: Corporate Trust Department,
7 North 8th Street, Second Floor, Richmond, Virginia 23219, and to the
Trust c/o The Bank of New York, 101 Barclay Street, Floor 12 East, New
York, New York 10286, Attention: Asset Backed Finance Unit.
4. DISTRIBUTION OF CUSTODIAL PROPERTY UPON TERMINATION
Upon termination of this Custody Agreement, Custodial Property then held
hereunder shall be distributed as follows to or on the order of the
Trustee.
<PAGE>
5. COMPENSATION
(a) At the time of execution of this Custody Agreement, the Trust shall
cause Lehman Brothers Inc. to pay Custodian an acceptance fee of
$1,745.00. In addition, the Trust shall cause Lehman Brothers Inc.
to pay Custodian an initial fee of $1,000.00, payable upon execution
of this Agreement, and thereafter the Trust shall pay to the Custodian
a fee of $1,000.00 on each anniversary date of this Agreement.
(b) The Trust shall be responsible for and shall reimburse Custodian
upon demand for all reasonable expenses, disbursements and advances
incurred or made by Custodian in connection with this Agreement.
6. SUBORDINATION
The Custodian agrees that all amounts payable to it by the Trust
under this Agreement, other than the amounts referenced in section 5(a)
hereof, shall be subordinate to payments owed by the Trust to the
Holders of Class A Trust Certificates.
II. TERMS AND CONDITIONS:
1. The duties, responsibilities and obligations of Custodian shall be
limited to those expressly set forth herein and no duties,
responsibilities or obligations shall be inferred or implied. Custodian
shall not be subject to, nor required to comply with, any other
agreement between or among the Trust or Trust's Agent or to which the Trust
or Trust's Agent is a party, even though reference thereto may be made
herein, or to comply with any direction or instruction (other than those
contained herein or delivered in accordance with this Custody Agreement)
from the Trust or Trust's Agent or any entity acting on its behalf.
Custodian shall not be required to, and shall not, expend or risk any of
its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder.
2. This Agreement is for the exclusive benefit of the parties hereto and
their respective successors hereunder, and shall not be deemed to give,
either express or implied, any legal or equitable right, remedy, or claim
to any other entity or person whatsoever.
3. If at any time Custodian is served with any judicial or administrative
order, judgment, decree, writ or other form of judicial or administrative
process which in any
- 2 -
<PAGE>
way affects Custodial Property (including but not limited to orders of
attachment or garnishment or other forms of levies or injunctions or stays
relating to the transfer of Custodial Property), Custodian shall
immediately notify the Trustee in writing. The Custodian is authorized to
comply therewith in any manner as it or its legal counsel of its own
choosing deems appropriate upon prior written notice to the Trustee; and if
Custodian complies with any such judicial or administrative order,
judgment, decree, writ or other form of judicial or administrative process.
Custodian shall not be liable to any of the parties hereto or to any other
person or entity even though such order, judgment, decree, writ or process
may be subsequently modified or vacated or otherwise determined to have
been without legal force or effect.
4. (a) Custodian shall not be liable for any action taken or omitted or for
any loss or injury resulting from its actions or its performance or lack
of performance of its duties hereunder in the absence of negligence or
willful misconduct on its part. In no event shall Custodian be liable
(i) for acting in accordance with or relying upon any instruction, notice,
demand, certificate or document from the Trust or Trust's Agent (ii) for
any consequential, punitive or special damages or (iii) for an amount in
excess of the value of the Custodial Property, valued as of the date of
deposit.
(b) Custodian may consult with legal counsel at the expense of the Trust
as to any matter relating to this Custody Agreement, and Custodian shall
not incur any liability in acting in good faith in accordance with any
advice from such counsel.
(c) Custodian shall not incur any liability for not performing any act
or fulfilling any duty, obligation or responsibility hereunder by reason
of any occurence beyond the control of Custodian (including but not limited
to any act or provision of any present or future law or regulation or
governmental authority, any act of God or war, or the unavailability of
the Federal Reserve Bank wire or telex or other wire or communication
facility).
5. Custodian shall not be responsible in any respect for the form, execution,
validity, value or genuineness of documents deposited hereunder, or for
any description therein, or for the identity, authority or rights of
- 3 -
<PAGE>
persons executing or delivering or purporting to execute or deliver any
such document or endorsement.
6. Notices, instructions or other communications shall be in writing and
shall be given to the address set forth in the "Addresses" provision herein
(or to such other address as may be substituted therefor by written
notification to Custodian or the Trust). Notices to Custodian shall be
deemed to be given when actually received by Custodian's Corporate Trust
Department. Custodian is authorized to comply with and rely upon any
notices, instructions or other communications believed by it to have been
sent or given by the Trust or by a person or persons authorized by the
Trust. Whenever under the terms hereof the time for giving a notice or
performing an act falls upon a Saturday, Sunday, or banking holiday, such
time shall be extended to the next day on which Custodian is open for
business.
7. The Trust shall be liable for and shall reimburse and imdemnify Custodian
and hold Custodian harmless from and against any and all claims, losses,
liabilities, costs, damages or expenses (including reasonable attorneys'
fees and expenses) (collectively, "Losses") arising from or in connection
with or related to this Custody Agreement or being Custodian hereunder
(including but not limited to Losses incurred by Custodian in connection
with its successful defense, in whole or in part, of any claim of
negligence or willful misconduct on its part), provided, however, that
nothing contained herein shall require Custodian to be indemnified for
Losses caused by its negligence or willful misconduct.
8. (a) The Trust may remove Custodian at any time by giving to Custodian
thirty (30) calendar days' prior notice in writing. Custodian may resign
at any time by giving to Depositors fifteen (15) calendar days' prior
written notice thereof.
(b) Within ten (10) calendar days after giving the foregoing notice of
removal to Custodian or receiving the foregoing notice of resignation
from Custodian, the Trust shall appoint a successor Custodian. If a
successor Custodian has not accepted such appointment by the end of such
10-day period, Custodian may, in its sole discretion, deliver the
Custodial Property to the Trust at the address provided herein or may
apply to a court of competent jurisdiction for the appointment of a
successor Custodian or for other appropriate relief. The costs and
expenses (including reasonable attorneys'
- 4 -
<PAGE>
fees and expenses) incurred by Custodian in connection with such
proceeding shall be paid by the Trust.
(c) Upon receipt of the identity of the successor Custodian, Custodian
shall deliver the Custodial Property then held hereunder to the successor
Custodian.
(d) Upon delivery of the Custodial Property to the successor Custodian,
Custodian shall have no further duties, responsibilities or obligations
hereunder.
9. In the event of any ambiguity or uncertainty hereunder or in any notice,
instruction or other communication received by Custodian hereunder,
Custodian may, in its sole discretion, refrain from taking any action
other than retaining possession of the Custodial Property, unless
Custodian receives written instructions, signed by the Trust, which
eliminates such ambiguity or uncertainty.
10. This agreement shall be interpreted, construed, enforced and administered
in accordance with the internal substantive laws (and not the choice of
law rules) of The Commonwealth of Virginia, except that the rights,
privileges and immunities of The Bank of New York shall be governed by
the laws of the State of New York.
11. Except as otherwise permitted herein, this Custody Agreement may be
modified only by a written amendment signed by all the parties hereto,
and no waiver of any provision hereof shall be effective unless
expressed in a writing signed by the party to be charged.
12. The rights and remedies conferred upon the parties hereto shall be
cumulative, and the exercise or waiver of any such right or remedy shall
not preclude or inhibit the exercise of any additional rights or remedies.
The waiver of any right or remedy hereunder shall not preclude the
subsequent exercise of such right or remedy.
13. Each party hereto hereby represents and warrants (a) that this Custody
Agreement has been duly authorized, executed and delivered on its behalf
and constitutes its legal, valid and binding obligation and (b) that the
execution, delivery and performance of this Custody Agreement by each party
hereto do not and will not violate any applicable law or regulation.
-5-
<PAGE>
14. The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or enforceability
of any other provision; and if any provision is held to be enforceable as a
matter of law, the other provisions shall not be affected thereby and shall
remain in full force and effect.
15. This Agreement shall constitute the entire agreement of the parties with
respect to the subject matter and supersedes all prior oral or written
agreements in regard thereto.
16. This Agreement shall terminate upon the distribution of all Custodial
Property. The provisions of these Terms and Conditions shall survive
termination of this Custody Agreement and/or the resignation or removal of
the Custodian.
17. This Custody Agreement may be executed by each of the parties hereto in
any number of counterparts, each of which counterpart, when so executed and
delivered, shall be deemed to be an original and all such counterparts
shall together constitute one and the same agreement.
18. Notwithstanding any prior termination of this Agreement, neither the
Custodian nor the Trustee shall, prior to the date which is one year and
one day after the termination of this Agreement and payment in full of the
Class A Trust Certificates, acquiesce, petition or otherwise invoke or
cause the Trust to invoke the process of any court or governmental
authority for the purpose of commencing or sustaining a case against the
Trust under any federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial
part of its property, or making a general assignment for the benefit of
creditors, or ordering the winding up or liquidation of the affairs of the
Trust.
The Custodian acknowledges and agrees that this Custody Agreement is being
executed by The Bank of New York in its capacity as Trustee for the Trust and
not in its individual capacity, and in no event shall The Bank of New York have
any liability for the representations, warranties, covenants or other
obligations of the Trust hereunder, as to which recourse shall be had solely to
the assets of the Trust.
-6-
<PAGE>
IN WITNESS WHEREOF, each of the parties have caused this Custody Agreement
to be executed by a duly authorized officer as of the day and year first written
above.
THE BANK OF NEW YORK, as Trustee for
BRAVO Trust Series 1997-1, Not
in its Individual Capacity
By: /s/ Cheryl L Laser
-----------------------------------
Name: CHERYL L. LASER
Title: Assistant Vice President
SIGNET TRUST COMPANY
By: /s/ Claire M. Morris
-----------------------------------
Name: CLAIRE M. MORRIS
Title: ASSISTANT VICE PRESIDENT
-7-
<PAGE>
AGREEMENT
This Agreement ("this Agreement") is made and entered into on this the 25th
day of November, 1997 by and among Integrity Life Insurance Company (the
"Insurer"), Bayerische Landesbank Girozentrale, New York Branch ("BLB") and
BRAVO Trust Series 1997-1 (the "Trust").
WHEREAS, the Trust was established under the laws of the State of Delaware
pursuant to a Declaration of Trust and Trust Agreement dated as of the date
hereof (the "Trust Agreement"), between The Bank of New York, a New York banking
corporation, as trustee, and the holders of the BRAVO Trust Series 1997-1
Floating Rate Class A Trust Certificates (the "Class A Trust Certificates) and
the BRAVO Trust Series 1997-1 Class B Trust Certificates (the "Class B Trust
Certificates" and together with the Class A Trust Certificates, the "Trust
Certificates"); and
WHEREAS, BLB is acting as Trust's Agent for the Trust; and
WHEREAS, the Insurer has agreed to issue a separate account group annuity
contract (the "Funding Agreement") to the Trust dated as of the date hereof; and
WHEREAS, the Insurer, BLB, the Trust and Firm Trust National Association
have agreed to enter into a Custody Agreement (the "Custody Agreement") dated as
of the date hereof in connection with the issuance of the Funding Agreement;
WHEREAS, the Insurer, BLB and the Trust have agreed to enter into a Standby
Trust Certificate Purchase Agreement (the "Standby Agreement") dated as of the
date hereof in connection with the issuance of the Funding Agreement;
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the parties agree as follows:
Section 1. ISSUANCE OF FUNDING AGREEMENT. The Insurer shall issue the
Funding Agreement upon receipt of the Initial Contribution (as defined in the
Funding Agreement).
Section 2. EXECUTION OF THE CUSTODY AGREEMENT. Concurrent with the
execution of this Agreement, the Insurer, BLB and the Trust shall execute the
Custody Agreement.
<PAGE>
Section 3. EXECUTION OF THE STANDBY AGREEMENT. Concurrent with the
execution of this Agreement, the Insurer, BLB and the Trust shall execute the
Standby Agreement.
Section 4. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY BLB. BLB represents and warrants to
the Insurer as of the date hereof and agrees with the Insurer as follows:
(1) OFFERING CIRCULAR. Except with respect to the descriptions
contained therein of the Insurer, the Insurer's parent, ARM Financed Group
("ARM"), and the Remarketing Agent (as defined in the Standby Agreement),
the Funding Agreement and the Custody Agreement (as to which the Insurer is
making representations and warranties herein) the Offering Circular (as
defined in the Trust Agreement) does not contain any untrue statement of a
material fact, or omit therefrom a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(2) GOOD STANDING OF BLB. BLB has been duly organized as a branch of
Bayerische Landesbank Girozentrale and is in good standing under the laws
of the United States and has corporate power and authority to own, lease
and operate its properties and to conduct its business as it currently
conducts and to enter into and perform its obligations under this
Agreement, the Custody Agreement and the Standby Agreement.
(3) AUTHORIZATION OF THIS AGREEMENT. This Agreement has been duly
authorized, executed and delivered by BLB and, assuming due authorization,
execution and delivery by the other parties hereto, constitutes a valid and
binding agreement of BLB, enforceable against BLB in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(4) AUTHORIZATION OF THE CUSTODY AGREEMENT AND STANDBY AGREEMENT. The
Custody Agreement and the Standby Agreement have been duly authorized,
executed and delivered by BLB, and assuming due authorization, execution
and delivery by the other parties thereto, will constitute valid and
binding obligations of BLB, enforceable against BLB in accordance with
their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without
2
<PAGE>
limitation, all laws relating to fraudulent transfers) reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
(5) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of BLB,
threatened, against or affecting BLB which might reasonably be expected to
result in a material adverse change ("Material Adverse Effect") in the
condition, financial or otherwise, of BLB, or which might reasonably be
expected to materially and adversely affect the properties or assets of BLB
or the issuance and sale of the Trust Certificates or the consummation of
this Agreement or the performance by BLB of its obligations hereunder,
under the Funding Agreement, the Custody Agreement or the Standby
Agreement.
(6) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by BLB of any obligations
hereunder, in connection with the offering, issuance or sale of the Trust
Certificates or by the consummation of the transactions contemplated by
this Agreement, the Trust Agreement, the Funding Agreement, the Custody
Agreement and the Standby Agreement.
(b) REPRESENTATIONS AND WARRANTIES BY THE TRUST. The Trust (and not the
Trustee) represents and warrants to the Insurer as of the date hereof and agrees
with the Insurer as follows:
(1) VALIDITY OF THE TRUST. The Trust has been duly organized and is
validly existing as a statutory business trust in good standing under the
laws of the State of Delaware and has the trust power and authority to own
properties and to conducts its business.
(2) AUTHORIZATION OF THIS AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Trust and, assuming the due
authorization, execution and delivery by the other parties hereto,
constitutes a valid and binding agreement of the Trust, enforceable against
the Trust in accordance with its terms, except as the enforcement thereof
may be limited by a bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium or
other similar laws relating to or affecting enforcement of
3
<PAGE>
creditors' rights generally, or by general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
(3) AUTHORIZATION OF THE TRUST AGREEMENT. The Trust Agreement has been
duly authorized, executed and delivered by the Trustee on behalf of the
Trust and constitutes a valid and binding agreement of the Trust,
enforceable against the Trust in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(4) AUTHORIZATION OF THE TRUST CERTIFICATES. The Trust Certificates
have been duly authorized and executed by the Trustee on behalf of the
Trust and, when delivered against payment of the purchase price therefor,
will constitute valid and binding obligations of the Trust, enforceable
against the Trust in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
(5) AUTHORIZATION OF THE CUSTODY AGREEMENT AND STANDBY AGREEMENT. The
Custody Agreement and the Standby Agreement have been duly authorized,
executed and delivered by the Trust and, assuming due authorization,
execution and delivery by the other parties thereto, will constitute valid
and binding obligations of the Trust, enforceable against the Trust in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers) reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(6) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of the Trust,
threatened, against or affecting the Trust which might reasonably be
expected to result in a Material Adverse Effect in the
4
<PAGE>
condition, financial or otherwise, of the Trust, or which might reasonably
be expected to materially and adversely affect the properties or assets of
the Trust or the issuance and sale of the Trust Certificates or the
consummation of this Agreement or the performance by the Trust of its
obligations hereunder, under the Funding Agreement, the Custody Agreement
or the Standby Agreement.
(7) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Trust of any
obligations hereunder, in connection with the offering, issuance or sale of
the Trust Certificates or the consummation of the transactions contemplated
by this Agreement, the Trust Agreement, the Funding Agreement, the Custody
Agreement and the Standby Agreement.
(c) REPRESENTATIONS AND WARRANTIES BY THE INSURER. The Insurer represents
and warrants to BLB and the Trust as of the date hereof, and agrees with BLB and
the Trust as follow:
(1) GOOD STANDING OF INSURER. The Insurer has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of Ohio and has corporate power and authority to own, lease and
operate its properties and to conduct its business as it currently conducts
and to enter into and perform its obligations under this Agreement, the
Funding Agreement, the Custody Agreement and the Standby Agreement.
(2) AUTHORIZATION OF THIS AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Insurer and, assuming due
authorization, execution and delivery by BLB, constitutes a valid and
binding agreement of the Insurer, enforceable against the Insurer in
accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(3) AUTHORIZATION OF THE FUNDING AGREEMENT. The Funding Agreement has
been duly authorized, executed and delivered by the Insurer and constitutes
a valid and binding agreement of the Insurer, enforceable against the
Insurer in accordance with its terms, except as the enforcement thereof may
be limited by insolvency (including, without limitation,
5
<PAGE>
all laws relating to fraudulent transfers), reorganization, moratorium or
other similar laws relating to or affecting enforcement of creditors'
rights generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(4) AUTHORIZATION OF THE CUSTODY AGREEMENT AND THE STANDBY AGREEMENT.
The Custody Agreement and the Standby Agreement have been duly authorized,
executed and delivered by the Insurer and, assuming due authorization,
execution and delivery by the other parties thereto, will constitute valid
and binding obligations of the Insurer, enforceable against the Insurer in
accordance with their terms, except as the enforcement thereof may be
limited by insolvency (including, without limitation, all laws relating to
fraudulent transfers) reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(5) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of the
insurer, threatened, against or affecting the Insurer which might
reasonably be expected to result in a Material Adverse Effect with respect
to the Insurer, or which might reasonably be expected to materially and
adversely affect the properties or assets of the Insurer or the
consummation of this Agreement or the performance by the Insurer of its
obligations hereunder, under the Funding Agreement, the Custody Agreement
or the Standby Agreement.
(6) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency is necessary or required
for the performance by the Insurer of its obligations hereunder, under the
Funding Agreement, the Custody Agreement or the Standby Agreement, or the
consummation of the transactions contemplated hereby or thereby.
(7) OFFERING CIRCULAR. The descriptions in the Offering Circular of
the Insurer, ARM, the Funding Agreement and the Custody Agreement do not
contain any untrue statement of a material fact, or omit therefrom a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
6
<PAGE>
Section 5. COVENANTS.
(a) CONFIDENTIAL INFORMATION. BLB has requested certain non-public
information regarding the Insurer in connection with this Agreement and the
transactions contemplated hereby. BLB agrees to treat confidentially as set
forth below such information and other non-public information that the
Insurer furnishes to BLB, whether furnished before or after the date of this
Agreement (collectively, the "Confidential Material").
BLB agrees not to use any of the Confidential Material in any way for
any purpose other than in connection with the purposes for which such material
has been provided to BLB and that such information will be kept confidential by
BLB; provided, however, that any of such information may be disclosed to such of
BLB's directors, officers, employees, representatives and to other persons
(collectively, the "Agents") who need to know such information in connection
with the transactions contemplated by this Agreement (it being understood that
such Agents shall by informed by BLB of the confidential nature of such
information, shall be directed by BLB to treat such information confidentially
and shall be informed that by receiving such information they are agreeing to be
bound by this Agreement).
The term "Confidential Material" does not include information which
(i) becomes generally available to the public other than as a result of a
disclosure by BLB or the Agents, (ii) was available to BLB on a non-confidential
basis prior to its disclosure to BLB by Integrity or (iii) becomes available to
BLB on a non-confidential basis from a source other than Integrity, provided
that such source is not know to BLB to be bound by a confidentiality agreement
with Integrity.
(b) PUBLIC ANNOUNCEMENTS. Neither the Insurer, BLB nor the Trust (nor their
respective subsidiaries and affiliates) shall engage in, encourage, or support
any publicity or disclosure of any kind or form in connection with this
Agreement or the transactions contemplated hereby unless Insurer and BLB shall
consult in good faith in advance on the form, timing and contents of any such
publicity, announcement or disclosure whether to the financial community,
governmental agencies, the public generally or otherwise.
(c) NO PETITION COVENANT. Notwithstanding any prior termination of this
Agreement, neither the Insurer nor BLB, shall, prior to the date which is one
year and one day after the termination of this Agreement, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other
7
<PAGE>
similar official of the Trust or any substantial part of its property, or making
a general assignment for the benefit of creditors, or ordering the winding up or
liquidation of the affairs of the Trust.
(d) The Insurer agrees to not issue any additional insurance policies,
annuities, or other contracts supported by or identified with either the
Separate Account or the Supporting Separate Account (as defined in the Funding
Agreement) until all of the Insurer's obligations under the Funding Agreement
have been satisfied in full.
(e) The Insurer agrees to prompt notify BLB and the Trust in the event that
a Material Adverse Effect shall occur with respect to the Insurer.
(f) BLB agrees that in its role as Market Agent (as defined in the Offering
Circular) in connection with the Trust, that it will always extend the Maturity
Date (as defined in the Trust Agreement) of the Class A Trust Certificates as
long as the Insurer continues to make payments under the Funding Agreement and
the Funding Agreement remains in place. In the event that BLB fails to extend
the Maturity Date of the Class A Trust Certificates, then BLB shall be obligated
to pay Integrity any and all loss of profits in connection with the Funding
Agreement. BLB's basis of profits payment to Integrity shall be a minimum of
$2,500,000.
Section 6. PAYMENT OF EXPENSES.
(a) GENERAL. Except as otherwise set forth below in this Section 6, in
Section 7, in the Funding Agreement or in the Standby Agreement, each party
shall bear its own expenses incident to the performance of its obligations under
this Agreement, the Funding Agreement, the Custody Agreement and the Standby
Agreement. The parties agree that except as referenced in Section 6(b) below, in
the Funding Agreement or in the Standby Agreement (including without limitation,
the Facility Fees referred to therein), the sole expenses of the Insurer are the
fees and disbursements of LeBoeuf, Lamb, Greene & MacRae, LLP and of Bricker &
Eckler.
(b) RATING AGENCIES. The Insurer shall pay the fees of Standard & Poor's
Ratings Services and Moody's Investors Service in connection with the initial
and all subsequent ratings of the Class A Trust Certificates by such rating
agencies.
Section 7. INDEMNIFICATION.
(a) INDEMNIFICATION OF INSURER. BLB shall indemnify and hold harmless the
Insurer and each person, if any, who controls
8
<PAGE>
the Insurer within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue or incorrect
representations or warranty of BLB contained in this Agreement or any
failure of BLB to fulfill any of its covenants contained herein, in the
Custody Agreement or in the Standby Agreement; and
(2) against any and all expense whatsoever (including the reasonable
fees and disbursements of counsel chosen by the Insurer) reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon the foregoing,
to the extent that any such expense is not paid under (1) above.
All payments made by the Trust to indemnify and hold harmless the Insurer
shall be subordinated to the prior payment in full of all amounts then due and
owing on the Class A Trust Certificates.
The Trust (not the Trustee) shall indemnify and hold harmless the
Insurer and each person, if any, who controls the Insurer within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue or incorrect
representations or warranty of the Trust contained in this Agreement or any
failure of the Trust to fulfill any of its covenants contained herein, in
the Custody Agreement or in the Standby Agreement; and
(2) against any and all expense whatsoever (including the reasonable
fees and disbursements of counsel chosen by the Insurer) reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any of the
foregoing, to the extent that any such expense is not paid under (1) above.
(b) INDEMNIFICATION OF BLB AND THE TRUST. The Insurer shall indemnify and
hold harmless BLB and the Trust and each person, if any, who controls BLB and
the Trust within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act as follows:
9
<PAGE>
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue or incorrect
representations or warranty of the Insurer contained in this Agreement or
any failure of the Insurer to fulfill any of its covenants contained
herein, in the Funding Agreement, in the Custody Agreement or in the
Standby Agreement;
(2) against any and all expense whatsoever (including reasonable fees
and disbursements of counsel chosen by the BLB and the Trust) reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any of the
foregoing, to the extent that any such expense is not paid under (1) above.
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to the indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. The indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party may also be counsel to the indemnified party unless such representation
creates a potential conflict of interest. In no event shall the indemnifying
party be liable for fees and expenses of more than one counsel (in addition to
any local counsel) separate from its own counsel in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No indemnifying
party shall, without the prior written consent of the indemnified party, settle
or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification could be sought under this Section 7 (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of the
indemnified party.
Section 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE. All
representations, warranties and agreements
10
<PAGE>
contained in this Agreement shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Insurer or by or on
behalf of BLB, and shall survive the issuance of the Funding Agreement. Each
signatory hereto acknowledges and agrees that the representations, warranties
and agreements contained in this Agreement are being made by the Trust and not
the Trustee and that recourse shall not be made against the Trustee in its
individual capacity.
Section 9. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication. Notices to the Insurer shall be
directed to Integrity Life Insurance Company at 515 W. Market Street,
Louisville, Kentucky 40202, attention of General Counsel (Fax: (502) 582-7903);
notices to BLB shall be directed to Bayerische Landesbank Girozentrale, New York
Branch, 560 Lexington Avenue, New York, New York 10022, attention General
Counsel (Fax: (212) 310-9870); notices to the Trust shall be directed to the
Trust c/o The Bank of New York, 101 Barclay Street, 12E, New York, New York,
10286, attention: Corporate Trust Administration Asset Backed Finance Unit,
(Fax: (212) 815-5544), or such other address as may be designated in writing and
delivered to the other parties hereto.
Section 10. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Insurer and BLB and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Insurer and BLB and their
respective successors and the controlling persons and officers and directors
referred to in Section 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Insurer and
BLB and their respective successors, and said controlling persons and officers
and directors and their heirs and legal representatives, and for the benefit of
no other person, firm or corporation.
Section 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended
only by the mutual agreement of the parties hereto represented in a written
instrument.
Section 12. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 13. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which taken together shall constitute one instrument.
11
<PAGE>
Section 14. EFFECT OF HEADINGS. The Article and Section headings herein are
for convenience only and shall not affect the construction hereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
INTEGRITY LIFE INSURANCE COMPANY
By: /s/ Daniel R. Gattis
----------------------------------
Name: Daniel R. Gattis
Title: Executive Vice President
BAYERISCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
By: /s/ Bert von Stuelpnagel
----------------------------------
Bert von Stuelpnagel
Executive Vice President
and Manager
By: /s/ Ron Bertolini
----------------------------------
Ron Bertolini
First Vice President and
Treasury Manager
BRAVO TRUST SERIES 1997-1
By: The Bank of New York,
Trustee
By: /s/ Cheryl L. Laser
----------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
<PAGE>
$450,000,000
BRAVO TRUST SERIES 1997-1
FLOATING RATE CLASS A TRUST CERTIFICATES
AND
$50,000,000
BRAVO TRUST SERIES 1997-1
CLASS B TRUST CERTIFICATES
PURCHASE AGREEMENT
November 25, 1997
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Ladies and Gentlemen:
BRAVO Trust Series 1997-1, a trust established under the laws of the State
of Delaware (the "Trust") pursuant to a Declaration of Trust and Trust
Agreement, dated as of the date hereof (the "Trust Agreement"), between The Bank
of New York, a New York banking corporation, as trustee (the "Trustee") and the
holders (the "Holders") of the BRAVO Trust Series 1997-1 Floating Rate Class A
Trust Certificates (the "Class A Trust Certificates") and the BRAVO Trust Series
1997-1 Class B Trust Certificates (the "Class B Trust Certificates" and together
with the Class A Trust Certificates, the "Trust Certificates"), confirms its
agreement with Lehman Brothers Inc. (in its capacity as purchaser hereunder, the
"Initial Purchaser"), with respect to the issue and sale by the Trust, and the
purchase by the Initial Purchaser, of $450,000,000 aggregate principal amount of
the Class A Trust Certificates and $50,000,000 principal amount of the Class B
Trust Certificates.
The Trust understands that the Initial Purchaser proposes to make an
offering of the Class A Trust Certificates on the terms and in the manner set
forth herein and agrees that the Initial Purchaser may resell, subject to the
conditions set forth herein, all or a portion of the Class A Trust Certificates
to purchasers ("Subsequent Purchasers") at any time after the date of this
Agreement. The Class A Trust Certificates are to be offered and sold through the
Initial Purchaser without being registered under the Securities Act of 1933, as
amended (the "1933 Act"), in reliance upon Rule 144A ("Rule 144A") of the rules
and regulations promulgated under the 1933 Act by the Securities and Exchange
Commission (the "Commission"), to "qualified institutional buyers" as such term
is defined in Rule 144A. Pursuant to the terms of the Class A Trust
<PAGE>
Certificates and the Trust Agreement, investors that acquire Class A Trust
Certificates may only resell or otherwise transfer such Class A Trust
Certificates if such Class A Trust Certificates are hereafter registered under
the 1933 Act or if an exemption from the registration requirements of the 1933
Act is available by Rule 144A.
The Trust also understands that, concurrently with the offering of the
Class A Trust Certificates, the Initial Purchaser proposes to resell the Class B
Trust Certificates, on the terms and in the manner set forth herein, to
Bayerische Landesbank Girozentrale, a banking company organized under the laws
of the Federal Republic of Germany, acting through one of its branches ("BLB").
The Class B Trust Certificates are to be offered and sold through the Initial
Purchaser without being registered under the 1933 Act, in reliance upon Rule
144A, to BLB as a "qualified institutional buyer," as such term is defined in
Rule 144A.
The Trust has prepared an offering circular and a supplement thereto, each
dated the date hereof (collectively, the "Offering Circular"), for use in
connection with the offering and sale of the Class A Trust Certificates.
The Trust has entered into a Remarketing Agreement dated the date hereof
(the "Remarketing Agreement") with Lehman Brothers Inc. (acting under the
Remarketing Agreement, "Lehman"), pursuant to which Lehman will act as
remarketing agent (i) to remarket Class A Trust Certificates tendered to Lehman
by or on behalf of holders of Class A Trust Certificates from time to time
pursuant to the Remarketing Agreement, and (ii) to carry out such other duties
as are assigned to Lehman as remarketing agent thereunder.
Section 1. INTERPRETATION.
Unless the context otherwise requires and except as varied or otherwise
specified in this Agreement, the words and expressions used herein shall bear
the same meaning as in the Trust Agreement.
Section 2. REPRESENTATIONS AND WARRANTIES.
The Trust represents and warrants to the Initial Purchaser as of the date
hereof and agrees with the Initial Purchaser as follows:
(a) VALIDITY OF THE TRUST. The Trust has been duly organized and is
validly existing as a statutory business trust in good standing under the
laws of the State of Delaware and has the trust power and authority to own
properties and to conduct its business as described in the Offering
Circular and to enter into and perform its obligations under this
Agreement.
2
<PAGE>
(b) AUTHORIZATION OF THE TRUST AGREEMENT. The Trust Agreement has been
duly authorized, executed and delivered by the Trustee on behalf of the
Trust and constitutes a valid and binding agreement of the Trust,
enforceable against the Trust in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(c) AUTHORIZATION OF THE TRUST CERTIFICATES. The Trust Certificates
have been duly authorized and executed by the Trustee on behalf of the
Trust and, when delivered against payment of the purchase price therefor,
will constitute valid and binding obligations of the Trust, enforceable
against the Trust in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
(d) AUTHORIZATION OF THIS AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Trustee on behalf of the Trust
and, assuming due authorization, execution and delivery by the other party
hereto, constitutes a valid and binding agreement of the Trust, enforceable
against the Trust in accordance with its terms, except as (A) the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and (B) rights of indemnity and contribution under this
Agreement may be limited by United States federal or state securities laws,
the laws of other jurisdictions or the public policy underlying any such
laws.
(e) DESCRIPTION OF THE TRUST CERTIFICATES AND THE TRUST AGREEMENT. The
Trust Certificates and the Trust Agreement will conform in all material
respects to the respective statements relating thereto contained in the
Offering Circular and will be in substantially the respective forms
previously delivered to the Initial Purchaser.
(f) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of the Trust
(including the Trustee and the Trust's Agent), threatened, against or
affecting the Trust, its properties or assets which might reasonably be
expected to result in a material adverse change in the condition, financial
3
<PAGE>
or otherwise, of the Trust (a "Material Adverse Effect"), or which might
reasonably be expected to materially and adversely affect the properties or
assets of the Trust or the consummation of this Agreement or the
performance by the Trust of its obligations hereunder.
(g) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency is necessary or required
for the performance by the Trust (including the Trustee and the Trust's
Agent) of its obligations hereunder, in connection with the offering,
issuance or sale of the Class A Trust Certificates hereunder or the
consummation of the transactions contemplated by this Agreement, the Trust
Agreement, the Remarketing Agreement, the Separate Account Funding
Agreement (the "Funding Agreement"), dated the date hereof, between
Integrity Life Insurance Company (the "Insurer") and the Trust, and the
Standby Trust Certificate Purchase Agreement (the "Liquidity Agreement"),
dated the date hereof, among the Insurer, BLB and the Trust, and the
Custody Agreement (the "Custody Agreement"), dated the date hereof, among
the Insurer, the Trust and the Custodian.
(h) SIMILAR OFFERINGS. Neither the Trust, nor the Trustee, nor the
Trust's Agent has, directly or indirectly, solicited any offer to buy or
offered to sell, and will not, directly or indirectly, solicit any offer to
buy or offer to sell, in the United States or to any United States citizen
or resident, any security which is or would be integrated with the sale of
the Class A Trust Certificates in a manner that would require the offering
or sale of the Class A Trust Certificates to be registered under the 1933
Act.
(i) OFFERING CIRCULAR. The Offering Circular does not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
this representation, warranty and agreement shall not apply to statements
in or omissions from the Offering Circular made in reliance upon and in
conformity with information furnished to the Trust in writing by the
Initial Purchaser expressly for use in the Offering Circular.
(j) INVESTMENT COMPANY ACT. The Trust is not required to be registered
as an investment company under the Investment Company Act, as amended (the
"1940 Act").
(k) RULE 144A ELIGIBILITY. The Class A Trust Certificates are eligible
for resale pursuant to Rule 144A and are not of the same class as
securities listed on a national securities exchange registered under
Section 6 of the Securities Exchange Act of 1934, as amended (the "1934
Act"), or quoted in a U.S. automated interdealer quotation system.
4
<PAGE>
(l) NO GENERAL SOLICITATION. None of the Trust, its affiliates, as
such term is defined in Rule 501(b) under the 1933 Act ("Affiliates"), or
any person acting on its or any of their behalf (other than the Initial
Purchaser, as to whom the Trust makes no representation) has engaged or
will engage, in connection with the offering of the Trust Certificates, in
any form of general solicitation or general advertising within the meaning
of Rule 502(c) under the 1933 Act.
(m) NO REGISTRATION REQUIRED. Subject to compliance by the Initial
Purchaser with the representations and warranties set forth in Section 3
and the procedures set forth in Section 5 hereof and in the Trust Agreement
and the Offering Circular, it is not necessary in connection with the
offer, sale and delivery of the Class A Trust Certificates to the Initial
Purchaser and to each Subsequent Purchaser in the manner contemplated by
this Agreement and the Offering Circular to register the Class A Trust
Certificates under the 1933 Act or to qualify the Trust Agreement under the
Trust Indenture Act of 1939, as amended (the "1939 Act").
Section 3. SALE AND DELIVERY TO INITIAL PURCHASER; CLOSING.
(a) SECURITIES. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Trust
agrees to sell to the Initial Purchaser and the Initial Purchaser agrees to
purchase from the Trust, at the price of 100% of the principal amount, (A)
$450,000,000 in aggregate principal amount of Class A Trust Certificates and (B)
$50,000,000 in aggregate principal amount of Class B Trust Certificates.
(b) PAYMENT. Payment of the purchase price for, and delivery of the Trust
Certificates shall be made at the office of Brown & Wood LLP, or at such other
place as shall be agreed upon by the Initial Purchaser and the Trust, at 10:00
A.M. on the date hereof
Payment shall be made to the Trust by wire transfer of immediately
available funds to a bank account designated by the Trust, against delivery to
the Initial Purchaser for the account of the Initial Purchaser of the Trust
Certificates to be purchased by it.
(c) QUALIFIED INSTITUTIONAL BUYER. The Initial Purchaser represents and
warrants to, and agrees with, the Trust that it is a "qualified institutional
buyer" within the meaning of Rule 144A (a "Qualified Institutional Buyer").
(d) DENOMINATIONS; REGISTRATION FOR CLASS A TRUST CERTIFICATES. The Class A
Trust Certificates shall be in denominations of $5,000,000 and integral
multiples of $1,000,000 in excess thereof.
(e) DENOMINATIONS; REGISTRATION FOR CLASS B TRUST CERTIFICATES. The Class B
Trust Certificates shall be in the denomination of $50,000,000 and registered in
the name of BLB.
5
<PAGE>
Section 4. COVENANTS OF THE TRUST. The Trust covenants with the Initial
Purchaser as follows:
(a) OFFERING CIRCULAR. The Trust, through the Trustee or the Trust's Agent,
as promptly as possible, will furnish to the Initial Purchaser, without charge,
such number of copies of the Offering Circular and any amendments and
supplements thereto as the Initial Purchaser may reasonably request.
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. The Trust, through the Trust's
Agent, will immediately notify the Initial Purchaser, and confirm such notice in
writing prior to the completion of the placement of the Class A Trust
Certificates by the Initial Purchaser as evidenced by a notice in writing from
the Initial Purchaser to the Trustee and Trust's Agent, of any material changes
in or affecting the Trust which (i) make any statement in the Offering Circular
false or misleading or (ii) are not disclosed in the Offering Circular. In such
event or if during such time any event shall occur as a result of which it is
necessary, in the reasonable opinion of the Initial Purchaser or its counsel, to
amend or supplement the Offering Circular in order that the Offering Circular
not include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in the
light of the circumstances then existing, the Trust, through the Trust's Agent,
will forthwith amend or supplement the Offering Circular by preparing and
furnishing to the Initial Purchaser an amendment or amendments of, or a
supplement or supplements to, the Offering Circular (in form and substance
satisfactory in the reasonable opinion of counsel for the Initial Purchaser) so
that, as so amended or supplemented, the Offering Circular will not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a Subsequent Purchaser, not misleading.
(c) AMENDMENT TO OFFERING CIRCULAR AND SUPPLEMENTS. The Trust, through the
Trust's Agent, will advise the Initial Purchaser promptly of any proposal to
amend or supplement the Offering Circular and will not effect such amendment or
supplement without the consent of the Initial Purchaser. Neither the consent of
the Initial Purchaser, nor the Initial Purchaser's delivery of any such
amendment or supplement, shall constitute a waiver of any of the conditions set
forth in Section 7 hereof.
(d) RATING OF CLASS A TRUST CERTIFICATES. The Trust shall take, or cause to
be taken, all reasonable action necessary to enable Standard & Poor's Ratings
Services ("S&P") and Moody's Investors Service, Inc. ("Moody's") to provide
their respective credit ratings of the Class A Trust Certificates.
6
<PAGE>
Section 5. SUBSEQUENT OFFERS AND RESALES OF CLASS A TRUST CERTIFICATES.
(a) OFFER AND SALE PROCEDURES. The Initial Purchaser and the Trust hereby
establish and agree to observe the following procedures in connection with the
offer and sale of Class A Trust Certificates:
(1) OFFERS AND SALES ONLY TO QUALIFIED INSTITUTIONAL BUYERS. Offers
and sales of the Class A Trust Certificates will be made only by the
Initial Purchaser or Affiliates thereof qualified to do so in the
jurisdictions in which such offers or sales are made. Each such offer or
sale shall only be made to persons whom the offeror or seller reasonably
believes to be Qualified Institutional Buyers.
(2) NO GENERAL SOLICITATION. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the 1933 Act) will be
used in connection with the offering of the Class A Trust Certificates.
(3) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a non-bank
Subsequent Purchaser of a Class A Trust Certificate acting as a fiduciary
for one or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) above, each third party shall, in the
judgment of the Initial Purchaser, be a Qualified Institutional Buyer.
(4) SUBSEQUENT PURCHASER NOTIFICATION. The Initial Purchaser will take
reasonable steps to inform, and cause each of its Affiliates to take
reasonable steps to inform, persons acquiring Class A Trust Certificates
from the Initial Purchaser or Affiliate, as the case may be, that the Class
A Trust Certificates (A) have not been and will not be registered under the
1933 Act, (B) are being sold to them without registration under the 1933
Act in reliance on Rule 144A, and (C) may not be offered, sold or otherwise
transferred except (1) to the Trust, or (2) in accordance with (x) Rule
144A to a person whom the seller reasonably believes is a Qualified
Institutional Buyer that is purchasing such Class A Trust Certificates for
its own account or for the account of a Qualified Institutional Buyer to
whom notice is given that the offer, sale or transfer is being made in
reliance on Rule 144A or (y) the exemption from registration under the 1933
Act provided by Rule 144, if available.
(5) MINIMUM PRINCIPAL AMOUNT. No sale of the Class A Trust
Certificates to any one Subsequent Purchaser will be for less than U.S.
$5,000,000 principal amount and no Class A Trust Certificate will be issued
in a smaller principal amount. If the Subsequent Purchaser is a non-bank
fiduciary acting on behalf of others, each person for whom it is acting
must purchase at least U.S. $5,000,000 principal amount of the Class A
Trust Certificates.
7
<PAGE>
(6) RESTRICTIONS ON TRANSFER. The transfer restrictions and the other
provisions set forth in Sections 3.09, 3.10 and 3.11 of the Trust
Agreement, including the legend required thereby, shall apply to the Class
A Trust Certificates.
(7) DELIVERY OF OFFERING CIRCULAR. The Initial Purchaser will deliver
to each purchaser of the Class A Trust Certificates from it, in connection
with its original distribution or any Remarketing of the Class A Trust
Certificates, a copy of the Offering Circular, as amended and supplemented
at the date of such delivery.
(b) COVENANTS OF THE TRUST. The Trust covenants with the Initial Purchaser
as follows:
(i) DUE DILIGENCE. In connection with the original distribution of the
Class A Trust Certificates, the Trust agrees that, prior to any offer or
resale of the Class A Trust Certificates by the Initial Purchaser, the
Initial Purchaser and counsel for the Initial Purchaser shall have the
right to make reasonable inquiries into the business of the Trust. The
Trust also agrees to provide, or cause to be provided, answers to each
prospective Subsequent Purchaser of Class A Trust Certificates who so
requests concerning the Trust (to the extent that such information is
available or can be acquired and made available to prospective Subsequent
Purchasers without unreasonable effort or expense and to the extent the
provision thereof is not prohibited by applicable law) and the terms and
conditions of the offering of the Class A Trust Certificates, as provided
in the Offering Circular.
(ii) INTEGRATION. The Trust agrees that it will not make any offer or
sale of securities of the Trust of any class if, as a result of the
doctrine of "integration" referred to in Rule 502 under the 1933 Act, such
offer or sale would render invalid (for the purpose of (i) the sale of the
Class A Trust Certificates by the Trust to the Initial Purchaser, (ii) the
resale of the Class A Trust Certificates by the Initial Purchaser to
Subsequent Purchasers or (iii) the resale of the Class A Trust Certificates
by such Subsequent Purchasers to others) the exemption from the
registration requirements of the 1933 Act provided by Section 4(2) thereof
or by Rule 144A thereunder or otherwise.
(iii) RULE 144A INFORMATION. The Trust agrees that, in order to render
the Class A Trust Certificates eligible for resale pursuant to Rule 144A
under the 1933 Act, while any of the Class A Trust Certificates remain
outstanding, the Trust, through the Trustee or the Trust's Agent, will make
available, upon request, to any Holder or prospective Purchasers of Class A
Trust Certificates the information specified in Rule 144A(d)(4).
Section 6. PAYMENT OF EXPENSES. (a) INITIAL EXPENSES PAYABLE BY THE INITIAL
PURCHASER SUBJECT TO FULL REIMBURSEMENT BY BLB. The Initial Purchaser will pay,
subject to the full reimbursement thereof by BLB on the Closing Date, all
initial expenses incident to the performance by the Trust of its obligations
under this Agreement, including (i) the preparation,
8
<PAGE>
printing and any filing of the Offering Circular (including any schedules or
exhibits) and of each amendment or supplement thereto, (ii) the preparation,
printing and delivery to the Initial Purchaser of this Agreement, the Trust
Agreement and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Trust Certificates, (iii) the
preparation, issuance and delivery of the Trust Certificates to the Initial
Purchaser, (iv) the reasonable fees and expenses of the Trustee, including the
reasonable fees and disbursements of counsel for the Trustee in connection with
the Trust Agreement and the Trust Certificates, and (v) the fees and expenses of
the Initial Purchaser, including the reasonable fees and disbursements of
counsel for the Initial Purchaser, as agreed upon between the Initial Purchaser
and the Trust's Agent, except the fees in connection with the rating of the
Class A Trust Certificates shall be paid by the Insurer.
(b) ON-GOING CUSTOMARY EXPENSES PAYABLE BY THE TRUST. The Trust will pay
any ongoing customary expenses in connection with this Transaction.
Section 7. CONDITIONS OF OBLIGATIONS OF THE INITIAL PURCHASER. The
obligations of the Initial Purchaser hereunder are subject to the accuracy of
the representations and warranties of the Trust contained in Section 2 hereof,
to the performance by the Trust of its covenants and other obligations
hereunder, and to the following further conditions:
(a) OPINION OF COUNSEL FOR TRUST. At the date hereof, the Initial
Purchaser shall have received a favorable opinion, dated as of the date
hereof, of (i) Richards, Layton & Finger, counsel for the Trust and the
Co-Trustee, and (ii) Emmet, Marvin & Martin, LLP, counsel for the Trustee in
form and substance satisfactory to counsel for the Initial Purchaser, to the
effect set forth in Exhibit A-1 hereto.
(b) OPINION OF COUNSEL FOR BLB. At the date hereof, the Initial Purchaser
shall have received a favorable opinion, dated as of the date hereof, of Brown &
Wood LLP, counsel for BLB, in form and substance satisfactory to the Initial
Purchaser, to the effect set forth in Exhibit A-2 hereto.
(c) RULE 2a-7 OPINION OF COUNSEL FOR BLB. At the date hereof, the Initial
Purchaser shall have received a favorable opinion, dated as of the date hereof,
of Brown & Wood LLP, counsel for BLB, with respect to the eligibility of the
Class A Trust Certificates for purchase by a money market fund in accordance
with the provisions of Rule 2a-7 under the 1940 Act, in form and substance
satisfactory to the Initial Purchaser.
(d) OPINION OF COUNSEL FOR INSURER. At the date hereof, the Initial
Purchaser shall have received a favorable opinion, dated as of the date hereof,
of Robert H. Scott, General Counsel of the Insurer, in form and substance
satisfactory to counsel for the Initial Purchaser, to the effect set forth in
Exhibit A-3 hereto.
9
<PAGE>
(e) OPINION OF TAX COUNSEL FOR INSURER. At the date hereof, the Initial
Purchaser shall have received a copy of an opinion, dated as of the date hereof
and addressed to the Insurer, of Davis & Harman, special tax counsel for the
Insurer, in form and substance satisfactory to counsel for the Initial
Purchaser.
(f) OPINION OF OHIO INSURANCE COUNSEL FOR INSURER. At the date hereof, the
Initial Purchaser shall have received an opinion, dated as of the date hereof,
of LeBouef, Lamb, Greene & MacRae, L.L.P., special Ohio insurance counsel for
the Insurer, in form and substance satisfactory to counsel for the Initial
Purchaser.
(g) OPINION OF COUNSEL FOR CUSTODIAN. At the date hereof, the Initial
Purchaser shall have received an opinion, dated as of the date hereof, of Dorsey
& Whitney LLP, counsel for the Custodian, in form and substance satisfactory to
counsel for the Initial Purchaser.
(h) OPINION OF COUNSEL FOR VA CUSTODIAN. At the date hereof, the Initial
Purchaser shall have received an opinion, dated as of the date hereof, of
Williams, Mullen, Christian & Dobbins, counsel for the VA Custodian, in form and
substance satisfactory to counsel for the Initial Purchaser.
(i) MAINTENANCE OF RATING. At the date hereof, the Class A Trust
Certificates shall be rated at least "P-1" by Moody's and "A-1+" by S&P, and
the Trust shall have delivered to the Initial Purchaser a letter dated the date
hereof, from each such rating agency, or other evidence satisfactory to the
Initial Purchaser, confirming that the Class A Trust Certificates have such
ratings.
(j) VALIDITY OF OTHER TRANSACTION DOCUMENTS. At the date hereof, each of
the Trust Agreement, the Funding Agreement, the Custody Agreement, the Liquidity
Agreement and the Remarketing Agreement shall have been duly authorized,
executed and delivered by the respective parties thereto and shall be in full
force and effect.
(k) NO EVENTS OF DEFAULT. At the date hereof, no "Early Certificate
Maturity Event" and/or "Early Funding Agreement Termination Event" under the
Custody Agreement and the Funding Agreement and no "Event of Default" under the
Liquidity Agreement shall have occurred and be continuing, and no event shall
have occurred and be continuing, which, either with giving of notice thereof or
passage of time or both, would constitute an "Early Certificate Maturity Event"
and/or "Early Funding Agreement Termination Event" under the Custody Agreement
or the Funding Agreement or an "Event of Default" under the Liquidity Agreement.
Section 8. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF INITIAL PURCHASER. The Trust (subject to the prior
payment in full of all amounts due and payable in respect of the Class A Trust
Certificates) shall indemnify
10
<PAGE>
and hold harmless the Initial Purchaser and each person, if any, who controls
the Initial Purchaser within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Circular (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue or incorrect
representation or warranty of the Trust contained in this Agreement, the
Trust Agreement, the Funding Agreement, the Custody Agreement, the
Liquidity Agreement or the Remarketing Agreement;
(3) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, any such
alleged untrue statement or omission or any such untrue or incorrect
representation or warranty; provided that (subject to Section 8(c) below)
any such settlement is effected with the written consent of the Trust; and
(4) against any and all expense whatsoever, as incurred (including the
reasonable fees and disbursements of counsel chosen by the Initial
Purchaser) reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, any such
alleged untrue statement or omission or any such untrue or incorrect
representation or warranty, to the extent that any such expense is not paid
under (1) (2) or (3) above;
PROVIDED, HOWEVER that the Trust shall not be liable in any such case for any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the Trust
by the Initial Purchaser expressly for use in the Offering Circular (or any
amendment or supplement thereto).
The Trust covenants that it will, immediately upon receipt of any
request by the Initial Purchaser for payment of any loss, liability, claim,
damage or expense under this Section 8 provide notice of the same to BLB
pursuant to an Indemnity Agreement between the Trust and BLB of even date
herewith (the "Indemnity Agreement"), take all necessary action to receive
11
<PAGE>
such payment pursuant to the terms of the Indemnity Agreement and promptly remit
such amount to the Initial Purchaser.
(b) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to the Trust of any action
commenced against it in respect of which indemnity may be sought hereunder, but
failure to so notify the Trust shall not relieve the Trust from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. Counsel to the indemnified parties
shall be selected by the Initial Purchaser. The Trust may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the Trust shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the Trust be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from the Trust's own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. The
Trust shall not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 8 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(c) CONTRIBUTION. If the indemnification provided for in this Section 8 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then the Trust shall contribute to the aggregate amount of
such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Trust on the one hand and the
Initial Purchaser on the other hand from the offering of the Trust Certificates
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Trust on the one hand and of the Initial Purchaser on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Trust on the one hand and the Initial
Purchaser on the other hand in connection with the offering of the Trust
Certificates pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Trust
Certificates pursuant to this Agreement (before deducting expenses)
12
<PAGE>
received by the Trust and the total fees received by the Initial Purchaser with
respect to the offering of the Trust Certificates, bear to the aggregate initial
offering price of the Trust Certificates.
The relative fault of the Trust on the one hand and the Initial Purchaser
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Trust (including the Trustee and Trust's Agent) or by the
Initial Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Trust and the Initial Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Section 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Trustee or Trust's Agent on behalf of the Trust
submitted pursuant hereto shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Initial Purchaser or
controlling person, or by or on behalf of the Trust, and shall survive delivery
of the Trust Certificates to the Initial Purchaser.
Section 10. TERMINATION. The Initial Purchaser may terminate this
Agreement, by notice to the Trustee and Trust's Agent, at any time at or prior
to the closing (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Offering Circular, any material adverse change in the condition, financial or
otherwise, of the Trust, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Initial Purchaser, impracticable to market the Trust
Certificates or to enforce contracts for the
13
<PAGE>
sale of the Trust Certificates, or (iii) if trading generally on the American
Stock Exchange or the New York Stock Exchange or in the NASDAQ National Market
System has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.
(a) LIABILITIES. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party;
provided that Sections 2 and 8 shall survive such termination and remain in full
force and effect.
Section 11. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchaser shall be directed to Lehman Brothers Inc. at 3 World Financial Center,
New York, New York 10285, attention of Commercial Paper Product Management (Fax
212-528-6925); and notices to the Trust shall be directed to The Bank of New
York, as Trustee, at 101 Barclay Street, New York, New York 10286, attention of
Corporate Trust Administration Asset Backed Finance Unit (Fax 212-815-5544).
Section 12. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser and the Trust and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchaser and the Trust and their respective successors and the
controlling persons and officers and directors referred to in Section 8 and
their heirs and legal representatives, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the Initial Purchaser and the Trust and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of the Trust Certificates from the
Initial Purchaser shall be deemed to be a successor by reason merely of such
purchase.
Section 13. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended
only by the mutual agreement of the parties hereto represented in a written
instrument.
Section 14. GOVERNING LAW, JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 15. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which taken together shall constitute one instrument.
14
<PAGE>
Section 16. EFFECT OF HEADINGS. The Article and Section headings herein are
for convenience only and shall not affect the construction hereof.
Section 17. NO LIABILITY OF THE BANK. The Bank of New York (the "Bank") is
executing this Agreement on behalf of the Trust solely as Trustee under the
Trust Agreement and not in its individual capacity, and in no case whatsoever
shall the Bank be liable for the statements or agreements of the Trust
hereunder, except for liabilities arising out of the Bank's negligence or wilful
misconduct. All persons asserting any claim against the Bank or the Trustee or
the Trust by reason of the transaction contemplated by this Agreement shall look
solely to the Trust Property for payment or satisfaction thereof.
Section 18. NO PETITION COVENANT. Notwithstanding any prior termination of
this Agreement, neither the Trustee nor Initial Purchaser shall, prior to the
date which is one year and one day after the payment in full of the Class A
Trust Certificates and the termination of this Agreement, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial part of
its property, or making a general assignment for the benefit of creditors, or
ordering the winding up or liquidation of the affairs of the Trust.
15
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Trustee a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Initial Purchaser and the Trust in accordance with its terms.
Very truly yours,
BRAVO TRUST SERIES 1997-1
By: The Bank of New York, not in its
individual capacity but solely as Trustee
under the Trust Agreement
By: /s/ Cheryl L. Laser
-----------------------------------
Name: CHERYL L. LASER
Title: Assistant Vice President
CONFIRMED AND ACCEPTED,
as of the date first above written:
LEHMAN BROTHERS INC.
By: /s/ Herbert H. McDade
------------------------------------------
Name: Herbert H. McDade
Title: Managing Director
16
<PAGE>
Exhibit A-1
FORM OF OPINION OF TRUST'S AND TRUSTEE'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 7(a)
PART I:
1. The Bank of New York (Delaware) has been duly incorporated, and is validly
existing in good standing as a banking corporation under the laws of the State
of Delaware and has the corporate power to execute, deliver and perform the
Trust Agreement.
2. The Trust has been duly formed and is validly existing as a business trust
under the laws of the State of Delaware, 12 DEL.C. Section 3801, ET SEQ.
3. The Co-Trustee Agreement has been duly authorized, executed and delivered
by The Bank of New York (Delaware) and is the legal, valid and binding agreement
of The Bank of New York (Delaware), enforceable against it in accordance with
its terms.
4. The execution and delivery of, and performance of the terms of, the
Co-Trustee Agreement by The Bank of New York (Delaware) does not conflict with
or constitute a breach of or default under its charter or by-laws or any
constitutional documents of the Trust or any agreement, indenture or other
instrument, in each case known to us, to which The Bank of New York (Delaware)
or the Trust is a party or by which it or any of its properties may be bound,
and does not violate any law, governmental rule or regulation of the State of
Delaware or any federal law of the United States of America governing the
banking or trust powers of The Bank of New York (Delaware) or any court decree
known to us to be applicable to The Bank of New York (Delaware) or the Trust.
5. No consent, approval or authorization of, or registration, declaration or
filing with, any court or governmental agency or body having jurisdiction in the
premises is required under Delaware law for the valid execution, delivery or
performance by The Bank of New York (Delaware) of the Co-Trustee Agreement or
for the validity or enforceability thereof, other than the filing of the
Certificate of Trust with the Secretary of State (which Certificate of Trust has
been duly filed).
A-1
<PAGE>
PART II:
1. The Bank of New York has been duly incorporated, and is validly existing
in good standing as a banking corporation under the laws of the State of New
York and has the corporate power to execute, deliver and perform the Trust
Agreement.
2. The Trust Agreement has been duly authorized, executed and delivered by
The Bank of New York and is the legal, valid and binding agreement of The Bank
of New York, enforceable against it in accordance with its terms.
3. Each agreement, document, certificate and instrument (each, a "Trust
Document") has been duly authorized by the Trustee. The Trust Certificates have
been duly executed by the Trustee and, when executed and delivered to the
Initial Purchaser in accordance with the Trust Agreement and the Purchase
Agreement, will be entitled to the benefits of the Trust Agreement.
4. The Purchase Agreement has been duly authorized, executed and delivered by
the Trustee on behalf of the Trust and, assuming due authorization, execution
and delivery by the other parties hereto, constitutes a valid and binding
agreement of the Trust, enforceable against the Trust in accordance with its
terms, except as (A) the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and (B) rights of indemnity and contribution under the
Purchase Agreement may be limited by United States federal or state securities
laws, the laws of other jurisdictions or the public policy underlying any such
laws.
5. The execution and delivery of, and performance of the terms of, the
Purchase Agreement, the Trust Agreement, the Trust Certificates and any other
Trust Documents by the Trustee on behalf of the Trust does not conflict with or
constitute a breach of or default under the charter or by-laws of The Bank of
New York or any agreement, indenture or other instrument, in each case actually
known to us without independent investigation, to which The Bank of New York is
a party or by which it or any of its properties may be bound, and does not
violate any law, governmental rule or regulation of the State of New York or any
federal law of the United States of America governing the banking or trust
powers of The Bank of New York or any court decree actually known to us without
independent investigation to be applicable to The Bank of New York.
6. No consent, approval or authorization of, or registration, declaration or
filing with, any court or governmental agency or body having jurisdiction in the
premises is required under New York law for the valid execution, delivery or
performance by The Bank of New York, of any Trust Document or for the validity
or enforceability thereof.
A-2
<PAGE>
Exhibit A-2
FORM OF OPINION OF BLB'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 6(b)
1. The Class A Trust Certificates and the Trust Agreement conform in all
material respects to the descriptions thereof contained in the Offering
Circular.
2. The information in the Offering Circular Supplement under "The Trust
Certificates," "ERISA" and "Liquidity Agreement" and the information in the
Offering Circular under "The Description of the Trust Certificates" and "The
Trust" has been reviewed by us and is correct in all material respects.
3. The statements in the Offering Circular Supplement under the caption
"Certain Federal Income Tax Consequences," to the extent that they constitute
matters of the United States federal income tax laws or legal conclusions with
respect thereto, provide a fair and accurate summary of such laws or legal
conclusions in all material respects.
4. No authorization, approval, consent or order of any court or governmental
authority or agency (other than such as may be required under the applicable
securities laws of the various jurisdictions in which the Class A Trust
Certificates will be offered or sold, as to which we need express no opinion) is
required for the offering, issuance, sale or delivery of the Class A Trust
Certificates to the Initial Purchaser or the resale by the Initial Purchaser in
accordance with the Purchase Agreement.
5. The offer and sale of the Trust Certificates in the manner and under the
circumstances contemplated by the Offering Circular, the Trust Agreement and the
Purchase Agreement do not require registration of the Trust Certificates under
the 1933 Act.
6. The Trust is not required to be registered as an investment company under
the 1940 Act.
A-3
<PAGE>
Exhibit A-3
FORM OF OPINION OF INSURER'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 6(d)
1. The Funding Agreement, the Liquidity Agreement and Custody Agreement have
been duly authorized, executed and delivered by the Insurer and, assuming due
authorization, execution and delivery by the Trust, are the legal, valid and
binding agreements of the Insurer, enforceable against it in accordance with
their terms.
2. The information in the Offering Circular under "The Financial Instrument"
and in the Offering Circular Supplement under "The Trust Assets" has been
reviewed by us and is correct in all material respects.
A-4
<PAGE>
MARKET AGENT AGREEMENT
MARKET AGENT AGREEMENT, dated as of November 25, 1997 (the "Agreement"), by
and between Bayerische Landesbank Girozentrale, acting through its New York
Branch ("BLB" or the "Market Agent"), and BRAVO TRUST SERIES 1997-1 (the
"Trust"), a Delaware trust created under a Declaration of Trust and Trust
Agreement dated as of November 25, 1997 between The Bank of New York, as Trustee
(the "Trustee"), and the Holders of BRAVO Trust Series 1997-1 Trust Certificates
(the "Trust Agreement"). Capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Trust Agreement. This Agreement shall
constitute the "Market Agent Agreement" as defined in the Trust Agreement.
WITNESSETH:
WHEREAS, the Trust desires to retain BLB to render certain services to the
Trust in the manner and on the terms hereinafter set forth;
WHEREAS, BLB desires to provide such services to the Trust on the terms and
conditions hereinafter set forth; and
WHEREAS, the Trustee has been directed to enter into and execute this
Market Agent Agreement with BLB, as the initial Market Agent pursuant to Section
6.01 of the Trust Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, BLB and the Trust hereby agree as follows:
Section 1. RIGHTS AND DUTIES OF THE MARKET AGENT. The Trust hereby employs
BLB to act as the Market Agent for the Trust. As such, BLB shall have the right,
but not the obligation, no later than 30 days prior to the original maturity
date (the "Maturity Date") of the Class A Trust Certificates or any extended
maturity date, to select an extended maturity date (an "Extended Maturity Date")
on which the principal amount of all outstanding Class A Trust Certificates
(including, without limitation, upon any one-year extension of the Funding
Agreement pursuant to Section 8.11 thereof) will be due and payable; no such
Extended Maturity Date shall occur more than 360 days after the Maturity Date or
the then-current Extended Maturity Date, as the case may be, and must occur on
an Interest Payment Date under the Funding Agreement. No Extended Maturity Date
shall be chosen that is beyond the last date on which the Liquidity Agreement is
in full force and effect and the ability and capacity of the
<PAGE>
Liquidity Provider to perform fully its obligations thereunder remains
unimpaired. In addition, BLB shall furnish to the Trust all of the services of
the Market Agent set forth herein and in the Trust Agreement. In particular, the
Market Agent shall perform the following services:
a. At any time that the Market Agent selects an Extended Maturity Date for
Class A Trust Certificates, set all of the variable terms that shall be
applicable to such Class A Trust Certificates until the relevant Extended
Maturity Date, including, without limitation:
i. the interest rate applicable to such Certificates until such
Extended Maturity Date;
ii. the payment dates applicable to such Certificates until such
Extended Maturity Date;
iii. the reset dates applicable to such Certificates until such Extended
Maturity Date;
iv. the interest determination dates applicable to such Certificates
until such Extended Maturity Date; and
v. any other terms applicable to such Certificates until such Extended
Maturity Date.
b. Give the Trustee, the Remarketing Agent, and the Rating Agencies notice in
sufficient time for beneficial owners of the relevant Trust Certificates to
be notified, no later than 30 days prior to the Maturity Date or the
then-current Extended Maturity Date, as the case may be, of the new
Extended Maturity Date, the expected rating applicable to such Certificates
until such Extended Maturity Date, and all other variable terms applicable
to such Certificates until such Extended Maturity Date.
BLB hereby accepts such employment and agrees during the term of the Trust
Certificates to render such services and to assume the obligations of the
Market Agent under the Trust Agreement under the terms and conditions herein
set forth.
Section 2. COMPENSATION. BLB shall receive no additional compensation for
the services it renders pursuant to the terms of this Agreement (other than
consideration it may have previously received or may receive as Liquidity
Provider under the Liquidity Agreement).
Section 3. LIMITATION OF LIABILITY OF THE MARKET AGENT. The Market Agent
will not be liable in contract, tort or otherwise to the Trust, any Holder, any
Remarketing Agent or any
2
<PAGE>
other person for any losses, costs or damages arising out of the Market Agent's
performance of its obligations and duties hereunder except for willful
misconduct, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder.
Section 4. TERM OF THIS AGREEMENT. This Agreement, which shall be a binding
agreement as of the date hereof, shall terminate upon the earliest to occur of
(a) the termination of the Trust Agreement, (b) the termination of the Liquidity
Agreement, (c) the removal of the Market Agent by the Trustee in accordance with
the Trust Agreement, which shall only be upon prior written notice by the
Trustee given not less than 364 days prior to the effective date of the removal
or (d) 30 days after written notice of BLB's or any permitted assignee's
resignation as Market Agent is delivered to the Trustee.
Section 5. AMENDMENTS. No amendment or waiver of any provision of this
Agreement nor consent to any departure herefrom by any party hereto shall in any
event be effective unless the same shall be in writing and signed by the party
against which enforcement of such amendment or waiver or consent is sought, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
Section 6. NOTICE ADDRESSES. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be deemed to
have been duly given if sent by facsimile transmission (a) if to the Market
Agent, to the number set forth below and (b) if to the Trustee, as set forth in
the Trust Agreement:
If to BLB: Bayerische Landesbank Girozentrale,
New York Branch
560 Lexington Avenue
New York, New York 10022
Attention: Structured Finance
Facsimile: (212) 310-9870
Section 7. ASSIGNMENT. Except as provided in this Section 7, this Agreement
may not be assigned by the Market Agent without the prior written consent of the
Trustee in accordance with the Trust Agreement. The Market Agent shall have the
right to transfer and assign all of its rights, duties, obligations and
liabilities under this Agreement to an affiliate of the Market Agent; PROVIDED,
HOWEVER, that such transfer and assignment shall be upon the condition that the
due and punctual performance and observance of all the terms and conditions of
this Agreement to be performed by the Market Agent shall, by an agreement
supplemental hereto, be assumed by such affiliate just as fully and effectually
as if such affiliate had been the original party of the first part to this
Agreement.
3
<PAGE>
Section 8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be performed in such state (without reference to choice
of law doctrine).
Section 9. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between BLB and the Trust and supersedes any and all prior
agreements and understandings between BLB and the Trust relating to the subject
matter hereof.
Section 10. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Section 11. NO PETITION COVENANT. Notwithstanding any prior termination of
this Agreement, BLB shall not, prior to the date which is one year and one day
after the termination of this Agreement, acquiesce, petition or otherwise invoke
or cause the Trust to invoke the process of any court or governmental authority
for the purpose of commencing or sustaining a case against the Trust under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Trust or any substantial part of its property, or making a general
assignment for the benefit of creditors, or ordering the winding up or
liquidation of the affairs of the Trust.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Market Agent
Agreement to be duly executed as of the day and year first above written.
BAYERISCHE LANDESBANK GIROZENTRALE,
ACTING THROUGH ITS NEW YORK BRANCH
By: /s/ Bert von Stuelpnagel
--------------------------------------
Bert von Stuelpnagel
Executive Vice President
and Manager
By: /s/ Ron Bertolini
--------------------------------------
Ron Bertolini
First Vice President and
Treasury Manager
BRAVO TRUST SERIES 1997-1
By: The Bank of New York, not in its
individual capacity but solely as Trustee
under the Trust Agreement
By: /s/ Cheryl L. Laser
--------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
<PAGE>
REMARKETING AGREEMENT
REMARKETING AGREEMENT, dated as of November 25, 1997 (the "Remarketing
Agreement"), by and between BRAVO Trust Series 1997-1, a Delaware business trust
having its principal office c/o The Bank of New York, 101 Barclay Street, New
York, New York 10286 (the "Trust") and Lehman Brothers Inc., a Delaware
corporation having its principal office at 3 World Financial Center, New York,
New York 10285 ("Lehman").
WHEREAS, the Trust proposes to issue BRAVO Trust Series 1997-1 Floating
Rate Class A Trust Certificates (the "Class A Trust Certificates") and the BRAVO
Trust Series 1997-1 Class B Trust Certificates (the "Class B Trust Certificates"
and together with the Class A Trust Certificates, the "Trust Certificates")
pursuant to the Trust Agreement under which it was established (the "Trust
Agreement"); and
WHEREAS, the Trust has prepared an offering circular and a supplement
thereto, each dated the date hereof, for use in connection with the offering and
sale of the Class A Trust Certificates; and the Trust will prepare and deliver
to the Remarketing Agent such offering circular and supplement, together with
any amendment thereto or supplement thereof as may be required under the
Securities Act of 1933 (the "1933 Act") or the Securities Exchange Act of 1934
(the "1934 Act") with respect to a Remarketing (such offering circular and
supplement, as amended and supplemented from time to time, delivered to the
Remarketing Agent in connection with a Remarketing, the "Offering Circular");
and
WHEREAS, the Trust has requested Lehman to act as a remarketing agent (i)
to remarket Class A Trust Certificates tendered to Lehman in a remarketing (a
"Remarketing") on behalf of the Holders of the Class A Trust Certificates on
each date (a "Remarketing Date") that the principal amount of any Class A Trust
Certificate is due from the Trust other than the final maturity date of such
Class A Trust Certificate, and (ii) to carry out such other duties as are
assigned to Lehman as a remarketing agent herein and in the Class A Trust
Certificates (in such capacity, the "Remarketing Agent"); and
WHEREAS, Lehman is willing to assume such duties on the terms and
conditions expressly set forth herein.
NOW, THEREFORE, for and in consideration of the covenants herein made, and
subject to the conditions herein set forth, the parties hereto agree as follows:
Section 1. DEFINITIONS. Capitalized terms used and not defined in this
Agreement shall have the meanings assigned to them in the Trust Agreement and/or
the Class A Trust Certificates.
<PAGE>
Section 2. REPRESENTATIONS AND WARRANTIES.
The Trust represents and warrants to the Remarketing Agent as of the date
hereof and as of the date that an amendment to, or a supplement of, the Offering
Circular is required to be delivered with respect to a Remarketing (each a
"Representation Date"), as follows:
(a) VALIDITY OF THE TRUST. The Trust has been duly organized and is
validly existing as a statutory business trust in good standing under the
laws of the State of Delaware and has the trust power and authority to own
properties and to conduct its business as described in the Offering
Circular and to enter into and perform its obligations under this
Agreement.
(b) AUTHORIZATION OF THE TRUST AGREEMENT. The Trust Agreement has
been duly authorized, executed and delivered by the Trustee on behalf of
the Trust and constitutes a valid and binding agreement of the Trust,
enforceable against the Trust in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(c) AUTHORIZATION OF THE TRUST CERTIFICATES. The Trust Certificates
have been duly authorized and executed by the Trustee on behalf of the
Trust and, when delivered against payment of the purchase price therefor,
will constitute valid and binding obligations of the Trust, enforceable
against the Trust in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
(d) AUTHORIZATION OF THIS AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Trustee on behalf of the Trust
and, assuming due authorization, execution and delivery by the other party
hereto, constitutes a valid and binding agreement of the Trust, enforceable
against the Trust in accordance with its terms, except as (A) the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and (B) rights of indemnity and contribution under this
Agreement may be limited by United States federal or state securities laws,
the laws of other jurisdictions or the public policy underlying any such
laws.
2
<PAGE>
(e) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of the Trust
(including the Trustee and the Trust's Agent), threatened, against or
affecting the Trust, its properties or its assets which might reasonably be
expected to result in a material adverse change in the condition, financial
or otherwise, of the Trust (a "Material Adverse Effect"), or which might
reasonably be expected to materially and adversely affect the properties or
assets of the Trust or the consummation of this Agreement or the
performance by the Trust of its obligations hereunder.
(f) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Trust (including the
Trustee and the Trust's Agent) of its obligations hereunder, in connection
with any Remarketing of the Class A Trust Certificates hereunder or the
consummation of the transactions contemplated by this Agreement, the Trust
Agreement, the Purchase Agreement, the Separate Account Funding Agreement
(the "Funding Agreement"), dated the date hereof, between Integrity Life
Insurance Company (the "Insurer") and the Trust, and the Standby Trust
Certificate Purchase Agreement (the "Liquidity Agreement"), dated the date
hereof, among the Insurer, Bayerische Landesbank Girozentrale, a banking
company organized under the laws of the Federal Republic of Germany, acting
through its New York Branch ("BLB") and the Trust, and the Custody
Agreement (the "Custody Agreement"), dated the date hereof, among the
Insurer, the Trust and the Custodian.
(g) SIMILAR OFFERINGS. The Trust (including the Trustee and the
Trust's Agent) has not, directly or indirectly, solicited any offer to buy
or offered to sell, and will not, directly or indirectly, solicit any offer
to buy or offer to sell, in the United States or to any United States
citizen or resident, any security which is or would be integrated with the
sale of the Class A Trust Certificates in a manner that would require the
offering or sale of the Class A Trust Certificates to be registered under
the 1933 Act.
(h) OFFERING CIRCULAR. The Offering Circular does not, and will not,
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
this representation, warranty and agreement shall not apply to statements
in or omissions from the Offering Circular made in reliance upon and in
conformity with information furnished to the Trust in writing by the
Initial Purchaser or the Remarketing Agent expressly for use in the
Offering Circular.
(i) RULE 144A ELIGIBILITY. The Class A Trust Certificates are
eligible for resale pursuant to Rule 144A and are not of the same class as
securities listed on a national securities exchange registered under
Section 7 of the Securities Exchange Act
3
<PAGE>
of 1934, as amended (the "1934 Act"), or quoted in a U.S. automated
interdealer quotation system.
(j) NO GENERAL SOLICITATION. None of the Trust, its affiliates, as
such term is defined in Rule 501(b) under the 1933 Act ("Affiliates"), or
any person acting on its or any of their behalf (other than Initial
Purchaser or the Remarketing Agent, as to which the Trust makes no
representation) has engaged or will engage, in connection with the offering
of the Trust Certificates, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the 1933 Act.
(k) NO REGISTRATION REQUIRED. Subject to compliance with the
requirements contained herein, (i) the Trust is not required, and as a
result of the consummation of the transactions contemplated hereby will not
be required, to register as an investment company under the Investment
Company Act of 1940, as amended, and (ii) it is not necessary in connection
with a Remarketing of the Class A Trust Certificates in the manner
contemplated by this Agreement to register the Class A Trust Certificates
under the 1933 Act or to qualify the Trust Agreement under the Trust
Indenture Act of 1939, as amended (the "1939 Act").
Section 3. COVENANTS OF THE TRUST. The Trust covenants with the Remarketing
Agent as follows:
(a) OFFERING CIRCULAR. If at any time, in connection with a Remarketing,
any event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the Remarketing Agent or counsel for
the Trust, to amend or supplement the Offering Circular in order to make the
statements therein, in the light of circumstances existing at the time the
Offering Circular is to be used in connection with such Remarketing, not
incorrect, incomplete or misleading in any material respect, prompt notices
shall be given, and confirmed in writing to the Remarketing Agent to cease
offers and sales of the Class A Trust Certificates, and the Trust will promptly
prepare and furnish, or cause to be promptly prepared and furnished, to the
Remarketing Agent such number of copies of such amendment or supplement as the
Remarketing Agent may reasonably request (in form and substance satisfactory to
counsel for the Remarketing Agent) so that the statements contained in the
Offering Circular as so amended or supplemented will not be incorrect,
incomplete or misleading in any material respect.
(b) INTEGRATION. The Trust agrees that it will not make any offer or sale
of securities of the Trust of any class if, as a result of the doctrine of
"integration" referred to in Rule 502 under the 1933 Act, such offer or sale
would render invalid (for the purpose of any Remarketing) the exemption from the
registration requirements of the 1933 Act provided by Section 4(2) thereof or by
Rule 144A thereunder or otherwise.
(c) RULE 144A INFORMATION. The Trust agrees that, in order to render the
Class A Trust Certificates eligible for resale pursuant to Rule 144A under the
1933 Act, while any of the
4
<PAGE>
Class A Trust Certificates remain outstanding, it or the Trust's Agent will make
available, upon request, to any Holder or prospective purchasers of Class A
Trust Certificates the information specified in Rule 144A(d)(4).
Section 4. APPOINTMENT AND OBLIGATIONS OF THE REMARKETING AGENT. (a) The
Trust hereby appoints Lehman, and Lehman hereby accepts such appointment, as the
exclusive Remarketing Agent for the purpose of (i) remarketing the Class A Trust
Certificates from time to time on behalf of the Holders thereof, and (ii)
performing such other duties as are assigned to the Remarketing Agent herein and
in the Class A Trust Certificates, all pursuant to the procedures set forth
herein and in the Class A Trust Certificates, provided, however, that the Trust
may appoint BLB or a subsidiary of BLB that is qualified to conduct Remarketing
as an additional Remarketing Agent (the "Additional Remarketing Agent") pursuant
to a remarketing agreement between the Trust and BLB or such subsidiary of BLB,
which remarketing agreement shall be substantially identical to this Agreement.
(b) The Remarketing Agent agrees, subject to Section 4(c) hereof, (i) to
use its best efforts to remarket the Class A Trust Certificates tendered to the
Remarketing Agent in a regularly scheduled Remarketing from time to time, and
(ii) to carry out such other duties as are assigned to the Remarketing Agent
herein, all in accordance with the provisions hereof and the Class A Trust
Certificates.
(c) It is understood and agreed by and among the parties hereto that the
Remarketing Agent shall not be obligated to remarket Class A Trust Certificates
at any time that any of the conditions as set forth in Section 8 hereof shall
not have been fully and completely met to the reasonable satisfaction of the
Remarketing Agent.
(d) By 12:00 noon, New York City time, on each Remarketing Date, the
Remarketing Agent shall advise the Trustee by telephone (or such other means as
is acceptable to the Trustee) of the total principal amount (as used herein and
in the Transfer Form attached hereto as Exhibit A, "principal amount" means the
face amount of the related Class A Trust Certificate or Certificates) of Class A
Trust Certificates tendered by Holders for the relevant Remarketing and the
total principal amount of Class A Trust Certificates purchased in such
Remarketing.
(e) By 12:00 noon, New York City time, on each Remarketing Date, the
Remarketing Agent shall give BLB, as the Liquidity Facility Provider, a
telephonic notice (or a notice by such other means as is acceptable to BLB),
confirmed promptly in writing, specifying (i) the amount of Class A Trust
Certificates to be purchased by BLB on such Remarketing Date pursuant to the
Liquidity Agreement, and (ii) the aggregate purchase price of such Class A Trust
Certificates.
(f) The transfer restrictions set forth in Sections 3.09, 3.10 and 3.11
of the Trust Agreement and the offer and sale procedures set forth in Section 5
of the Purchaser Agreement shall apply to a Remarketing of the Class A Trust
Certificates.
5
<PAGE>
(g) The Remarketing Agent may, with the consent of the Trustee and the
Liquidity Provider, modify the remarketing procedures set forth herein and in
the Supplement (the "Remarketing Procedures") so long as any such modification
does not materially and adversely affect the Trust or the Holders.
Section 5. FEES AND EXPENSES. For its services in performing its duties set
forth hereunder, the Remarketing Agent will receive from the Trust a fee payable
on each Remarketing Date equal to the product of (i) the total principal amount
of Class A Trust Certificates outstanding immediately following such Remarketing
(excluding therefrom any principal amount of Class A Trust Certificates
remarketed at such Remarketing by any other remarketing agent(s) to investors
other than those that shall have previously invested in the Class A Trust
Certificates through Lehman in its capacity either as the Initial Purchaser or
the Remarketing Agent), times (ii) 0.0005, and times (iii) a fraction, the
numerator of which is the total number of days from and including such
Remarketing Date to, but excluding, the "Extended Maturity Date" as defined in
the Market Agent Agreement and the denominator of which is 360. The obligations
of the Trust to make the payment required by this Section 5 shall survive the
termination of this Agreement and remain in full force and effect until all such
payments shall have been made in full.
Section 6. RESIGNATION AND REMOVAL OF THE REMARKETING AGENT. (a) The
Remarketing Agent may resign and be discharged from its duties and obligations
hereunder by giving 60 days' prior written notice to the Trust and the Trust's
Agent; PROVIDED, HOWEVER, that such resignation shall not become effective until
the Trust shall have appointed a successor remarketing agent and such successor
remarketing agent, which shall be a nationally recognized broker-dealer, shall
have entered into a remarketing agreement with the Trust in which it shall have
agreed to conduct Remarketings in accordance with the terms and conditions
hereof and as described in the Supplement and the Trust Agreement. In such case,
the Trust agrees to use its best efforts to appoint a successor remarketing
agent and enter into such a remarketing agreement with such person as soon as
reasonably practicable, provided that the terms thereof are acceptable to the
Trust.
(b) The Trust may remove the Remarketing Agent by giving at least 60 days'
prior written notice to the Remarketing Agent, PROVIDED, HOWEVER, that such
removal shall not become effective until the Trust shall have appointed a
successor remarketing agent in accordance with the terms hereof and the
Supplement and such successor remarketing agent, which shall be a nationally
recognized broker-dealer, shall have entered into a remarketing agreement with
the Trust in which it shall have agreed to conduct Remarketings in accordance
with the terms and conditions of the Supplement and the Trust Agreement.
Section 7. DEALING IN THE TRUST CERTIFICATES; REDEMPTION OF REMARKETING
AGENT'S TRUST CERTIFICATES. Lehman, when acting as Remarketing Agent or in its
individual or any other capacity, may, to the extent permitted by law, buy,
sell, hold and deal in any of the Trust Certificates; PROVIDED, HOWEVER, that
Lehman is not obligated to purchase any Class A Trust Certificates that would
otherwise remain unsold in a Remarketing. If Lehman owns any Class
6
<PAGE>
A Trust Certificates immediately prior to a Remarketing, Lehman may sell such
principal amount of its Trust Certificates in such Remarketing. Lehman may
exercise any vote or join in any action which any Holders of Trust Certificates
may be entitled to exercise or take pursuant to the Trust Agreement or the Trust
Certificates with like effect as if it did not act in the capacity of
Remarketing Agent hereunder. Lehman in its individual capacity, either as
principal or agent, may also engage in or have an interest in any financial or
other transaction with the Trust as freely as if it did not act in any capacity
hereunder.
Section 8. CONDITIONS TO THE OBLIGATIONS OF THE REMARKETING AGENT. The
obligations of the Remarketing Agent under this Agreement have been undertaken
in reliance on, and shall be subject to, (i) the due performance by the Trust of
its obligations and agreements as set forth in this Agreement, (ii) the accuracy
as of the date hereof and as of each Representation Date of the representations
and warranties of the Trust contained in the this Agreement, and (iii) the
further condition that none of the following events shall have occurred:
(a) the rating of the Class A Trust Certificates shall have been
downgraded or withdrawn by a national rating service after the date hereof,
the effect of which, in the reasonable opinion of the Remarketing Agent, is
to affect materially and adversely the marketability of the Class A Trust
Certificates; or
(b) without the prior written consent of the Remarketing Agent, the
Trust Agreement shall have been amended in any manner that, in the
reasonable opinion of the Remarketing Agent, materially and adversely
affects the marketability of the Class A Trust Certificates or the
Remarketing Procedures (a "Material Change"); or
(c) since the respective dates as of which information is given in
the Offering Circular, a Material Adverse Effect shall have occurred,
whether or not arising in the ordinary course of business; or
(d) the Trust Agreement, the Funding Agreement, the Custody Agreement
or the Liquidity Agreement shall have been terminated, or otherwise not be
in full force and effect; or
(e) an "Early Certificate Maturity Event" or "Early Funding Agreement
Termination Event" under the Custody Agreement or the Funding Agreement or
an "Event of Default" under the Liquidity Agreement shall have occurred and
be continuing, or an event shall have occurred and be continuing, which,
either with giving of notice thereof or passage of time or both, would
constitute an "Early Certificate Maturity Event" or "Early Funding
Agreement Termination Event" under the Custody Agreement or the Funding
Agreement or an "Event of Default" under the Liquidity Agreement; or
(f) the Indemnity Agreement between the Trust and BLB of even date
herewith (the "Indemnity Agreement") shall have been modified or amended
otherwise than with the prior written consent of the Remarketing Agent; or
7
<PAGE>
(g) there shall have occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political,
financial or economic conditions, in each case the effect of which is such
as to make it, in the judgment of the Remarketing Agent, impracticable to
remarket the Class A Trust Certificates or to enforce contracts for the
Remarketing of the Class A Trust Certificates; or
(h) trading generally on the American Stock Exchange or the New York
Stock Exchange or in the NASDAQ National Market System shall have been
suspended or limited, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices shall have been required, by any
of said exchanges or by such system or by order of the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc.
or any other governmental authority; or
(i) a banking moratorium shall have been declared by either Federal,
New York, Delaware or Ohio authorities.
Section 9. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF REMARKETING AGENT. The Trust (subject to the prior
payment in full of all amounts due and payable in respect of the Class A Trust
Certificates) shall indemnify and hold harmless the Remarketing Agent and each
person, if any, who controls the Remarketing Agent within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Circular (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue or incorrect
representation or warranty of the Trust contained in this Agreement, the
Trust Agreement, the Funding Agreement, the Custody Agreement, the
Liquidity Agreement or the Purchase Agreement;
(3) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or any such untrue or incorrect
8
<PAGE>
representation or warranty; provided that (subject to Section 9(c) below)
any such settlement is effected with the written consent of the Trust; and
(4) against any and all expense whatsoever (including the reasonable
fees and disbursements of counsel chosen by the Remarketing Agent)
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, any such alleged untrue statement or
omission or any such untrue or incorrect representation or warranty, to the
extent that any such expense is not paid under (1) (2) or (3) above;
PROVIDED, HOWEVER, that the Trust shall not be liable in any such case for any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the Trust
by the Remarketing Agent expressly for use in the Offering Circular (or any
amendment or supplement thereto).
The Trust covenants that it will, immediately upon receipt of any request
by the Remarketing Agent for payment of any loss, liability, claim, damage or
expense under this Section 9 provide notice of the same to BLB pursuant to the
Indemnity Agreement, take all necessary action to receive such payment pursuant
to the terms of the Indemnity Agreement and promptly remit such amount to the
Remarketing Agent.
(b) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to the Trust of any action
commenced against it in respect of which indemnity may be sought hereunder, but
failure to so notify the Trust shall not relieve the Trust from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. Counsel to the indemnified parties
shall be selected by the Remarketing Agent. The Trust may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the Trust shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the Trust be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. The
Trust shall not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 9 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
9
<PAGE>
(c) CONTRIBUTION. If the indemnification provided for in this Section 9 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then the Trust shall contribute to the aggregate amount of
such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Trust on the one hand and the
Remarketing Agent on the other hand from a Remarketing of the Class A Trust
Certificates pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Trust on the one hand and of the
Remarketing Agent on the other hand.
The relative benefits received by the Trust on the one hand and the
Remarketing Agent on the other hand in connection with a Remarketing of the
Class A Trust Certificates pursuant to this Agreement shall be deemed to be
proportional to the total principal amount of Class A Trust Certificates
remarketed by the Remarketing Agent during such Remarketing and the total fees
received by the Remarketing Agent with respect to such Remarketing.
The relative fault of the Trust on the one hand and the Remarketing Agent
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Trust or by the Remarketing Agent and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Trust and the Remarketing Agent agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 9. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 9 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Section 10. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of the Remarketing Agent or controlling person, or by or on
behalf of the Trust, and shall survive delivery of the Class A Trust
Certificates to the Remarketing Agent.
10
<PAGE>
Section 11. TERMINATION OF REMARKETING AGREEMENT. (a) This Agreement shall
terminate, as to the Remarketing Agent, on the effective date of the resignation
or removal of such Remarketing Agent pursuant to Section 6 hereof; provided,
however, that the provisions of Sections 5 and 9 hereof shall survive any such
termination.
(b) In addition, the Remarketing Agent may resign and be discharged from
its duties and obligations hereunder, by notifying the Trust of its election to
do so, (i) if any of the conditions referred to or set forth in Section 8 hereof
has not been met or satisfied in full and such failure shall have continued for
a period of 30 days after the Remarketing Agent has given notice thereof to the
Trust specifying the condition which has not been met and requiring it to be met
or (ii) in the event the Remarketing Agent reasonably determines, after
consultation with the Trust, that it has not received all of the information,
whether or not specifically referenced herein, necessary to fulfill its
obligations under this Agreement. Any resignation and discharge made pursuant to
clause (i) hereof shall be effective immediately after the Remarketing Agent
gives notice of its resignation as required in clause (i) hereof after 30 days
of failure by the Trust to meet the conditions specified in the Remarketing
Agent's first notice pursuant to clause (i) hereof. Any resignation and
discharge made pursuant to clause (ii) hereof shall be effective on the date
specified in such notice, but, unless the Remarketing Agent fails to perform its
duties under Section 4(b), not earlier than 60 days after the delivery of such
notice.
Section 12. REMARKETING AGENT'S PERFORMANCE; DUTY OF CARE. The duties and
obligations of the Remarketing Agent shall be determined solely by the express
provisions of this Remarketing Agreement, the Class A Trust Certificates, the
Supplement and the Purchase Agreement. No implied covenants or obligations of or
against the Remarketing Agent shall be read into this Remarketing Agreement. In
the absence of bad faith on the part of the Remarketing Agent, the Remarketing
Agent may conclusively rely upon any document furnished to it which purports to
conform to the requirements of this Remarketing Agreement, the Purchase
Agreement, or the Class A Trust Certificates as to the truth of the statements
expressed in any thereof. In addition, without limiting the foregoing, the
Remarketing Agent shall observe the restrictions on transfer and solicitation
contained in Sections 3.09, 3.10 and 3.11 of the Trust Agreement and the offer
and sale procedures set forth in Section 5 of the Purchase Agreement. The
Remarketing Agent shall be protected in acting upon any document or
communication reasonably believed by it to have been signed, presented or made
by the proper party or parties. The Remarketing Agent shall not incur any
liability to the Trust or to any Holder of Trust Certificates in its individual
capacity or as Remarketing Agent for any action or failure to act in connection
with a Remarketing or otherwise, except as a result of its gross negligence or
willful misconduct.
Section 13. BOOKS AND RECORDS. The Remarketing Agent shall keep such books
and records with respect to the performance of its duties hereunder as shall be
consistent with prudent industry practice and shall make such books and records
available for inspection by the Trustee on reasonable notice during normal
business hours.
11
<PAGE>
Section 14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in such state.
Section 15. TERM OF AGREEMENT. Unless otherwise terminated in accordance
with the provisions hereof, this Agreement shall remain in full force and effect
from the date hereof until the first day thereafter on which no Trust
Certificates are outstanding. The provisions of Sections 5 and 9 hereof shall
survive the termination or expiration of this Agreement.
Section 16. SUCCESSORS AND ASSIGNS. The rights and obligations of the Trust
hereunder may not be assigned or delegated to any other person without the prior
written consent of the Remarketing Agent. The rights and obligations of the
Remarketing Agent hereunder may not be assigned or delegated to any other person
without the prior written consent of the Trust and the Liquidity Provider. This
Agreement shall inure to the benefit of and be binding upon the Trust, the
Remarketing Agent and their respective successors and assigns and will not
confer any benefit upon any other person, partnership, association or
corporation other than persons, if any, controlling the Remarketing Agent within
the meaning of the 1933 Act of the 1934 Act. The terms "successors" and
"assigns" shall not include any purchaser of any of the Class A Trust
Certificates merely because of such purchase.
Section 17. HEADINGS. Section headings have been inserted in this Agreement
as a matter of convenience of reference only, and it is agreed that such section
headings are not a part of this Agreement and will not be used in the
interpretation of any provisions of this Agreement.
Section 18. SEVERABILITY. If any provision of this Agreement shall be held
or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as
applied in any particular case in any or all jurisdictions because it conflicts
with any provisions of any constitution, statute, rule or public policy or for
any other reason, such circumstances shall not have the effect of rendering the
provision in question invalid, inoperative or unenforceable in any other case,
circumstance or jurisdiction, or of rendering any other provision or provisions
of this Agreement invalid, inoperative or unenforceable to any extent
whatsoever.
Section 19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be regarded as an original and all of which
shall constitute one and the same document.
Section 20. REMARKETING AGENT NOT ACTING AS UNDERWRITER. It is understood
and agreed by all parties hereto that the only obligations of the Remarketing
Agent hereunder are as set forth in this Agreement. When engaged in remarketing
any tendered Class A Trust Certificates, the Remarketing Agent shall act only as
agent for and on behalf of each Holder of the Class A Trust Certificates so
tendered. The Remarketing Agent shall not act as, or be considered to be acting
hereunder as, an underwriter for such tendered Class A Trust Certificates. The
Remarketing Agent shall not in any way be obligated to advance its own funds to
purchase any
12
<PAGE>
tendered Class A Trust Certificates (except in its respective individual
capacity as purchaser of those Class A Trust Certificates it shall elect to
purchase, in its sole discretion) or to otherwise expend or risk its own funds
or incur or become exposed to financial liability in the performance of its
duties hereunder.
Section 21. AMENDMENTS. This Agreement may be amended by any instrument in
writing signed by the parties hereto so long as this Agreement as amended is not
inconsistent with the Trust Agreement in effect as of the date of any such
amendment.
Section 22. NOTICES. Unless otherwise specified, any notices, requests,
consents or other communications given or made hereunder or pursuant hereto
shall be made in writing and shall be deemed to have been validly given or made
when delivered or mailed, registered or certified mail, return receipt requested
and postage prepaid, addressed as follows: if to the Trust, to BRAVO Trust
Series 1997-1, c/o The Bank of New York, 101 Barclay Street, New York, New York
10286, Attention: Corporate Trust Administration Asset Backed Finance Unit; if
to the Remarketing Agent, to Lehman Brothers Inc., 3 World Financial Center, New
York, New York 10285, Attention: Commercial Paper Product Management.
Section 23. NO LIABILITY OF THE BANK. The Bank of New York (the "Bank") is
executing this Agreement on behalf of the Trust solely as Trustee under the
Trust Agreement and not in its individual capacity, and in no case whatsoever
shall the Bank be liable for the statements or agreements of the Trust
hereunder, except for liabilities arising out of the Bank's negligence or wilful
misconduct. All persons asserting any claim against the Bank or the Trustee or
the Trust by reason of the transaction contemplated by this Agreement shall look
solely to the Trust Property for payment or satisfaction thereof.
Section 24. NO PETITION COVENANT. Notwithstanding any prior termination of this
Agreement, neither the Trustee nor the Remarketing Agent shall, prior to the
date which is one year and one day after the payment in full of the Class A
Trust Certificates and the termination of this Agreement, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial part of
its property, or making a general assignment for the benefit of creditors, or
ordering the winding up or liquidation of the affairs of the Trust.
13
<PAGE>
IN WITNESS WHEREOF, each of the Trust and Lehman has caused this Agreement
to be executed in its name and on its behalf by one of its duly authorized
officers as of the date first above written.
BRAVO TRUST SERIES 1997-1
By The Bank of New York, not in its
individual capacity, but as Trustee
By: /s/ Cheryl L. Laser
--------------------------------
Name: CHERYL L. LASER
Title: Assistant Vice President
LEHMAN BROTHERS INC.
By: /s/ Kyle L. Miller
--------------------------------
Name: Kyle L. Miller
Title: Senior Vice President
<PAGE>
CALCULATION AGENT AGREEMENT
CALCULATION AGENT AGREEMENT dated as of November 25, 1997 (the
"Agreement"), by and between BRAVO Trust Series 1997-1, a trust established
under the laws of the state of Delaware pursuant to the declaration of trust and
trust agreement dated November 25, 1997 (the "Trust Agreement") with The Bank of
New York, a New York banking corporation, as trustee (the "Trustee"), and Lehman
Brothers Inc. ("Lehman" or the "Calculation Agent"). The Trust will issue
$500,000,000 aggregate amount of trust certificates (the "Trust Certificates")
on the date hereof, which will represent two classes of undivided interests in
the Trust. The Trust Certificates are being offered by means of an Offering
Circular (the "Offering Circular") dated November 25, 1997 and an Offering
Circular Supplement (the "Supplement") dated November 25, 1997. Capitalized
terms used but not defined herein shall have the meanings ascribed to them in
the Trust Agreement, the Offering Circular or the Supplement.
WITNESSETH:
WHEREAS, the Trust desires to appoint Lehman to render certain
services to the Trust as Calculation Agent in the manner and on the terms
hereinafter set forth and Lehman desires to serve as such Calculation Agent for
the Trust:
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, Lehman and the Trust hereby agree as follows:
Section 1. DUTIES OF THE CALCULATION AGENT. The Trust hereby
appoints Lehman to perform the calculation of LIBOR as set forth in the
Supplement and perform such other services as are set forth in the Trust
Agreement. Lehman hereby accepts such appointment and agrees to render such
services and to assume the obligations of the Calculation Agent under the terms
and conditions herein set forth.
Section 2. COMPENSATION OF THE CALCULATION AGENT. The Calculation
Agent shall perform its duties hereunder without compensation (other than any
compensation it may receive for acting as the Initial Purchaser of or as a
Remarketing Agent for the Trust Certificates).
<PAGE>
Section 3. LIMITATION OF LIABILITY OF THE CALCULATION AGENT . The
Calculation Agent shall not be liable in contract, tort or otherwise to the
Trust for any losses, costs or damages arising out of its performance of its
obligations and duties hereunder except for willful misconduct, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of the Calculation Agent's obligations and duties hereunder.
Section 4. INDEMNIFICATION OF THE CALCULATION AGENT. The Trust
shall indemnify and hold harmless Lehman as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of Lehman's performance of
the services and assumption of the obligations of the Calculation
Agent under the terms and conditions herein set forth; and
(2) against any and all expense whatsoever (including the
reasonable fees and disbursements of counsel chosen by Lehman)
reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any of the foregoing, to the extent that any
such expense is not paid under (1) above.
All payments hereunder shall be subordinated to the prior payment
in full of all amounts then due and owing with respect to the Class A Trust
Certificates.
Section 5. TERM OF THIS AGREEMENT. This Agreement, which shall be
a binding agreement as of the date hereof, shall terminate upon the earliest to
occur of (a) the termination of the Trust Agreement, (b) 30 days after the
replacement of Lehman pursuant to Section 9 hereof, or (c) termination of the
Remarketing Agreement between the Trust and Lehman.
Section 6. AMENDMENTS. No amendment or waiver of any provision of
this Agreement nor consent to any departure herefrom by any party hereto shall
in any event be effective unless (i) the Rating Agencies shall have notified the
Market Agent that such amendment or waiver shall not cause the rating of the
Trust Certificates to be reduced, suspended or withdrawn and (ii) the same shall
be in writing and signed by the party against which enforcement of such
amendment or waiver or consent is sought, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
Section 7. NOTICE ADDRESSES. Except as otherwise expressly
provided herein, all notices and other communications provided for hereunder
shall be deemed to have been duly given if sent by facsimile transmission (a) if
to the Calculation Agent, to the number set forth below and (b) if to the
Trustee or to the Trust, as set forth in the Trust Agreement:
2
<PAGE>
If to Lehman: Lehman Brothers Inc.
3 World Financial Center, 12th Flr.
New York, New York 10285
Attention: Commercial Paper Product Management
Facsimile: (212) 528-6925
Telephone confirmation no.: (212) 526-2069
Section 8. ASSIGNMENT. This Agreement may not be assigned by the
Calculation Agent without the prior consent of the Trustee.
Section 9. REPLACEMENT OF LEHMAN. Upon the resignation of Lehman
hereunder, the Trust shall terminate the employment of Lehman as Calculation
Agent hereunder and appoint the Trustee or its designee as successor Calculation
Agent. The Trustee may delegate or subcontract its duties as successor
Calculation Agent hereunder and shall not be responsible to the Trust for any
misconduct or negligence on the part of any such delegate or subcontractor so
long as such delegate or subcontractor was chosen with due care.
Section 10. NO PETITION. Lehman hereby covenants and agrees that
it will not at any time institute against the Trust, or join in any institution
against the Trust of, any bankruptcy proceedings under any United States federal
or state bankruptcy or similar law in connection with any obligations relating
to this Agreement.
Section 11. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in such state (without reference to choice of law doctrine).
Section 12. COUNTERPARTS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Calculation Agent Agreement as of the day and year first above written.
LEHMAN BROTHERS INC.
By: /s/ Kyle L. Miller
-----------------------------
Name: Kyle L. Miller
Title: Senior Vice President
BRAVO TRUST SERIES 1997-1
By: THE BANK OF NEW YORK
not in its individual capacity but
solely as Trustee under the Trust
Agreement
By: /s/ Cheryl L. Laser
-----------------------------
Name: CHERYL L. LASER
Title: Assistant Vice President
<PAGE>
INDEMNITY AGREEMENT
INDEMNITY AGREEMENT, dated as of November 25, 1997 (the "Indemnity
Agreement"), by and between BRAVO Trust Series 1997-1, a Delaware business trust
having its principal office c/o The Bank of New York, 101 Barclay Street, New
York, New York 10286 (the "Trust") and Bayerische Landesbank Girozentrale,
acting through its New York Branch and in its capacity as trust agent for the
Trust ("BLB").
WHEREAS, the Trust proposes to issue BRAVO Trust Series 1997-1 Floating
Rate Class A Trust Certificates (the "Class A Trust Certificates") and BRAVO
Trust Series 1997-1 Class B Trust Certificates (the "Class B Trust
Certificates", and together with the Class A Trust Certificates, the "Trust
Certificates") pursuant to the Trust Agreement under which it was established
(the "Trust Agreement"); and
WHEREAS, BLB is willing to indemnify the Trust for losses, liabilities,
claims, damages and expenses relating to the offer and sale of the Trust
Certificates as set forth herein.
NOW, THEREFORE, for and in consideration of the covenants herein made, the
parties hereto agree as follows:
Section 1. DEFINITIONS. Capitalized terms used and not defined in this
Agreement shall have the meanings assigned to them in the Trust Agreement and/or
the Class A Trust Certificates.
Section 2. REPRESENTATIONS AND WARRANTIES. BLB represents and warrants to
the Trust as of the date hereof, as follows:
(a) DUE ORGANIZATION. BLB is validly existing in good standing under
the laws of the United States of America and has the power and authority to
own its properties and to conduct its business as described in the Offering
Circular and to enter into and perform its obligations under this
Agreement.
(b) AUTHORIZATION OF THIS AGREEMENT. This Agreement has been duly
authorized, executed and delivered by BLB and, assuming due authorization,
execution and delivery by the Trust, constitutes a valid and binding
agreement of BLB, enforceable against BLB in accordance with its terms,
except as (A) the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law),
<PAGE>
and (B) rights of indemnity and contribution under this Agreement may be
limited by United States federal or state securities laws, the laws of
other jurisdictions or the public policy underlying any such laws.
(c) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of BLB,
threatened, against or affecting BLB which might reasonably be expected to
result in a material adverse change in the condition, financial or
otherwise, of BLB (a "Material Adverse Effect"), or which might reasonably
be expected to materially and adversely affect the properties or assets of
BLB or the consummation of this Agreement or the performance by BLB of its
obligations hereunder.
(d) ABSENCE OF FURTHER REGUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by BLB of its obligations
under this Agreement, the Liquidity Agreement or any other agreement or
instrument to which BLB is a party in connection with the issuance and sale
of the Class A Trust Certificates (collectively, the "Transaction
Documents").
(e) OFFERING CIRCULAR. The Offering Circular does not, and as the
same may be from time to time amended or supplemented for use in connection
with the transactions contemplated by the Purchase Agreement and the
Remarketing Agreement will not, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering
Circular or amendment thereof or supplement thereto made in reliance upon
and in conformity with information furnished to BLB in writing by the
Remarketing Agent expressly for use therein.
Section 3. COVENANTS. BLB covenants with the Trust as follows:
(a) OFFERING CIRCULAR. BLB shall be responsible for preparing the Offering
Circular. If at any time, any event shall occur or condition shall exist as a
result of which it is necessary under the Securities Act of 1933, as amended
(the "1933 Act") or the Securities Exchange Act of 1934, as amended (the "1934
Act"), in the opinion of counsel for BLB, to amend or supplement the Offering
Circular, BLB will promptly prepare and furnish, or cause to be promptly
prepared and furnished, to the Trust such number of copies of such amendment or
supplement as the Trust may reasonably request.
2
<PAGE>
(b) AMENDMENT TO OFFERING CIRCULAR AND SUPPLEMENTS. BLB will advise the
Trust promptly of any proposal to amend or supplement the Offering Circular and
will not effect such amendment or supplement without the consent of the Trust
(which consent shall not be unreasonably withheld). Neither the consent of the
Trust, nor the Trust's delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth herein.
(C) RULE 144A INFORMATION. SO long as any of the Class A Trust
Certificates remain outstanding, BLB will make available, upon request, to any
Holder or prospective purchasers of Class A Trust Certificates the information
specified in Rule 144A(d)(4).
Section 4. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION. BLB shall indemnify and hold harmless the Trust and
each person, if any, who controls the Trust within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Circular (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue or incorrect
representation or warranty of BLB contained herein or any Transaction
Documents;
(3) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or any such untrue or incorrect
representation or warranty; provided that any such settlement is effected
with the written consent of BLB;
(4) against any and all loss, liability, claim, damage and expense
whatsoever as incurred or claimed against the Trust in respect of the
Trust's obligation to indemnify Lehman Brothers Inc., The Bank of New York
and their respective officers, directors and controlling persons pursuant
to the terms of agreements entered into by the Trust and referred to or
contemplated in the Trust Agreement; and
3
<PAGE>
(5) against any and all expense whatsoever, as incurred (including
the reasonable fees and disbursements of counsel chosen by the Trust)
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, any such alleged untrue statement or
omission or any such untrue or incorrect representation or warranty, to the
extent that any such expense is not paid under (1) (2), (3) or (4) above.
It is understood and agreed by the parties hereto that claims for
indemnification payments arising under this Section 4 may be satisfied through
the withholding by the Trust of amounts that would otherwise be distributable to
BLB in its capacity as holder of the Class B Trust Certificates and BLB hereby
authorizes the Trust, acting directly or through any duly authorized agent, to
withhold, segregate and disburse to or for the account of the Trust such Class B
Trust Certificate distribution amounts. The Trust is further authorized by BLB
to delay or defer any distribution to BLB in its capacity as Class B Trust
Certificate holder pending the final disposition of any action respecting which
the Trust has given notice as provided in Section 4(b) hereof. Upon receipt of
any such notice from the Trust, BLB covenants that it will retain unencumbered
ownership of all Class B Trust Certificates then held by it, any of its
affiliates or nominees. BLB shall thereafter be entitled to sell, transfer or
otherwise dispose of Class B Trust Certificates upon providing to the Trust
appropriate security for the fulfillment of its obligations under this
Agreement. To the extent that funds withheld by the Trust from amounts otherwise
distributable to BLB as holder of the Class B Trust Certificates as hereinabove
provided shall not be sufficient to pay amounts due under this Section 4, BLB
shall make such payments directly to the Trust upon its request.
(b) ACTIONS AGAINST INDEMNIFIED PARTIES; NOTIFICATION. Each indemnified
party shall give notice as promptly as reasonably practicable to BLB of any
action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify BLB shall not relieve BLB from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of This Agreement. Counsel to the indemnified parties shall be
selected by the Trust. BLB may participate at its own expense in the defense of
any such action; provided, however, that counsel to BLB shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall BLB be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from its own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. BLB shall not, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement,
4
<PAGE>
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(c) CONTRIBUTION. If the indemnification provided for in this Section 4 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then BLB shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by the Trust, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by BLB on the one hand and the Trust on the other hand from
the offering of the Trust Certificates or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of BLB on the one hand and of the Trust on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative fault of BLB on the one hand and the Trust on the other hand
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied BLB and/or other third
parties, on the one hand, or by the Trust, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
BLB and the Trust agree that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
considerations referred to above in this Section 4. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 4 shall be deemed to include any
legal or other expenses reasonably incurred by the Trust in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission.
Section 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement,
including, without limitation, the agreements contained in Section 4 hereof,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Trust or controlling person, or by or
on behalf of BLB, and shall survive delivery of the Trust Certificates and the
termination or expiration of the Transaction Documents.
5
<PAGE>
Section 6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed in such state.
Section 7. HEADINGS. Section headings have been inserted in this Agreement
as a matter of convenience of reference only, and it is agreed that such section
headings are not a part of this Agreement and will not be used in the
interpretation of any provisions of this Agreement.
Section 8. SEVERABILITY. If any provision of this Agreement shall be held
or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as
applied in any particular case in any or all jurisdictions because it conflicts
with any provisions of any constitution, statute, rule or public policy or for
any other reason, such circumstances shall not have the effect of rendering the
provision in question invalid, inoperative or unenforceable in any other case,
circumstance or jurisdiction, or of rendering any other provision or provisions
of this Agreement invalid, inoperative or unenforceable to any extent
whatsoever.
Section 9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be regarded as an original and all of which
shall constitute one and the same document.
Section 10. AMENDMENTS. This Agreement may be amended by an instrument in
writing signed by the parties hereto and consented to by Lehman Brothers Inc.;
provided, however, this Agreement, as amended, is not inconsistent with the
Trust Agreement in effect as of the date of any such amendment; and further
provided that no such amendment shall adversely affect the rights of any of the
third parties referred to in Section 4(a)(4) hereof without the prior written
consent of such third party.
Section 11. NOTICES. Unless otherwise specified, any notices, requests,
consents or other communications given or made hereunder or pursuant hereto
shall be made in writing and shall be deemed to have been validly given or made
when delivered or mailed, registered or certified mail, return receipt requested
and postage prepaid, addressed as follows: if to the Trust, to BRAVO Trust
Series 1997-1, c/o The Bank of New York, 101 Barclay Street, New York, New York
10286, Attention: Corporate Trust Administration Asset Backed Finance Unit; if
to BLB, to Bayerische Landesbank, 560 Lexington Avenue, New York, New York
10022, Attention: General Counsel.
Section 12. NO PETITION COVENANT. Notwithstanding any prior termination of
this Agreement, neither the Trustee nor BLB shall, prior to the date which is
one year and one day after the payment in full of the Class A Trust Certificates
and the termination of this Agreement, acquiesce, petition or otherwise invoke
or cause the Trust to invoke the process of any court or governmental authority
for the purpose of commencing or sustaining a case against the Trust under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
6
<PAGE>
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Trust or any substantial part of its property, or making a general
assignment for the benefit of creditors, or ordering the winding up or
liquidation of the affairs of the Trust.
7
<PAGE>
IN WITNESS WHEREOF, each of the Trust and BLB has caused this Agreement to
be executed in its name and on its behalf by one of its duly authorized officers
as of the date first above written.
BRAVO TRUST SERIES 1997-1
By The Bank of New York, not in its
individual capacity, but as Trustee
By: /s/ Cheryl L. Laser
--------------------------------
Name: CHERYL L. LASER
Title: Assistant Vice President
BAYERISCHE LANDESBANK GIROZENTRALE,
ACTING THROUGH ITS NEW YORK BRANCH
By: /s/ Bert von Stuelpnagel
--------------------------------
Bert von Stuelpnagel
Executive Vice President
and Manager
By: /s/ Ron Bertolini
--------------------------------
Ron Bertolini
First Vice President and
Treasury Manager
<PAGE>
$500,000,000
INSTALLMENT FACE-AMOUNT CERTIFICATE AGREEMENT
This is an INSTALLMENT FACE-AMOUNT CERTIFICATE AGREEMENT (as
amended, supplemented or otherwise modified and in effect from time to time,
this "AGREEMENT") in the principal amount of $500,000,000 made as of the 15th
day of September, 1998, by and among (i) 212 CERTIFICATE COMPANY, a Delaware
corporation (the "ISSUER"); (ii) PARK AVENUE RECEIVABLES CORPORATION, a
Delaware corporation ("PARCO" or the "PURCHASER"); and (iii) THE CHASE
MANHATTAN BANK, a New York banking corporation ("CHASE"), as funding agent (in
such capacity, the "FUNDING AGENT") for the benefit of PARCO and any
financial institutions which are currently or in the future become a party to
the Asset Purchase Agreement (as defined in Annex X attached hereto)
(each, an "APA BANK" and, when applicable, together with PARCO, the
"CERTIFICATEHOLDERS").
WHEREAS, the Issuer desires to sell from time to time interests in
an installment face-amount certificate in substantially the form of Exhibit A
hereto (as amended, supplemented or otherwise modified and in effect from
time to time, the "FACE-AMOUNT CERTIFICATE") to the Purchaser, acting through
the Funding Agent, and place the periodic proceeds of such sale (the "SALE
PROCEEDS") into the Custodial Account held with Chase, as custodian (in such
capacity, the "CUSTODIAN"); and
WHEREAS, the Issuer and the Purchaser desire that such Sale Proceeds
be maintained as security for the Face-Amount Certificate and invested in a
pool of fixed-income securities (the "PORTFOLIO") which will be actively
managed pursuant to that certain Investment Management Agreement of even date
herewith by and among the Issuer, the Funding Agent and Integrity Capital
Advisors, Inc., as the portfolio advisor thereunder (in such capacity, the
"PORTFOLIO MANAGER") (as the same may be amended, restated, supplemented or
otherwise modified and in effect from time to time, the "INVESTMENT
MANAGEMENT AGREEMENT"); and
WHEREAS, the Purchaser desires to pay for its purchase of the
Face-Amount Certificate through the issuance of its Commercial Paper, and the
Funding Agent, acting on behalf of and for the benefit of the
Certificateholders, desires to hold the Face-Amount Certificate and perform
the administrative functions set forth herein and in the other Transaction
Documents;
<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the receipt and sufficiency of which are hereby acknowledged,
and intending to be legally bound hereby, the parties hereto hereby agree as
follows:
1. INSTALLMENT PURCHASES. On the Closing Date, the Purchaser,
subject to the conditions set forth below, will at its option purchase an
initial amount of the principal of the Face-Amount Certificate (the "INITIAL
PURCHASE") and may thereafter, prior to a PARCO Wind-Down Event and in its
sole discretion (subject to the conditions contained elsewhere herein), make
additional installment purchases (the Initial Purchase and any subsequent
installment purchases are hereinafter each referred to as an "INSTALLMENT
PURCHASE") from time to time up to a total principal amount of $500,000,000.
When provided for pursuant to the Transaction Documents, the parties hereto
agree to take all necessary steps to obligate the APA Banks to purchase the
then outstanding amount of the Face-Amount Certificate pursuant to the terms
of the Asset Purchase Agreement.
2. CONDITIONS PRECEDENT TO EACH INSTALLMENT PURCHASE. The Initial
Purchase and any subsequent Installment Purchases hereunder shall be subject
to satisfaction of the conditions precedent contained in Exhibits B and G
attached hereto and hereby incorporated herein by reference thereto (each as
applicable to any given Installment Purchase).
3. INSTALLMENT PURCHASE PAYMENTS. Proceeds of Installment Purchases
shall be made in immediately available U.S. funds by wire transfer to the
Custodian for credit to the Custodial Account pursuant to wire transfer
instructions to be provided to the Funding Agent by the Issuer.
4. CERTIFICATE YIELD. During all times that any portion of the
Invested Amount is outstanding under the Face-Amount Certificate, the Issuer
shall pay, with respect to each Settlement Period (or portion thereof), an
amount equal to the sum of (a) and (b) (the "CERTIFICATE YIELD"), where (a) is
equal to the applicable Earned Yield (as defined below) with respect to such
Settlement Period (or portion thereof), and where (b) is equal to the product
of (x) the applicable Program Fee payable by the Issuer pursuant to the
Program Fee Letter with respect to such Settlement Period (or portion
thereof) MULTIPLIED BY (y) $500,000,000 until the Invested Amount equals
$500,000,000 and thereafter the Invested Amount.
2
<PAGE>
5. DEFINITIONS. For purposes of this Agreement and any exhibits and
schedules hereto, the following terms shall have the meanings set forth below:
"CP RATE" means, with respect to any CP Tranche Period, the rate
equivalent to the rate (or if more than one rate, the weighted average of the
rates) at which Commercial Paper having a term equal to such CP Tranche
Period and issued for the purpose of funding the Face-Amount Certificate is
sold by any placement agent or commercial paper dealer selected by the
Purchaser; PROVIDED, HOWEVER, that if the rate (or rates) as agreed between
any such agent or dealer and the Purchaser is a discount rate, then the rate
(or if more than one rate, the weighted average of the rates) resulting from
the Purchaser's converting such discount rate (or rates) to an
interest-bearing equivalent rate per annum.
"CP TRANCHE PERIOD" means, prior to a PARCO Wind-Down Event, a
period of days not to exceed 120 days commencing on a Business Day requested
by the Issuer and agreed to by the Purchaser; PROVIDED that if a CP Tranche
Period would end on a day which is not a Business Day, such CP Tranche Period
shall end on the next succeeding Business Day.
"EARNED YIELD" means, with respect to any Settlement Period (or
portion thereof), the sum of:
(i) prior to a PARCO Wind-Down Event, with respect to any portion
of the Invested Amount held on the books and records of the Funding
Agent by the Purchaser and funded through sales of Commercial Paper from
time to time, the product of (x) the applicable average daily outstanding
Invested Amount during such Settlement Period (or portion thereof),
MULTIPLIED BY (y) the CP Rate; and
(ii) following a PARCO Wind-Down Event, with respect to any portion
of the Invested Amount held on the books and records of the Funding Agent
by the APA Banks as a result of sales of interests in any Invested Amount
by the Purchaser to the APA Banks under the Asset Purchase Agreement from
time to time, the product of (x) the applicable average daily outstanding
Invested Amount during such Settlement Period (or portion thereof),
MULTIPLIED BY (y) a rate as reasonably selected and determined by the
Funding Agent which, acting in good faith, reflects the basis for
maintaining the APA Banks' interest in the Invested Amount which is equal
to either (a) the Euro-
3
<PAGE>
dollar Rate or (b) the Base Rate (PROVIDED that the Certificateholders
shall use their reasonable good faith efforts to ensure that such funding
is at the Eurodollar Rate); PLUS
(iii) any and all applicable Dealer Fees (such fees not to exceed
0.05% per annum on such Invested Amount for such Settlement Period (or
portion thereof)).
PROVIDED, HOWEVER, that notwithstanding the foregoing, upon the occurrence of
a Liquidation Event, the Earned Yield payable with respect to clauses (i) and
(ii) above shall thereafter be calculated based on an applicable interest
rate equal to the Base Rate PLUS 2.00% per annum. The Funding Agent shall
promptly inform the Issuer of the rate used to calculate the Earned Yield
payable on the Invested Amount upon its determination thereof. Earned Yield
shall be calculated on the basis of the actual number of days elapsed in a
year of 365 or 366 days, as applicable (in the case of the CP Rate or the
Base Rate), or a year of 360 days (in the case of the Eurodollar Rate).
"EURODOLLAR RATE" means, with respect to any Eurodollar Tranche
Period, a rate which is 0.50% (or, following a PARCO Wind-Down Event
specified in clause (c) or (d) of the definition thereof, 0.25%) in excess of
a rate per annum equal to the sum (rounded upwards, if necessary, to the next
higher 1/100 of 1%) of (A) the rate obtained by dividing (i) the applicable
LIBOR Rate by (ii) a percentage equal to 100% MINUS the reserve percentage
used for determining the maximum reserve requirement as specified in
Regulation D of the Board of Governors of the Federal Reserve System
(including, without limitation, any marginal, emergency, supplemental,
special or other reserves) that is applicable to the Funding Agent during
such Eurodollar Tranche Period in respect of eurocurrency or eurodollar
funding, lending or liabilities (or, if more than one percentage shall be so
applicable, the daily average of such percentage for those days in such
Eurodollar Tranche Period during which any such percentage shall be applicable)
PLUS (B) the then daily net annual assessment rate (rounded upwards, if
necessary, to the nearest 1/100 of 1%) as estimated by the Funding Agent for
determining the current annual assessment payable by the Funding Agent to the
Federal Deposit Insurance Corporation in respect of eurocurrency or
eurodollar funding, lending or liabilities.
"EURODOLLAR TRANCHE PERIOD" means, with respect to any funding of the
Invested Amount at a Eurodollar Rate, prior to the Termination Date, a period
of up to one (1) month requested by the Issuer and agreed to by the Funding
Agent commencing on a Business Day requested by the Issuer and agreed to by
the Funding
4
<PAGE>
Agent; PROVIDED, HOWEVER, that if such Eurodollar Tranche Period would expire
on a day which is not a Business Day, such Eurodollar Tranche Period shall
expire on the next succeeding Business Day; PROVIDED, FURTHER, that if such
Eurodollar Tranche Period would expire on (a) a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Eurodollar Tranche Period shall expire on the next preceding
Business Day or (b) a Business Day for which there is no numerically
corresponding day in the applicable subsequent calendar month, such
Eurodollar Tranche Period shall expire on the last Business Day of such month.
Each capitalized term used but not defined herein shall have the
meaning given to such term in Annex X attached hereto, which Annex X is
hereby incorporated by reference herein.
6. CALCULATION OF CERTIFICATE YIELD. The Certificate Yield shall be due
and payable in arrears on each Settlement Date. The Certificate Yield
applicable to any Settlement Period hereunder shall be determined in good
faith by the Funding Agent as to such Settlement Period and promptly conveyed
in writing to the Issuer at least five (5) Business Days prior to the
applicable Settlement Date when such amounts are required to be paid.
7. PAYMENT OF CERTIFICATE YIELD. While any Invested Amount is
outstanding under the Face-Amount Certificate, the Issuer shall make periodic
payments of the Certificate Yield to the Funding Agent, for the benefit of
the Certificateholders, in arrears on each Settlement Date. The Issuer shall
pay, or shall cause the Portfolio Manager or the Custodian to pay, the
Certificate Yield to the Funding Agent in accordance with the priority of
payments set forth in the Investment Management Agreement in immediately
available funds by wire transfer to the Funding Agent pursuant to wire
transfer instructions to be provided to the Issuer by the Funding Agent.
The Issuer's obligation to make any specific payments of Certificate Yield
shall cease as to such payment upon the Issuer's receipt of wire transfer
validation from the Funding Agent and the Funding Agent shall be solely
responsible for ensuring that the proper parties receive the appropriate
portion of each payment of Certificate Yield made hereunder.
8. STATED MATURITY. Except as provided otherwise in Section 9, the
Face-Amount Certificate and all other amounts due hereunder and under the
other Transaction Documents will be due and payable in full on the earliest
to occur of (i) the date three (3) years from the Closing Date, as such date
may be extended from
5
<PAGE>
time to time in accordance with the terms of this Agreement, (ii) the 270th
day following the Scheduled Liquidity Termination Date and (iii) the 270th
day following the commencement of the Amortization Period (or, if any such
day is not a Business Day, the next succeeding Business Day (the "MATURITY
DATE")).
9. EARLY REDEMPTION. The Face-Amount Certificate may be redeemed prior
to its stated maturity as follows:
(a) Following the occurence of an Amortization Event, the Funding
Agent, on behalf of the Certificateholders, may, by written notice to the
Issuer, declare the Amortization Period to begin; PROVIDED, HOWEVER, that in
the case of any event described in clauses (viii), (ix) and (x) of the
definition of "Amortization Event", then, automatically upon the occurrence
of such event without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Issuer, anything
contained herein or in the Face-Amount Certificate to the contrary
notwithstanding, the Invested Amount and any other amounts payable hereunder
shall be immediately due and payable and an Amortization Event shall be
deemed to have occured automatically and the Amortization Period shall begin.
During the Amortization Period, (i) if no Liquidation Event has occurred, the
Pledged Collateral shall be liquidated in an orderly manner designed to
maximize the value of the Portfolio during the Amortization Period upon the
request of the Funding Agent (in consultation with the Portfolio Manager) and
(ii) all Cashflow shall be paid to the Funding Agent on each Settlement Date,
or each Business Day, if the Funding Agent so elects, to reduce the Invested
Amount in accordance with the payment priorities set forth in the Investment
Management Agreement until such Invested Amount and the other obligations
hereunder are reduced to zero. No Installment Purchases shall be made during
the Amortization Period.
Upon the occurrence of a Liquidation Event, the Funding Agent, for
the benefit of the Certificateholders, shall have (i) all of the rights and
remedies afforded to the Funding Agent under the Pledge Agreement, as well as
all of the rights and remedies of a secured creditor under applicable law
(including the rights and remedies set forth in Section 4 of the Pledge
Agreement) and (ii) may, at the direction of the Certificateholders, replace
the Portfolio Manager.
(b) The Issuer may redeem part or all of the Face-Amount Certificate
at any time for an amount equal to the Redemption Price upon two (2) Business
Days' prior written notice to the Funding Agent stating the portion of the
Invested Amount to be redeemed (the "PARTIAL AMORTIZATION NOTICE").
6
<PAGE>
10. MAINTENANCE OF RESERVES AND DEPOSITS OF ASSESTS. The Issuer shall
deposit the Sale Proceeds in the Custodial Account and shall, at all times
that any portion of the Face-Amount Certificate is outstanding unless
otherwise provided in any Transaction Document, deposit and maintain such
Sales Proceeds in the Custodial Account as collateral securing its
obligations under the Face-Amount Certificate and Transaction Documents
(unless otherwise applied in the payment of any applicable fees or expenses
required or permitted under this Agreement or any of the Transaction Documents
including, without limitation, any payments required or permitted under the
Swap Agreement).
11. SECURITY INTEREST. The obligations of the Issuer to pay the
Certificate Yield, and to repay the Invested Amount and such other amounts
payable hereunder shall be secured by a security interest in the Portfolio
assets pursuant to the Pledge Agreement.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Issuer hereby makes
the representations, warranties and affirmative and negative covenants
contained in Exhibit C attached hereto and incorporated herein by reference
thereto.
13. INDEMNIFICATION. The Issuer hereby agrees to indemnify and make
payments to the Funding Agent and the Certificateholders to the extent set
forth in Exhibit D attached hereto and incorporated herein by reference
thereto.
14. MISCELLANEOUS.
(a) ASSIGNMENT.
(i) Subject to the terms of this Section 14(a), the Issuer
hereby agrees and consents to the complete or partial assignment by the
Purchaser of all of its rights under, interest in, title to and obligations
under this Agreement to the APA Banks pursuant to the Asset Purchase
Agreement or to any other person or entity with short-term ratings of at
least A-1 by Standard & Poor's and P-1 by Moody's and upon such assignment,
the Purchaser shall be released from its obligations so assigned.
Notwithstanding the foregoing, any such assignment shall not be effective
unless and until the assignee agrees in writing to be bound by all of the
terms and conditions of the Agreement. Further, the Issuer hererby agrees
that any assignee of the Purchaser of this Agreement or all or any portion of
its rights under the Face-Amount Certificate held by the Purchaser shall have
all of the rights and
7
<PAGE>
benefits under this Agreement as if the term "the Purchaser" explicitly
referred to such party, and no such assignment shall in any way impair the
rights and benefits of the Purchaser hereunder. The Issuer shall not have the
right to assign its rights or obligations under this Agreement. The Funding
Agent may assign its rights and obligations under this Agreement and the
other Transaction Documents as permitted by the Certificateholders from time
to time; PROVIDED the Issuer will not be required to pay any additional costs
as a result thereof.
(ii) No Certificateholder, or assignee of any
Certificateholder, may sell, transfer or otherwise dispose of (each, a
"SALE") any interest in the Face-Amount Certificate unless:
(x) such Sale is to a person or entity that such transferor
reasonably believes is a "Qualified Institutional Buyer" (as such term
is defined in Rule 144A) that purchases for its own account or for the
account of another person or entity that is a Qualified Institutional
Buyer in a transaction that complies with Rule 144A, which person or
entity is aware that the proposed Sale is being made in reliance
on Rule 144A and to whom such Sale is being made pursuant to an
available exemption from the registration requirements of applicable
state securities laws and in each case in accordance with all applicable
securities and "Blue Sky" laws of the States of the United States of
America, and, prior to the proposed Sale, such transferor has
delivered to the Issuer (1) an investor letter executed by the
transferee, substantially in the form of Exhibit E-1 hereto and (2) a
letter executed by such transferring Certificateholder substantially in
the form of Exhibit E-2 hereto (collectively, the "RULE 144A LETTERS"),
or
(y) the transferee to whom such Sale is being made is a
sophisticated institutional investor that is an Accredited Investor in a
transaction exempt from the registration requirements of the Securities
Act, and to whom such Sale is being made pursuant to an available
exemption from the registration requirements of applicable state
securities laws and in each case in accordance with all applicable
securities and "Blue Sky" laws of the States of the United States of
America, and, prior to the proposed Sale, such transferor has delivered
to the Issuer and the Funding Agent an investor letter executed by the
8
<PAGE>
transferee, substantially in the form of Exhibit F hereto (a "NON-RULE 144A
LETTER").
The Face-Amount Certificate shall not be offered for sale, sold or delivered,
directly or indirectly, nor shall any circular, prospectus, form of
application, or other offering material or general advertisement relating to
the Face-Amount Certificate be distributed or published in or from any
country or jurisdiction, except under circumstances that will result in
compliance with all applicable laws and regulations of any such country or
jurisdiction and the terms and restrictions contained herein. Without
limiting the foregoing in any manner, neither the Funding Agent, any
Certificateholder, any assignee of any Certificateholder or other person or
entity acting on behalf of any of them shall use any means of general
solicitation or distribution or general advertising in connection with the
Sale of any interest in the Face-Amount Certificate. The Face-Amount
Certificate shall bear a legend substantially as set forth in the form of the
Face-Amount Certificate attached to this Agreement as Exhibit A. Each
Certificateholder will be deemed to have acknowledged and agreed that (x) the
Face-Amount Certificate has not been and will not be registered under the
Securities Act and no interest therein may be sold, transferred or otherwise
disposed of except as permitted in this Section 14(a)(ii), and (y) such
Certificateholder will notify any purchaser, pledgee or other transferee of
the Face-Amount Certificate, or interest therein, from such Certificateholder
of the transfer restrictions referred to in this Section 14(a)(ii).
(b) GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
(c) NOTICE. All notices, statements or requests provided for hereunder
shall be deemed to have been duly given when delivered by hand to an 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:
(i) IF TO ISSUER:
212 CERTIFICATE COMPANY
515 West Market Street, 8th Floor
Louisville, KY 40202
Attention: Robert L. Maddox, President
9
<PAGE>
Telephone: (502) 540-2014
Facsimile: (502) 582-7903
(ii) IF TO THE PURCHASER:
PARK AVENUE RECEIVABLES CORPORATION
c/o Global Securitization Services, LLC
25 West 43rd Street, Suite 704
New York, New York 10036
Attention: President
Telephone: (212) 302-5151
Facsimile: (212) 302-8767
Facsimile: (312) 732-4487
(with a copy to the Funding Agent)
(ii) IF TO THE FUNDING AGENT OR THE APA BANKS:
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
or to such other persons or places as each party may from time to time designate
by written notice sent as aforesaid.
(d) [RESERVED]
(e) ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents, together with such amendments as may from time to time be
executed in writing by the parties hereto or thereto, constitutes the entire
agreement and understanding between the parties in respect to the
transactions contemplated hereby and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof.
10
<PAGE>
(f) 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 any party under this Agreement will not be materially
and adversely affected thereby, (i) such provision will be fully severable;
(ii) this Agreement will be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part hereof; and (iii) 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.
(g) SECTION HEADINGS. Section headings contained herein are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(h) COUNTERPARTS. This Agreement may be executed in seperate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(i) CONFIDENTIALITY.
(i) Each party and its affiliates shall not use for their own benefit
and shall maintain and shall cause each of its employees and officers to
maintain the confidentiality of this Agreement and the other confidential
proprietary information ("CONFIDENTIAL INFORMATION") with respect to the other
party hereto and their respective businesses obtained by it or them in
connection with the structuring, negotiating and execution of the transactions
contemplated herein, except that each party and its officers and employees may
disclose such information to the Issuer's external accountants and attorneys and
as required by any applicable law or order of any judicial or administrative
proceeding. Such Confidential Information shall specifically include any
investment types/strategies or specific portfolio investments utilized by the
Issuer and any of its affiliates and/or ARM Capital. In addition, each Party 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).
(ii) In connection with the transactions contemplated by this
Agreement each of the undersigned hereby agrees that the Issuer is entitled
to publicize the transaction evidenced by this Agreement and to publish or
release to the media an announcement of the transactions contemplated hereby;
PROVIDED, HOWEVER, no such publicity material, in the form of an
announcement, release or other items,
11
<PAGE>
shall disclose the name of Chase, PARCO or any APA Bank or the terms of the
transaction unless the Funding Agent shall have consented in writing to the copy
for any such material prior to any publication or release thereof.
(iii) Anything herein to the contrary notwithstanding, the Issuer
hereby consents to the disclosure of any Confidential Information with respect
to it (x) to the Funding Agent and the Certificateholders by each other, (y) by
the Funding Agent and the Certificateholders to any prospective or actual
assignee or participant of any of them or (z) by the Funding Agent or the
Purchaser 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 Chase 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 and agrees not
to make any further disclosure of any such information. 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 this Agreement, the
Transaction Documents or such other documents following an Amortization Event or
Liquidation Event.
(j) BANKRUPTCY PETITION.
(i) The Issuer, the Funding Agent and each Certificateholder
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 Funding Agent and each Certificateholder hereby
covenants and agrees that, prior to the date which is one year and one day after
the payment in full of the Issuer's obligations hereunder and under the
Face-Amount
12
<PAGE>
Certificate and the other Transaction Documents, 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.
(k) WAIVERS AND AMENDMENTS.
(i) No failure or delay on the part of any party hereto in
exercising any power, right or remedy under this Agreement or any other
Transaction Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or remedy preclude any other
further exercise thereof or the exercise of any other power, right or remedy.
The rights and remedies herein provided and provided in each of the other
Transaction Documents shall be cumulative and nonexclusive of any rights or
remedies provided by law. Any waiver of this Agreement shall be effective
only in the specific instance and for the specific purpose for which given.
(ii) No provision of this Agreement may be amended, supplemented,
modified or waived except in writing signed by the parties hereto. The other
Transaction Documents may only be amended, supplemented, modified or waived
by a signed writing executed by the parties thereto in accordance with their
respective terms.
(l) 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 on the Pledged Collateral or any other security for the
obligations hereunder, or to enforce a judgment in favor of the Funding Agent or
the Certificateholders.
13
<PAGE>
(m) 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.
(n) SERVICE OF PROCESS. The Issuer hereby appoints 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.
(o) LIMITED RECOURSE. Notwithstanding anything to the contrary
contained herein, the obligations of the Purchaser under this Agreement are
solely the corporate obligations of the Purchaser and, in the case of
obligations of the Purchaser other than Commercial Paper, shall be payable at
such time as funds are actually received by, or are available to, the Purchaser
in excess of funds necessary to pay in full all outstanding Commercial Paper
and, to the extent funds are not available to pay such obligations, the claims
relating thereto shall not constitute a claim against the Purchaser but shall
continue to accrue. Each party hereto agrees that the payment of any claim (as
defined in Section 101 of Title 11 of the Bankruptcy Code) of any such party
shall be subordinated to the payment in full of all Commercial Paper.
No recourse under any obligation, covenant or agreement of any
party to this Agreement contained in this Agreement shall be had against any
incorporator, stockholder, officer, director, member, manager, employee or
agent of any such party, or any of their Affiliates (solely by virtue of such
capacity) by the enforcement of any assessment or by any legal or equitable
proceeding, by virtue of any statute or otherwise; it being expressly agreed
and understood that this Agreement is solely a corporate obligation of each
party hereto, and that no personal liability whatever shall attach to or be
incurred by any incorporator, stockholder, officer, director, member,
manager, employee or agent of any party hereto or any of their Affiliates
(solely by virtue of such capacity) or any of them under or by reason of any
of the obligations, covenants or agreements of any party hereto contained in
this Agreement, or implied therefrom, and that any and all personal liability
for breaches by
14
<PAGE>
any of them of any of such obligations, covenants or agreements, either at
common law or at equity, or by statute, rule or regulation, of every such
incorporator, stockholder, officer, director, member, manager, employee or
agent is hereby expressly waived as a condition of and in consideration for
the execution of this Agreement; PROVIDED that the foregoing shall not
relieve any such Person from any liability it might otherwise have as a
result of fraudulent actions taken or fraudulent omissions made by them.
(p) 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 (the "CHASE ROLES"). Each of the parties hereto hereby acknowledges and
consents to any and all Chase Roles (other than an actual conflict of
interest arising from Chase's activities as Custodian which has a material
adverse effect on the Issuer), 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, Chase may take, or refrain from taking, any action which it
in its discretion deems appropriate.
(ii) Notwithstanding any provision of this Agreement: (i) the
parties to this Agreement shall not have any obligations under this Agreement
other than those specifically set forth herein, and no implied obligations of
any party hereto shall be read into this Agreement; and (ii) in no event
shall any party hereto be liable under or in connection with this Agreement
for indirect, special, or consequential losses or damages of any kind,
including lost profits, even if advised of the possibility thereof and
regardless of the form of action by which such losses or damages may be
claimed. No party to this Agreement, nor any of its directors, officers,
agents or employees, shall be liable for any action taken or omitted to be
taken in good faith by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limiting the foregoing, the Funding Agent (a) may consult with legal counsel
(including counsel for the Certificateholders), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts, (b) shall not be
responsible to the Certificateholders, the Issuer, the Custodian or the
Portfolio Manager for any statements, warranties or representations made in
or in connection with this Agreement or the other Transaction Documents
(except with respect to
15
<PAGE>
itself), (c) shall not be responsible to the Certificateholders, the Issuer or
the Portfolio Manager for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or the other Transaction
Documents (except with respect to itself), (d) shall incur no liability under or
in respect of any of the Purchaser's obligations under this Agreement or the
other Transaction Documents and (e) shall incur no liability under or in respect
of this Agreement or the other Transaction Documents by acting upon any notice
(including notice by telephone), consent, certificate or other instrument or
writing (which may be by facsimile) 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.
(q) TAX TREATMENT. The Issuer has entered into this Agreement, and
the Face-Amount Certificate has been (or will be) issued to and acquired by the
Funding Agent for the benefit of the Certificateholders, with the intention
that, for federal, state, foreign and local income and franchise tax purposes,
the Face-Amount Certificate will be indebtedness of the Issuer secured by the
Pledged Collateral. The Issuer, by entering into this Agreement, and the Funding
Agent and each Certificateholder, by the acceptance of its interest in
Certificate, agree to treat the Face-Amount Certificate for purposes of federal,
state and local income and franchise taxes and for any other tax imposed on or
measured by income as indebtedness of the Issuer. In accordance with the
foregoing, the Issuer agrees that it will report its income for such federal,
state, foreign and local income or franchise taxes, or for purposes of any other
taxes on or measured by income, on the basis that it is the owner of the
Portfolio.
16
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Installment Face-Amount
Certificate Agreement to be executed by their respective officers duly
authorized so to do as of the date and year first above written.
212 CERTIFICATE COMPANY, as Issuer
By: /s/ Robert L. Maddox
--------------------------------
Name: Robert L. Maddox
Title: President
PARK AVENUE RECEIVABLES
CORPORATION, as Purchaser
By: /s/ Andrew L. Stidd
--------------------------------
Name: Andrew L. Stidd
Title: President
THE CHASE MANHATTAN BANK, as
Funding Agent
By: /s/ Andrew Taylor
--------------------------------
Name: Andrew Taylor
Title: Vice President
THE CHASE MANHATTAN BANK, as
APA Bank
By: /s/ Bradley S. Schwartz
--------------------------------
Name: Bradley S. Schwartz
Title: Vice President
Accepted and agreed as of the
date first above written:
INTEGRITY CAPITAL ADVISORS, INC.,
as Portfolio Manager
By: /s/ Barry G. Ward
----------------------------------
Name:
Title: Controller
17
<PAGE>
Exhibit A
FORM OF INSTALLMENT FACE-AMOUNT CERTIFICATE
THIS INSTALLMENT FACE-AMOUNT CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "'33 ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA (THE "BLUE SKY
LAWS"). THE HOLDER HEREOF, BY PURCHASING THIS INSTALLMENT FACE-AMOUNT
CERTIFICATE OR ANY INTEREST HEREIN (THE "INTEREST"), REPRESENTS THAT IT IS AN
"ACCREDITED INVESTOR" AS THAT TERM IS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE '33 ACT AND AGREES THAT SUCH INTEREST WILL ONLY BE OFFERED, RESOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE '33 ACT,
THE APPLICABLE BLUE SKY LAWS AND THE RESTRICTIONS SET FORTH IN THE FACE-AMOUNT
CERTIFICATE AGREEMENT. THIS FACE-AMOUNT CERTIFICATE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
THIS INSTALLMENT FACE-AMOUNT CERTIFICATE IS SUBJECT TO PREPAYMENT AND/OR
REDEMPTION PRIOR TO ITS STATED MATURITY AS SET FORTH IN THE FACE-AMOUNT
CERTIFICATE AGREEMENT.
212 Certificate Company
$500,000,000 Installment Face-Amount Certificate
September 15, 1998
212 CERTIFICATE COMPANY, a corporation duly organized and existing
under the laws of the State of Delaware (the "Issuer"), shall pay to THE CHASE
MANHATTAN BANK, as funding agent (the "Funding Agent") for the benefit of Park
Avenue Receivables Corporation (the "Purchaser") and any subsequent entity
which, in the future purchases an interest in this installment face-amount
certificate (this "Certificate") pursuant to the Asset Purchase Agreement
(collectively, the Purchaser and such future potential purchasers are
hereinafter referred to as the "Certificateholders") the unpaid principal
amount of all installment purchase payments made by the Certificateholders
from time to time (the "Invested Amount"), up to an aggregate principal amount
not to exceed $500,000,000, and to pay interest on the Invested Amount as more
fully set forth in that certain Face-Amount Certificate Agreement, dated as of
September 15, 1998, among the Issuer, the Purchaser
A-1
<PAGE>
and the Funding Agent (as amended, restated, supplemented or otherwise modified
and in effect from time to time, the "Face-Amount Certificate Agreement").
This Face-Amount Certificate is issued pursuant to the Face-Amount
Certificate Agreement. Reference is hereby made to the Face-Amount Certificate
Agreement for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Issuer, the Funding Agent and the
Certificateholders and the terms upon which this Face-Amount Certificate is
delivered. All terms used in this Face-Amount Certificate which are not defined
herein shall have the meanings assigned to them in, or incorporated by reference
into, the Face-Amount Certificate Agreement. The provisions of the Face-Amount
Certificate Agreement are hereby incorporated by reference herein and shall be
binding on the Issuer, the Funding Agent and the Certificateholders as if fully
set forth herein. As provided in the Face-Amount Certificate Agreement, this
Face-Amount Certificate is secured by the Pledged Collateral. To the extent
provided in the Face-Amount Certificate Agreement and the Pledge Agreement, the
Certificateholders (and the Funding Agent on their behalf) shall be entitled to
the benefits of a security interest in the Pledged Collateral, for the benefit
of the Certificateholders.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed as of the date first above-written.
212 CERTIFICATE COMPANY
By:
--------------------------------
Name:
Title:
A-2
<PAGE>
Exhibit B
CONDITIONS PRECEDENT TO EACH INSTALLMENT PURCHASE
(a) Each Installment Purchase must be for at least $1,000,000 (and
integral multiples of $100,000 in excess thereof);
(b) Each Installment Purchase (other than the Initial Purchase) must
be preceded by at least two (2) Business Days' prior written notice from the
Issuer to the Funding Agent (to be received by the Funding Agent no later than
1:00 P.M. (Eastern Standard Time));
(c) After the first ninety (90) days of this Agreement, each
Installment Purchase must be made only on a Settlement Date;
(d) Each of the following statements shall be true at the time of the
applicable Installment Purchase (including the Initial Purchase), and the Issuer
and the Funding Agent shall have received a certificate, dated the date of the
Installment Purchase, of an officer of each of the Issuer and the Portfolio
Manager in which such officer shall state that, to his or her best knowledge:
(i) no Amortization Event or Potential Amortization Event has
occurred and is continuing;
(ii) all representations and warranties made by each of the Issuer and
the Portfolio Manager, as applicable, in each of the Transaction Documents
are true and correct as if repeated on the date of such Installment
Purchase with respect to the facts and circumstances then existing;
(iii) each Transaction Document (including the Agreement to which this
Exhibit is attached) has been executed and delivered by the parties
thereto, is in full force and effect and constitutes the legal, valid and
binding obligation of each party thereto;
(e) The Funding Agent shall have received each of the reports and
such other information required to be delivered to it on or prior to each
Installment Purchase from the Issuer and/or the Portfolio Manager, including,
without limitation,
B-1
<PAGE>
each "Weekly Report", "Settlement Report" and "Monthly Compliance Report" under
and as defined in the Investment Management Agreement.
B-2
<PAGE>
Exhibit C
REPRESENTATIONS, WARRANTIES AND COVENANTS
1. REPRESENTATIONS AND WARRANTIES OF THE ISSUER.
The Issuer hereby represents and warrants that:
(a) ORGANIZATION AND GOOD STANDING. The Issuer is a corporation duly
organized and validly existing under the laws of the State of Delaware and in
good standing under the laws of each jurisdiction where it does business and has
full power and authority to own its properties and conduct its business as
presently owned or conducted, to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is party.
(b) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and the Face-Amount Certificate by the Issuer, and the
consummation by the Issuer of the transactions provided for in this Agreement
and the other Transaction Documents, have been duly authorized by all necessary
action on the part of the Issuer and this Agreement and the other documents and
agreements executed in connection herewith and therewith have been duly executed
and delivered on behalf of the Issuer.
(c) ENFORCEABILITY. Each of this Agreement, the Face-Amount
Certificate and the other Transaction Documents to which it is a party
constitutes a legal, valid and binding obligation of the Issuer enforceable
against the Issuer in accordance with its terms, except as may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting creditors' rights generally, now or hereafter in effect, and
except as such enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
(d) NO CONFLICT. The Issuer's execution and delivery of this
Agreement and the other Transaction Documents to which it is party, performance
of the transactions contemplated by this Agreement, and fulfillment of the terms
hereof and thereof applicable to the Issuer, do not conflict with or violate in
any material respect any law or regulation applicable to the Issuer or 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, the
Certificate of Incorporation or Bylaws of
<PAGE>
the Issuer or any indenture, mortgage, deed of trust or other material contract,
agreement or instrument to which the Issuer is a party or by which it or its
properties are bound.
(e) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of the Issuer, threatened against the Issuer
before any governmental agency which asserts the invalidity of this Agreement,
the Certificate or the other documents and agreements executed in connection
herewith or which otherwise would have a material adverse effect on the Issuer's
financial condition or operations or on the Pledged Collateral or the
transactions contemplated by this Agreement and the other Transaction Documents.
(f) CONSENTS. No authorization, consent, license, order or approval
of, registration or declaration with any governmental agency or other person or
entity is required to be obtained, effected or given by the Issuer in connection
with the execution and delivery of this Agreement, the Face-Amount Certificate
and the other Transaction Documents to which it is a party.
(g) INVESTMENT COMPANY. The Issuer is not required to be registered
as an "investment company" and is not controlled by an "investment company
within the meaning of the Investment Company Act.
(h) TAXES. The Issuer has filed all tax returns (federal, state and
local) which it reasonably believes are required to be filed by it and has paid
or made adequate provision for the payment of all taxes, assessments and other
governmental charges due from the Issuer except to the extent that the Issuer is
contesting any such tax, assessment or other governmental charge in good faith
through appropriate proceedings and has adequately reserved against the
obligation to pay such amount in accordance and to the extent required by
generally accepted accounting principles.
(i) MATERIAL ADVERSE CHANGE. Since December 31, 1997, no event has
occurred 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 the Issuer, the Portfolio Manager or the Swap
Provider to perform its obligations under any Transaction Document, (iii) the
legality, validity or enforceability of the 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.
C-2
<PAGE>
(j) OWNERSHIP. All of the outstanding capital stock of the Issuer
and integrity Capital is owned, either directly or indirectly, by the Parent.
(k) ACCURACY OF INFORMATION. All information heretofore furnished
by the Issuer or any Transaction-Related Party to the Funding Agent or the
Certificateholders for purposes of or in connection with this Agreement, any
of the other Transaction Documents or any transaction contemplated hereby or
thereby is, and all such information hereafter furnished by the Issuer or any
Transaction-Related Party will be, true and accurate in every material
respect, on the date such information is stated or certified and does not and
will not contain any material misstatement of fact or omit to state a material
fact or any fact necessary to make the statements contained therein not
misleading.
(l) ERISA. Each of the Issuer and its ERISA Affiliates is in
compliance in all material respects with ERISA, and no lien exists in favor of
the Pension Benefit Guaranty Corporation on any of the assets of the Issuer
(including, but not limited to, the Pledged Collateral).
The representations and warranties set forth herein (i) shall survive
the issuance of the Face-Amount Certificate, (ii) any liability of the Issuer 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 other obligations of the Issuer hereunder and under the other Transaction
Documents to which the Issuer is a party 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.
2. AFFIRMATIVE COVENANTS OF THE ISSUER. During any time any Invested Amount
is outstanding under the Agreement to which this Exhibit is attached, the Issuer
hereby covenants that:
(a) COMPLIANCE WITH LAW. The Issuer will comply in all material
respects with any law or regulation applicable to the Issuer, its business and
properties and the pledged Collateral, where failure to so comply would have a
material adverse effect on the Pledged Collateral or the ability of the Issuer
to perform in any material respect its obligations hereunder or under any
Transaction Document to which it is a party.
C-3
<PAGE>
(b) PRESERVATION OF EXISTENCE. The Issuer 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
corporation in each jurisdiction where the failure to maintain such
qualification would adversely affect the ability of the Issuer to perform its
obligations hereunder or under any other Transaction Document to which it is a
party in any material respect.
(c) PAYMENT OF TAXES, ETC. The Issuer will pay promptly when due
all taxes, assessments and governmental charges or levies imposed upon it or
any Pledged Collateral or in respect of income or profits therefrom, and any
and all claims of any kind, except that no such amount need be paid if (i) the
charge or levy is being contested in good faith and by appropriate
proceedings, and (ii) the obligation to pay such amount is adequately reserved
against in accordance with and to the extent required by generally accepted
accounting principles.
(d) REPORTING REQUIREMENTS. The Issuer will:
(i) within one (1) Business Day after its knowledge (or after it
reasonably should have known) of the occurrence of any Amortization Event,
notify the Funding Agent of such occurrence;
(ii) as promptly as possible, but in no event later than the fifth
(5th) Business Day after any receipt thereof, furnish to the Funding Agent
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, (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,
furnish to the Funding Agent 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
C-4
<PAGE>
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, furnish to the
Funding Agent, audited financial statements of the Parent which include the
Parent's consolidated Subsidiaries (including, without limitation, the
Issuer and Integrity Capital) prepared in accordance with generally
accepted accounting principles by certified public accountants of national
standing reasonably satisfactory to the Funding Agent;
(v) within three (3) Business Days after the placement on watchlist
for a downgrade of, 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, notify the
Funding Agent of such withdrawal or reduction; and
(vi) promptly, from time to time, furnish to the Funding Agent such
other information, documents, records or reports respecting the Pledged
Collateral or the condition or operations, financial or otherwise, of the
Issuer as the Funding Agent may from time to time reasonably request.
(e) COMPLIANCE WITH OTHER AGREEMENTS. The Issuer will at its expense
(i) timely perform and comply in all material respects with all provisions,
covenants and other promises required to be observed by it under each
Transaction Document and each document, instrument or agreement relating to
Pledged Collateral, (ii) use reasonable efforts to ensure that each Transaction
Document and each of the documents, instruments and agreements related to the
Portfolio are at all times enforceable pursuant (and subject) to their
respective terms and (iii) enforce its rights under each such Transaction
Document substantially in accordance with its respective terms.
(f) EQUITY SECURITIES. Upon obtaining any beneficial interest in an
equity security, the Issuer shall promptly (and in no event more than 30 days
after its acquisition) sell, assign or otherwise transfer such equity security
and during the period prior to such sale, assignment or transfer, the Issuer
shall not exercise any of the rights arising from the ownership of such equity
security, including, without limitation, any voting rights with respect thereto.
C-5
<PAGE>
(g) AUDITS. The Issuer will furnish to the Funding Agent from time
to time such information with respect to it and the Portfolio as the Funding
Agent may reasonably request. The Issuer shall, from time to time during
regular business hours as requested by the Funding Agent upon reasonable
notice, permit the Funding Agent, or its agents or representatives (and shall
cause the Portfolio Manager to permit the Funding Agent or its agents or
representatives) (i) to examine and make copies of and abstracts from all
books and records in the possession or under the control of the Issuer or the
Portfolio Manager relating to the Portfolio, including, without limitation,
the documents, instruments and agreements related to the portfolio, and (ii)
to visit the offices and properties of the Issuer or the Portfolio Manager for
the purpose of examining such materials described in clause (i) above, and to
discuss matters relating to the Issuer's or the Portfolio Manager's financial
condition or the Portfolio or the Issuer's performance hereunder, or the
Portfolio Manager's performance under any of the other Transaction Documents
with any of the officers or employees of the Issuer or the Portfolio Manager
having knowledge of such matters.
(h) PAYMENTS. The Issuer shall, and shall cause the Portfolio Manager
to, remit all payments in respect of the Pledged Collateral to the Custodial
Account promptly after receipt thereof.
3. NEGATIVE COVENANTS OF THE ISSUER. The Issuer hereby further covenants
that at any time until the Termination Date:
(a) NO SALES, LIENS, ETC. Except for the security interest created
under the Pledge Agreement and as permitted from time to time under the various
Transaction Documents, the Issuer will not sell, pledge, assign or transfer any
Pledged Collateral to any other person or entity, or grant, create, incur,
assume or suffer to exist any lien on, any Pledged Collateral or any other
property or asset of the Issuer, whether now existing or hereafter created, or
any interest therein, and the Issuer shall defend the right, title and interest
of the Funding Agent, for the benefit of the Certificateholders, in and to the
Pledged Collateral, whether now existing or hereafter created, against all
claims of third parties claiming through or under the Issuer.
(b) ACTIVITIES OF THE ISSUER. The Issuer will not engage in, enter
into or be a party to any business, activity or transaction of any kind other
than the businesses, activities and transactions contemplated and authorized by
its Certificate
C-6
<PAGE>
of incorporation or Bylaws or incidental to its ability to carry out its
obligations [ILLEGIBLE] or under the other Transaction Documents to which it
is a party.
(c) INDEBTEDNESS. Except as expressly provided herein or in any
other Transaction Document, the Issuer will not create, incur or assume any
indebtedness (other than operating expenses incurred in the performance of or
incidental to its obligations under this Agreement or any document or
agreement entered into in connection herewith) or sell or transfer any loans
or securities to a trust or other person or entity which issues securities in
respect of any such loans or securities.
(d) GUARANTEES. Except as expressly provided for herein or in any
Transaction Document, the Issuer will not become or remain liable, directly or
contingently, in connection with any indebtedness or other liability of any
other person or entity, whether by guarantee, endorsement (other than
endorsements of negotiable instruments for deposit or collection in the ordinary
course of business), agreement to purchase or repurchase, agreement to supply or
advance funds, or otherwise.
(e) INVESTMENTS; SWAP AGREEMENT. The Issuer will not make or offer
to exist any loans or advances to, or extend any credit to, or make any
investments (by way of transfer of property, contributions to capital, purchase
of stock or securities or evidences of indebtedness, acquisition of the business
or assets, or otherwise) in, any affiliate or any other person or entity except
for purchases and fundings of Eligible Securities and the Swap Agreement
pursuant to the terms hereof, and investments in "Permitted Investments" under
and in accordance with the terms of the Pledge Agreements.
(f) ORGANIZATION. The Issuer will not amend its Certificate of
Incorporation or By-Laws without the prior written consent of the Funding Agent.
(g) MAINTENANCE OF SEPARATE EXISTENCE. The Issuer will not (i) fail
to do any thing necessary to maintain its existence as a corporation separate
and apart from the Parent and any other affiliate of the Parent or of the
Issuer, including, without limitation, conducting business correspondence in its
own name, holding regular meetings of, or obtaining regular written consents
from, its shareholders and its Board of Directors in each case where required,
and maintaining appropriate books and records; (ii) suffer any limitation on the
authority of or its officers to conduct their business and affairs in accordance
with their independent business judgement, or authorize or suffer any person or
entity other than its officers and, to the
C-7
<PAGE>
[ILLEGIBLE] Described in the Investment Management Agreement, the Portfolio
Manager to [ILLEGIBLE] behalf with respect to matters (other than matters
customarily delegated to [ILLEGIBLE] under powers of attorney) for which a
corporation's own directors and officers [ILLEGIBLE] customarily be
responsible; (iii) fail to (A) maintain, or cause to be maintained [ILLEGIBLE]
of the Issuer under the Issuer's control, physical possession of all its
books and records, (B) maintain capitalization adequate for the conduct of
its business, (C) account for and manage its liabilities separately from
those of any other person or entity, including, without limitation, payment
of all payroll and other administrative expenses and taxes from its own
assets, (D) segregate and identify [ILLEGIBLE] all of its assets from those
of any other person or entity, and (E) maintain [ILLEGIBLE] offices through
which its business is conducted separate from those of its affiliates
(PROVIDED that, to the extent the Issuer and the Portfolio Manager have
offices in the same location, there shall be a fair and appropriate
allocation of overhead costs and expenses among them, and each such entity
shall bear its fair share of such expenses); or (iv) commingle its funds with
those of any of its affiliates of the Portfolio Manager, or use its funds for
other than the Issuer's uses.
(h) OWNERSHIP: MERGER. The Issuer will not (i) sell any of its
equity interest to any person or entity (other than its sole shareholder, ARM
Face-Amount Certificate Group, Inc.) or enter into any transaction of merger or
consolidation or convey or otherwise dispose of all or substantially all of its
assets (except as contemplated herein), (ii) terminate, liquidate or dissolve
itself (or suffer any termination, liquidation or dissolution) or (iii) acquire
or be acquired by any person or entity, in each case without the prior written
consent of the Funding Agent.
(i) ACQUISITION OF ELIGIBLE SECURITIES. The Issuer shall not
acquire any assets except in accordance with the terms of the Investment
Management Agreement.
(j) INVESTMENT GUIDELINES. Subject to the terms of the Investment
Management Agreement and applicable law, the Issuer shall not, and shall not
permit the Portfolio Manager to, modify or waive the terms and provisions of its
Investment Guidelines in any manner.
(k) USE OF PROCEEDS. The Issuer will not use any of the Sales
Proceeds to acquire any security in a transaction that is subject to Sections 13
and 14 of the Exchange Act, or to purchase or carry any margin security in
violation of any applicable law or regulation.
C-8
<PAGE>
(l) RETURN OF CAPITAL. The Issuer will not make any distributions
[ILLEGIBLE] shareholder that would cause its paid-in capital to be less than
$250,000 at any [ILLEGIBLE].
(m) ISSUANCE OF CERTIFICATES. The Issuer will not sell any equity or
debt certificates, instruments or other documents evidencing any equity interest
in, or debt obligations of the Issuer after the date of effectiveness of this
Agreement, except with the prior written consent of the Funding Agent.
(n) ERISA MATTERS. The Issuer will not and, to the best of its
ability will not permit the Parent to, (i) engage or permit any of their
respective ERISA Affiliates to engage in any prohibited transaction (as
defined in Section 4975 of the Code and Section 406 of ERISA) for which an
exemption is not available or has not previously been obtained from the U.S.
Department of Labor; (ii) permit to exist any accumulated funding deficiency
(as defined in Section 302(a) of ERISA and Section 412(a) of the Code) or
funding deficiency with respect to any Benefit Plan other than a Multiemployer
Plan; (iii) fail to make any payments to any Multiemployer Plan that the
Issuer, the Parent or any ERISA Affiliate of either of them is required to
make under the agreement relating to such Multiemployer Plan or any law
pertaining thereto; (iv) terminate any Benefit Plan so as to result in any
liability; or (v) permit to exist any occurrence of any reportable event
described in Title IV of ERISA which represents a material risk of a liability
to the Issuer, the Parent, or any ERISA Affiliate of either of them under
ERISA or the Code, if such prohibited transactions, accumulated funding
deficiencies, payments, terminations and reportable events occurring within
any fiscal year of the Issuer and the Parent, in the aggregate, involve a
payment of money or an incurrence of liability by the Issuer, the Parent or
any ERISA Affiliate of either of them.
C-9
<PAGE>
EXHIBIT D
INDEMNIFICATION OF THE FUNDING AGENT AND THE CERTIFICATEHOLDERS BY THE ISSUER
(a) GENERAL INDEMNIFICATION. Without limiting any other rights which
an Indemnified Party may have hereunder or under applicable law, the Issuer
hereby agrees to indemnify each Indemnified Party from and against any and all
taxes, claims, suits, losses, liabilities and expenses (including, without
limitation, costs and expenses of litigation, and of investigation and
reasonable counsel fees, damages, judgments and amounts paid in settlement)
(all of the foregoing being collectively referred to as "INDEMNIFIED
AMOUNTS") arising out of or resulting from this Agreement and the other
Transaction Documents and the activities of the Issuer in connection herewith
and therewith, the Issuer's use of proceeds from the issuance of the Face-Amount
Certificate and the interest conveyed under the Pledge Agreement in the Pledged
Collateral, EXCLUDING, HOWEVER, (a) Indemnified Amounts to the extent resulting
from the willful misconduct or gross negligence of such Indemnified Party, (b)
recourse for uncollectible Pledged Collateral (unless such Pledged Collateral is
uncollectible as a result of any breach by the Issuer or the Portfolio Manager),
(c) indemnification for lost profits or for consequential, special or punitive
damages or (d) 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. Without limiting or being limited by the
foregoing (other than clauses (a), (b), (c) and (d)), the Issuer shall pay to
each Indemnified Party any and all amounts necessary to indemnify such
Indemnified Party from and against any and all Indemnified Amounts relating to
or resulting from:
(i) reliance on any representation or warranty or statement made or
remade by the Issuer under or in connection with this Agreement or any
other Transaction Document, or in any certificate or any other information
or report delivered by the Issuer from time to time, containing an untrue
fact or a materially misleading omission;
(ii) any failure by the Issuer or the Portfolio Manager to comply with
this Agreement or any other Transaction Document, or the failure by the
Issuer to comply with any applicable law or regulation with respect to any
Pledged Collateral;
(iii) the failure to vest and maintain vested in the Issuer an
ownership interest in the Pledged Collateral or the failure to vest and
maintain
D-1
<PAGE>
vested in the Funding Agent, for the benefit of the Certificateholders, a
security interest in the Pledged Collateral, which in each case, is free
and clear of any other lien, to the extent such security interest may be
perfected by the filing of a financing statement or possession, constitutes
a first priority perfected ownership or security interest, as the case may
be;
(iv) any dispute, claim, offset or defense (other than discharge in
bankruptcy of any obligor of any Pledged Collateral or other defense
relating to such Obligor's inability to pay) of any Obligor of any Pledged
Collateral to the payment of any Pledged Collateral including a defense
based on such Pledged Collateral not being a legal, valid and binding
obligation of such obligor enforceable against it in accordance with its
terms;
(v) any investigation, litigation or proceeding related to this
Agreement or any Transaction Documents or the use of proceeds from the
issuance of the Face-Amount Certificate, or in respect of the Pledged
Collateral;
(vi) the failure of the Issuer or the Portfolio Manager to perform any
of its duties or obligations under or in connection with any Pledged
Collateral;
(vii) any failure by the Issuer to be duly qualified to do business or
be in good standing in any jurisdiction in which such qualification or good
standing is necessary for the enforcement of any Pledged Collateral;
(viii) the failure of the Issuer to remit collections or payments with
respect to any Pledged Collateral as required under this Agreement or any
other Transaction Document or the commingling of such collections or
payments at any time with other funds prior to distribution under the any
Transaction Document;
(ix) any lender liability or equitable subordination claim, suit or
action or any other similar claim or action (including any claim of a lending
obligation on the part of the Funding Agent or any Certificateholder) arising
out of or in connection with the Pledged Collateral, or the use, possession,
ownership or operation by the Issuer or the Portfolio Manager or any affiliate
thereof of any of the Pledged Collateral that constitute real property or any
D-2
<PAGE>
environmental liability claim allegedly arising out of or in connection
with any such real property;
(x) any act or omission by the Issuer or the Portfolio Manager
impairing the security interest of the Funding Agent or the
Certificateholders in the Pledged Collateral; or
(xi) any failure of the Issuer to pay any tax or governmental fee.
(b) BREAKAGE COSTS. The Issuer shall indemnify each Indemnified Party
against any loss (including loss of anticipated profits or income), cost or
expense incurred as a result of (i) the Issuer's repayment of any Invested
Amount under the Face-Amount Certificate on any date which is not a Settlement
Date and (ii) the conversion of a portion of the Invested Amount being funded at
a Eurodollar Rate on any day which is not a Settlement Date.
(c) INCREASED COSTS AND REDUCED RETURN. (i) If after the date hereof,
the adoption of any Law or bank regulatory guideline or any amendment or change
in the interpretation of any existing or future Law or bank regulatory guideline
by any Official Body charged with the administration, interpretation or
application thereof, or the compliance with any directive of any Official Body
(in the case of any bank regulatory guideline, whether or not having the force
of Law):
(1) shall impose, modify or deem applicable any reserve, special deposit or
similar requirement (including, without limitation, any such requirement imposed
by the Board of Governors of the Federal Reserve System) against assets of,
deposits with or for the account of, or credit extended by, any Indemnified
Party or shall impose on any Indemnified Party or on the United States market
for certificates of deposit or the London interbank market any other condition
affecting this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest, the Pledged Collateral or
payments of amounts due hereunder or its obligation to advance funds hereunder
or under the other Transaction Documents, the ownership, maintenance or
financing of the Transferred Interest or the Pledged Collateral; or
(2) imposes upon any Indemnified Party any other expense (including,
without limitation, reasonable attorneys' fees and expenses, and expenses of
litigation or preparation therefor in contesting any of the foregoing) with
respect to this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of
D-3
<PAGE>
the Pledged Collateral or payments of amounts due hereunder or its obligation to
advance funds hereunder or otherwise in respect of this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the Pledged
Collateral,
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the Pledged Collateral,
the obligations hereunder, the funding of any Purchases hereunder or under the
other Transaction Documents, by an amount deemed by such Indemnified Party to be
material, then, within ten (10) days after demand by such Indemnified Party, the
Issuer shall pay such additional amount or amounts as will compensate such
Indemnified Party for such increased cost or reduction; PROVIDED that no such
amount shall be payable with respect to any period commencing more than two
hundred seventy (270) days prior to the date the such Indemnified Party first
notifies the Issuer of its intention to demand compensation therefor under this
Section; PROVIDED FURTHER that if such change in Law, rule or regulation giving
rise to such increased costs or reductions is retroactive, then such 270-day
period shall be extended to include the period of retroactive effect thereof.
(ii) If any Indemnified Party shall have determined that after the date
hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Official Body, or any directive regarding capital
adequacy (in the case of any bank regulatory guideline, whether or not having
the force of law) of any such Official Body, has or would have the effect of
reducing the rate of return on capital of such Indemnified Party (or its parent)
as a consequence of such Indemnified Party's obligations hereunder or with
respect hereto to a level below that which such Indemnified Party (or its
parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Indemnified Party to be material, then from time to time,
within ten (10) days after demand by such Indemnified Party through the Funding
Agent, the Issuer shall pay to the Funding Agent, for the benefit of such
Indemnified Party, such additional amount or amounts as will compensate such
Indemnified Party (or its parent) for such reduction; PROVIDED that no such
amount shall be payable with respect to any period commencing more than two
hundred seventy (270) days prior to the date the Funding Agent first notifies
the Issuer of its intention to demand compensation therefor under this Section;
PROVIDED FURTHER that if such change in Law, rule or regulation giving rise to
such increased costs or reductions is
D-4
<PAGE>
retroactive, then such 270-day period shall be extended to include the period of
retroactive effect thereof.
(d) INDEMNITY FOR TAXES. All payments made by the Issuer to the
Funding Agent for the benefit of the Certificateholders under this Agreement and
any other Transaction Document shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Official Body, EXCLUDING (i) taxes imposed on the net income of the
Funding Agent or any other Indemnified Party, however denominated, and (ii)
franchise taxes imposed on the net income of the Funding Agent or any other
Indemnified Party, in each case imposed: (1) by the United States or any
political subdivision or taxing authority thereof or therein; (2) by any
jurisdiction under the laws of which the Funding Agent or such Indemnified Party
or lending office is organized or in which its lending office is located,
managed or controlled or in which its principal office is located or any
political subdivision or taxing authority thereof or therein; or (3) by reason
of any, connection between the jurisdiction imposing such tax and the Funding
Agent, such Indemnified Party or such lending office other than a connection
arising solely from this Agreement or any other Transaction Document or any
transaction hereunder or thereunder (all such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, collectively or
individually, "TAXES"). If any such Taxes are required to be withheld from any
amounts payable to the Funding Agent or any Indemnified Party hereunder, the
amounts so payable to the Funding Agent or such Indemnified Party shall be
increased to the extent necessary to yield to the Funding Agent or such
Indemnified Party (after payment of all Taxes) all amounts payable hereunder at
the rates or in the amounts specified in this Agreement and the other
Transaction Documents. The Issuer shall indemnify the Funding Agent or any such
Indemnified Party for the full amount of any such Taxes within ten (10) days
after the date of written demand therefor by the Funding Agent.
(ii) Each Indemnified Party that is not incorporated under the laws of
the United States of America or a state thereof or the District of Columbia
shall:
(1) deliver to the Issuer and the Funding Agent (A) two duly
completed copies of IRS Form 1001 or Form 4224, or successor
applicable form, as the case may be, and (B) an IRS form W-8 or W-9,
or successor applicable form, as the case may be;
D-5
<PAGE>
(2) deliver to the Issuer and the Funding Agent two (2) further
copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Issuer; and
(3) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Issuer
or the Funding Agent;
unless, in any such case, an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Indemnified Party from duly completing and
delivering any such form with respect to it, and such Indemnified Party so
advises the Issuer and the Funding Agent. Each such Indemnified Party so
organized shall certify (i) in the case of an IRS Form 1001 or IRS Form 4224,
that it is entitled to receive payments under this Agreement and the other
Transaction Documents without deduction or withholding of any United States
federal income taxes and (ii) in the case of an IRS Form W-8 or IRS Form W-9,
that it is entitled to an exemption from United States backup withholding tax.
Each Person that is a Purchaser hereunder, or which otherwise becomes a party to
this Agreement as an APA Bank, shall, prior to the effectiveness of such
assignment, participation or addition, as applicable, be required to provide all
of the forms and statements required pursuant to this Section.
(e) OTHER COSTS, EXPENSES AND RELATED MATTERS. (i) The Issuer agrees,
upon receipt of a written invoice, to pay or cause to be paid, and to save the
Certificateholders and the Funding Agent harmless against liability for the
payment of, all reasonable and necessary out-of-pocket expenses (including,
without limitation, attorneys', accountants' and other third parties' fees and
expenses) or intangible, documentary or recording taxes incurred by or on behalf
of any Certificateholder and the Funding Agent (i) in connection with the
negotiation, execution, delivery and preparation of this Agreement, the other
Transaction Documents and any documents or instruments delivered pursuant hereto
and thereto and the transactions contemplated hereby or thereby (including,
without limitation, the perfection or protection of the Pledged Collateral) and
(ii) from time to time (a) relating to any amendments, waivers or consents under
this Agreement and the other Transaction Documents, (b) arising in connection
with any Certificateholder's or the Funding Agent's enforcement or preservation
of rights (including, without limitation, the perfection and pro-
D-6
<PAGE>
tection of the Transferred Interest under this Agreement), or (c) arising in
connection with any audit, dispute, disagreement, litigation or preparation for
litigation involving this Agreement or any of the other Transaction Documents
(all of such amounts, collectively, "TRANSACTION COSTS").
(ii) Each Indemnified Party will within forty-five (45) days after receipt
of notice of any event occurring after the date hereof which will entitle such
Indemnified Party to compensation pursuant to this Exhibit D, notify the Issuer
in writing. Any notice by such Indemnified Party claiming compensation under
this Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be (A) in the case of subsections (b), (c) and (d) of this
Exhibit D, conclusive in the absence of manifest error and (B) in the case of
subsections (a) and (e)(i) of this Exhibit D, reasonably calculated. In
determining such amount, such Indemnified Party may use any reasonable averaging
and attributing methods.
D-7
<PAGE>
Exhibit E-1
FORM OF RULE 144A TRANSFEREE LETTER
[Date]
212 Certificate Company
515 West Market Street, 4th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Re: $500,000,000 INSTALLMENT FACE-AMOUNT CERTIFICATE
Ladies and Gentlemen:
This letter (the "Investor Letter") is delivered by the undersigned
(the "Purchaser") pursuant to Section 14(a)(ii) of that certain Face-Amount
Certificate Agreement dated as of September 15, 1998 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"Face-Amount Certificate Agreement"), among 212 Certificate Company, a Delaware
corporation (the "Issuer"), Park Avenue Receivables Corporation, a Delaware
corporation (the "Purchaser"), and The Chase Manhattan Bank, as the "Funding
Agent" thereunder (in such capacity, the "Funding Agent"). Capitalized terms
used herein without definition shall have the meanings set forth in the
Face-Amount Certificate Agreement. The Purchaser, in connection with its
proposed [insert nature of assignment/purchase of interest in the Face-Amount
Certificate], hereby represents to, and agrees with, the Issuer as follows:
(a) The Purchaser has received all relevant information as it shall
have deemed necessary or desirable in order to make its investment decision.
(b) The Purchaser, and all other persons or entities for whose account
the Purchaser shall be acquiring an interest in the Face-Amount Certificate, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment in the Face-Amount
Certificate and is able to bear the economic risk of such investment.
E-1-1
<PAGE>
(c) The Purchaser understands that the offer and sale of interests in
the Face-Amount Certificate have not been and will not be registered under the
Securities Act, and has not and will not be registered or qualified under any
applicable "Blue Sky" law, and that the offering and sale of such interests have
has not been reviewed by, passed on or submitted to any federal or state agency
or commission, securities exchange or other regulatory body.
(d) The Purchaser is a "Qualified Institutional Buyer." The Purchaser
is aware that the sale to it is being made in reliance on Rule 144A. The
Purchaser is acquiring its interest in the Face-Amount Certificate for its own
account or for one or more other accounts (each of which is a Qualified
Institutional Buyer) as to each of which the Purchaser has sole investment
discretion, and agrees that its interest in the Face-Amount Certificate may be
resold, pledged or transferred only (i) in a transaction that complies with Rule
144A, to a person or entity reasonably believed to be a Qualified Institutional
Buyer that purchases for its own account or for one or more other accounts of
Qualified Institutional Buyers as to each of which the Purchaser has sole
investment discretion and to whom notice has been given that the resale, pledge
or transfer is being made in reliance on Rule 144A, or (ii) to a sophisticated
institutional investor that is an Accredited Investor pursuant to an applicable
exemption from the registration requirements of the Securities Act and in each
case in accordance with all applicable securities and "Blue-Sky" laws of the
States of the United States of America.
(e) The Purchaser further acknowledges and agrees that, on any
proposed resale of its interest in the Face-Amount Certificate, it may be
required to furnish to the Issuer such certifications, legal opinions and other
information that any such person or entity may reasonably require to confirm
that the Sale thereof complies with the foregoing restrictions.
(f) The Purchaser makes the representation contained in the following
sentence, and agrees that interests in the Face-Amount Certificate may be
transferred to a person or entity only if the transferee makes the
representation and warranty and the covenant set forth in paragraph (g) below.
The Purchaser (or transferee, as applicable) is not acquiring its interests in
the Face-Amount Certificate with the assets of any employee benefit plan which
is subject to Title I of ERISA or any "plan" which is subject to Section 4975 of
the Internal Revenue Code (each such employee benefit plan and plan being
referred to herein as a "Benefit Plan").
E-1-2
<PAGE>
(g) The Purchaser (and transferee) covenants that it will not dispose
of any interest in the Face-Amount Certificate to any person or entity unless
such person or entity shall make the representations, warranties and covenants
in paragraph (f) above.
(h) You are entitled to rely on this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested person or
entity in any administrative or legal proceeding or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[PURCHASER]
By:
---------------------------
Name:
Title:
E-1-3
<PAGE>
Exhibit E-2
FORM OF RULE 144A TRANSFEROR LETTER
[Date]
212 Certificate Company
515 West Market Street, 4th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Re: $500,000,000 INSTALLMENT FACE-AMOUNT CERTIFICATE
Ladies and Gentlemen:
This letter (the "Investor Letter") is delivered by the undersigned
(the "Seller") pursuant to Section 14(a)(ii) of that certain Face-Amount
Certificate Agreement dated as of September 15, 1998 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"Face-Amount Certificate Agreement"), among 212 Certificate Company, a
Delaware corporation (the "Issuer"), Park Avenue Receivables Corporation, a
Delaware corporation ("PARCO") and The Chase Manhattan Bank, as the "Funding
Agent" thereunder (in such capacity, the "Funding Agent"). Capitalized terms
used herein without definition shall have the meanings set forth in the
Face-Amount Certificate Agreement. The Purchaser, in connection with its
proposed [insert nature of assignemnt/purchase of interest in the Face-Amount
Certificate], hereby represents to, and agrees with, the Issuer as follows:
(a) Neither the Seller nor anyone acting on its behalf has
offered, transferred, pledged, sold or otherwise disposed of any interest in
the Face-Amount Certificate, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Face-Amount Certificate, or
otherwise approached or negotiated with respect to the Face-Amount
Certificate, any interest in the Face-Amount Certificate with, any person or
entity in any manner, or made any general solicitation by means of general
advertising or in any other manner, or taken any other action, which would
constitute a distribution of interests in the Face-Amount Certificate under
the
E-2-1
<PAGE>
Securities Act and the Seller has not offered interests in the Face-Amount
Certificate to any person or entity other than [insert name of buyer] or another
person or entity (as applicable) which the Seller reasonably believes is a
"qualified institutional buyer" as defined in Rule 144A under the Securities Act
purchasing for its own account or the account of another "qualified
institutional buyer".
(b) It has notified [insert name of buyer] that (i) the proposed sale
is made in reliance on an exemption from the registration requirements of the
Securities Act and (ii) on any proposed resale of interests in the Face-Amount
Certificate, the Purchaser may be required to furnish to the Issuer such
certifications, legal opinions and other information that any such person or
entity may reasonably require to confirm that the sale thereof complies with the
terms of the Face-Amount Certificate Agreement.
Very truly yours,
[SELLER]
By:
-----------------------------
Name:
Title:
E-2-2
<PAGE>
Exhibit F
FORM OF NON-RULE 144A LETTER
[Date]
212 Certificate Company
515 West Market Street, 4th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Re: $500,000,000 INSTALLMENT FACE-AMOUNT CERTIFICATE
Ladies and Gentlemen:
This letter (the "Investor Letter") is delivered by the
undersigned (the "Purchaser") pursuant to Section 14(a)(ii) of that certain
Face-Amount Certificate Agreement dated as of September 15, 1998 (as the same
may be amended, restated, supplemented or otherwise modified from time to time,
the "Face-Amount Certificate Agreement"), among 212 Certificate Company, a
Delaware corporation (the "Issuer"), Park Avenue Receivables Corporation (the
"Purchaser"), a Delaware corporation ("ISC"), and The Chase Manhattan Bank, as
the "Funding Agent" thereunder (in such capacity, the "Funding Agent").
Capitalized terms used herein without definition shall have the meanings set
forth in the Face-Amount Certificate Agreement. The Purchaser, in connection
with its proposed [insert nature of assignment/purchase of interest in the
Face-Amount Certificate], hereby represents to, and agrees with, the Issuer as
follows:
(a) The Purchaser has received all relevant information as
it shall have deemed necessary or desirable in order to make its investment
decision.
(b) The Purchaser, and all other person or entities for
whose account the Purchaser shall be acquiring an interest in the Face-Amount
Certificate has such knowledge and experience in financial and business matters
as to be capable
F-1
<PAGE>
of evaluating the merits and risks of its investment in the Face-Amount
Certificate and is able to bear the economic risk of such investment.
(c) The Purchaser (as well as any such other person or
entity for whose account the Purchaser may be acquiring interests in the
Face-Amount Certificate) is a sophisticated institutional investor that is an
Accredited Investor. The Purchaser understands that the offer and sale of such
interests have not been and will not be registered under the Securities Act,
and has not and will not be registered or qualified under any applicable "Blue
Sky" law, and that the offering and sale of such interests has not been
reviewed by, passed on or submitted to any federal or state agency or
commission, securities exchange or other regulatory body.
(d) The Purchaser is acquiring its interest in the
Face-Amount Certificate without a view to any distribution, resale or other
transfer thereof other than as contemplated in the following sentence. The
Purchaser will not distribute, resell or otherwise transfer (a "Sale") any
interest in any of the Face-Amount Certificate except (i) to a limited number of
sophisticated institutional investors that are Accredited Investors in a
transaction exempt from the registration requirement of the Securities Act and
which proposed transferee shall have, prior to such Sale, executed and delivered
to the Issuer a certificate in the form hereof, or (ii) in a transaction that
complies with Rule 144A, to a person or entity reasonably believed to be a
Qualified Institutional Buyer that purchases for its own account or for one or
more other accounts of Qualified Institutional Buyers as to each of which such
Purchaser has sole investment discretion and to whom notice has been given that
the resale, pledge or transfer is being made in reliance on Rule 144A and in
each case in accordance with all applicable securities and "Blue-Sky" laws of
the States of the United States of America.
(e) The Purchaser further acknowledges and agrees that, on
any proposed resale of any interests in the Face-Amount Certificate, it may be
required to furnish to the Issuer such certifications, legal opinions and other
information that any such person or entity may reasonably require to confirm
that the Sale thereof complies with the foregoing restrictions.
(f) The Purchaser makes the representation contained in the
following sentence, and agrees that interests in the Face-Amount Certificate
may be transferred to a person or entity only if the transferee makes the same
representation and warranty and makes the covenant set forth in paragraph (g)
below. The Purchaser (or transferee, as applicable) is not acquiring its
interest in the Face-Amount
F-2
<PAGE>
Certificate with the assets of any employee benefit plan which is subject to
Title I of ERISA or any "plan" which is subject to Section 4975 of the Internal
Revenue Code (each such employee benefit plan and plan being referred to herein
as a "Benefit Plan").
(g) The Purchaser (and transferee) covenants that it will not
dispose of the Face-Amount Certificate to be purchased by it or any interest
therein to any person or entity unless such person or entity shall make
representations, warranties and covenants in paragraph (f) above.
(h) You are entitled to rely on this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested person or
entity in any administrative or legal proceeding or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[PURCHASER]
By:
----------------------------
Name:
Title:
F-3
<PAGE>
Exhibit G
CONDITIONS TO EFFECTIVENESS
(a) The Funding Agent shall have received executed UCC-1 financing
statements for filing with each of (i) the County Clerk of Jefferson County
(Louisville), Kentucky, (ii) the Secretary of the State of Kentucky, (iii) the
Secretary of State of New York and (iv) the County Clerk of New York County, New
York.
(b) The Funding Agent shall have received opinions of counsel of
Goldberg & Simpson, P.S.C., regarding corporate, security interest and
nonconsolidation matters, in form and substance satisfactory to the Funding
Agent.
(c) The Funding Agent shall have received executed copies of each of
the Transaction Documents, and all instruments, certificates and other documents
executed in connection therewith or otherwise reasonably requested by the
Funding Agent.
(d) The Issuer shall have received an investor letter from the
Purchaser certifying as to certain securities laws issues, in form and substance
satisfactory to the Issuer and its counsel.
G-1
<PAGE>
ANNEX X
"ACCREDITED INVESTOR" means a sophisticated institutional investor as
described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"ADMINISTRATIVE FEE" has the meaning specified in the Program Fee
[ILLEGIBLE].
"AFFILIATE" means any Person directly or indirectly controlling, or
controlled by, or under direct or indirect common control with, another Person
or a subsidiary of such other Person; PROVIDED, that, for all purposes of the
Transaction Documents, "Affiliate" shall not include ARM Capital. A Person
shall be deemed to control another Person if the controlling Person owns,
directly or indirectly, 10% of any class of voting securities of the controlled
Person or possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of the controlled Person, whether
through ownership of stock or otherwise.
"AFFILIATED PERSONS" means the Portfolio Manager, its affiliates, and
any of their respective officers, directors, employess, agents and
representatives.
"AGGREGATE COMMITMENT" means $510,000,000.
"AGREEMENT" has the meaning specified in the applicable Transaction
Document.
"AMORTIZATION EVENT" means the occurence of any of the following
events:
(i) The failure of the Issuer, the Portfolio Manager or the Swap
Provider to make any payment, or deposit, when due under this Agreement or
any Transaction Document and such failure remains uncured for two Business
Days thereafter;
(ii) Any Transaction-Related Party shall fail to perform, or shall
breach any material covenant or other agreement under any of the
Transaction Documents as they may be applicable to such parties, including,
without limitation, any "Event of Default" or "Termination Event" with
respect to the Swap Provider under the Swap Agreement (but excluding any
payment
ANNEX X--PAGE 1
<PAGE>
default thereunder with respect to which clause (i) above shall apply) and
such breach or failure to perform remains uncured for a period of five (5)
Business Days, such period to begin at the time at which such Transaction-
Related Party knew, or reasonably should have known, of such breach or
failure to perform;
(iii) Any representation or warranty made by any of the
Transaction-Related Parties contained in any of the Transaction Documents
shall be untrue when made;
(iv) A Change of Control shall occur;
(v) The Swap Provider shall cease to have (i) short term ratings of
at least A-1 by Standard and Poor's or D-1 by Duff and Phelps; or (ii) a
long term rating of at least Baa2 by Moody's, and a Successor Swap Provider
has not assumed the obligations of the Swap Provider under the Swap
Agreement within thirty (30) days;
(vi) The weighted average credit quality of the Portfolio falls below
AA (as determined pursuant to the then-applicable "Investment Guidelines"
(as such term is defined in the Investment Management Agreement)), subject
to an ongoing five (5) Business Day cure period as long as the weighted
average credit quality remains above A during such cure period;
(vii) The average effective duration of the Portfolio is above 1.75
years (as determined pursuant to the then applicable Investment
Guidelines), subject to an ongoing five Business Day cure period as long as
the average effective duration remains below 2.00 years during such cure
period;
(viii) Any Transaction-Related Party becomes the subject of an
Insolvency Event;
(ix) Either (A) the Issuer is required to register as an investment
company by the provisions of the Investment Company Act or the rules and
regulations promulgated thereunder or (B) the Issuer is required to
register as a "broker" or a "dealer", as applicable, pursuant to the
Exchange Act, or the rules and regulations promulgated thereunder;
ANNEX X--PAGE 2
<PAGE>
(x) The Funding Agent, for the benefit of the Certificateholders,
ceases to have a first priority perfected security interest with respect
to any Pledged Collateral (if Chase is the Custodian or the Funding Agent,
other than as a result of the negligence or wilful misconduct of Chase, as
Custodian or the Funding Agent);
(xi) The Fair Market Value of all assets (including, without
limitation, all Securities, Short-Term Investments and interest rate swaps)
owned by the Issuer and on deposit in the Custodial Account plus accrued
interest shall be less than 97% of the Invested Amount PLUS accrued
Certificate Yield, for one (1) Business Day following the earlier to occur
of (i) delivery of the Weekly Report, or (ii) the due date of the Weekly
Report pursuant to Section 7(f)(v) of the Investment Management Agreement;
or
(xii) a Non-Payment Event shall have occurred with respect to the Swap
Provider.
"AMORTIZATION PERIOD" means the period (a) commencing on the
earliest of (i) the Scheduled Liquidity Termination Date, as the same may be
extended from time to time in accordance with the terms hereof, (ii) the
delivery of notice of, or the automatic occurrence of, an Amortization Event
hereunder and (iii) the Maturity Date, as the same may be extended from time
to time in accordance with the terms hereof, and (b) ending on the earlier to
occur of the Maturity Date and the Termination Date.
"APA BANKS" means the financial institutions from time to time party to
the Asset Purchase Agreement; PROVIDED that each of such institutions must
have senior short-term claims-paying ratings of A-1 or better from Standard &
Poor's and P-1 from Moody's.
"ARM CAPITAL" means ARM Capital Advisors, LLC, a Delaware limited
liability company, and its successors.
"ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement, dated
as of September 15, 1998, among the Purchaser, the APA Banks party thereto from
time to time and the Funding Agent, as the same may be amended, supplemented or
otherwise modified and in effect from time to time.
ANNEX X--PAGE 3
<PAGE>
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
Section 101 ET SEQ.), as amended and in effect from time to time, or any
successor statute.
"BASE RATE" means a rate per annum equal to the greater of (i) the
prime rate of interest announced by the Funding Agent from time to time,
changing when and as said prime rate changes (such rate not necessarily
being the lowest or best rate charged by the Funding Agent) and (ii) the
sum of (a) 1.50% and (b) the rate equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average of the quotations
for such day for such transactions received by the Funding Agent from three
(3) Federal funds brokers of recognized standing selected by it.
"BROKER-DEALER" means a "broker" or a "dealer" within the meaning of
the Exchange Act.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day on
which banks in The City of New York or Louisville, Kentucky are authorized
or required by law to close, and, when used with respect to the
determination of the Eurodollar Rate or any notice with respect thereto,
any such day which is also a day for trading by and between banks in United
States dollar deposits in the London interbank market.
"CASHFLOW" means all cashflow attributable to the Portfolio including,
without limitation, payments of principal, interest and dividends received,
proceeds from securities sales and any other monies internally generated by
the Portfolio or received by the Custodian for placement in the Custodial
Account (including, without limitation, any amounts paid to the Issuer
pursuant to the Swap Agreement).
"CERTIFICATE" has the meaning specified in the preamble to the Face-
Amount Certificate Agreement.
"CERTIFICATEHOLDERS" means each APA Bank and PARCO, and their
respective successors and assigns.
ANNEX X--PAGE 4
<PAGE>
"CERTIFICATE PURCHASE PAYMENTS" means all payments by the
Certificateholders to the Pledgor under or in connection with the Face-
Amount Certificate and the Face-Amount Certificate Agreement.
"CERTIFICATE YIELD" has the meaning specified in Section 4 of the
Face-Amount Certificate Agreement
"CHANGE OF CONTROL" means the Parent shall cease to own, directly or
indirectly, all of the outstanding shares of the voting stock of the
Issuer, Integrity Life or the Portfolio Manager on a fully diluted basis.
"CHASE" means The Chase Manhattan Bank, a New York banking
corporation, and its successors.
"CHASE ROLES" has the meaning specified in Section 14(p) of the
Face-Amount Certificate Agreement.
"CLOSING" means the first day on which all of the conditions precedent
specified in Exhibit G to the Face-Amount Certificate Agreement have been
satisfied.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMERCIAL PAPER" means the A-1/P-1 asset-backed short-term promissory
notes of the Purchaser issued by the Purchaser in the United States
commercial paper market.
"CONFIDENTIAL INFORMATION" has the meaning specified in Section
14(i)(i) of the Face-Amount Certificate Agreement.
"CONTROL AGREEMENT" means that certain Account Control Agreement,
dated as of September 15, 1998, by and among the Issuer, the Custodian and
the Funding Agent as amended, restated, supplemented or otherwise modified
and in effect from time to time.
"CP RATE" has the meaning specified in Section 5 of the Face-Amount
Certificate Agreement.
ANNEX X--PAGE 5
<PAGE>
"CP TRANCHE PERIOD" has the meaning described in Section 5 of the
Face-Amount Certificate Agreement.
"CUSTODIAL ACCOUNT" means that certain Custodial Account #323-847005,
held with Chase, in its capacity as Custodian, and mutually agreed upon by
the issuer, the Portfolio Manager, and the Funding Agent.
"CUSTODIAL AGREEMENT" means the Domestic Custody Agreement, dated as
of September 15, 1998, between the Issuer and the Custodian, as
supplemented by the Control Agreement as the same may be amended, restated,
supplemented or otherwise modified and in effect from time to time.
"CUSTODIAN" means Chase, and its successors and assigns in such
capacity.
"DEALER FEE" means any and all applicable commissions of placement
agents and commercial paper dealers in respect of any Commercial Paper
issued by the Purchaser to maintain its interest in the Invested Amount
(such fees and commissions not to exceed 0.05% per annum).
"DEFAULTED SECURITY" means any Security: (i) as to which the Obligor
thereof has taken any action, or suffered any event to occur, of the type
constituting an Insolvency Event, or (ii) as to which any other event has
occurred and is continuing which has caused the acceleration of the
maturity of all or a portion of the principal of such Security.
"EARNED YIELD" has the meaning specified in Section 5 of the Face-
Amount Certificate Agreement.
"ELIGIBLE SECURITY" means, at any time, any Security (including any
swaps and/or loans permissible under the Investment Guidelines):
(i) which is payable only in the United States (except for
Eurodollar Perpetual Floating Rate Securities), and is denominated
only in U.S. Dollars;
(ii) with respect to which (x) no Obligor thereunder is an
Obligor on a Defaulted Security; (y) no Obligor thereunder is an
affiliate of the Parent
ANNEX X--PAGE 6
<PAGE>
or any Transaction-Related Party; and (z) each Obligor thereunder is
incorporated or organized under the laws of the United States or any state
thereof or under the laws of an Organization for Economic Cooperation and
Development country;
(iii) which is scheduled to be paid in full on or prior to the 30th
anniversary of its issuance or is a Eurodollar Perpetual Floating Rate
Security rated NAIC 1 by the National Association of Insurance
Commissioners whose base level index resets at least semiannually;
(iv) which is rated by any of Standard & Poor's, Moody's or
the National Association of Insurance Commissioners (or, if such Security
is a swap, then the counterparty issuer of which is rated at least AA- by
Standard & Poor's and Aa3 by Moody's);
(v) with respect to which any payments of interest made to the
Issuer thereon are not subject to any taxes, levies, imposts, deductions,
charges or withholdings imposed by any governmental authority of any
jurisdiction (other than taxes imposed on or measured by the net income or
overall gross receipts, capital and franchise taxes attributable to the
Issuer);
(vi) which is not a Security (a) with respect to which any related
Obligor is primarily engaged in the building, real estate, land development
or real estate investment trust industries, or except as otherwise
permitted in the Investment Guidelines, (b) which is principally secured by
a lien upon real estate, and either (x) does not provide for recourse to
the general assets of the related Obligor for the repayment of such
Security, or (y) such real estate constitutes all or substantially all of
the assets of the related Obligor;
(vii) which, at the time of the Issuer's acquisition of such
Security, is not being redeemed pursuant to its terms;
(viii) which is not by its terms convertible into or exchangeable
for, or secured by, any capital stock, equity security or interest in the
equity of a entity, or any warrant, option, right or other agreement
pursuant to which any such capital stock, equity security or interest can
be acquired, whether or not actually evidenced by a security;
ANNEX X--PAGE 7
<PAGE>
(ix) as to which, at the time of the Issuer's acquisition of such
Security, the Issuer will have good and marketable title to such Security,
free and clear from all liens except as created under the Pledge Agreement,
and which has been the subject of the grant under the Pledge Agreement
of a first priority perfected "security interest" (within the meaning of
the Uniform Commercial Code of the jurisdiction the law of which governs
the perfection of the security interest in such Security created by the
Pledge Agreement) therein (and in the proceeds thereof);
(x) which is not a Defaulted Security;
(xi) which will at all times be the BONA FIDE, legal and assignable
payment obligation of the Obligor of such Security, and with respect to
which each instrument, document or agreement evidencing such Security will
at all times be the BONA FIDE, legal and assignable obligation of the
Obligor (including any guarantor of the primary Obligor) of such Security,
in each case enforceable against such Obligor in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws 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);
(xii) which complies in all material respects with all applicable
requirements of the Investment Guidelines;
(xiii) which is either an "instrument," a "certificated security" or
a "security entitlement" (in each case within the meaning of Sections
9-105, 9-106 and/or 9-115 of the Uniform Commercial Code as in effect in
the State of New York or a swap permissible under the Investment
Guidelines); and if an instrument or a certificated security, only one
original thereof exists, which has been or will be delivered to the
Custodian pursuant to the Pledge Agreement;
(xiv) which is not subject to any provision prohibiting the
transfer, sale or assignment to, or by, the Issuer of such payment
obligation;
(xv) as to which (A) no fewer than three (3) Broker-Dealers trade
in such Security and (B) the Funding Agent has not notified the Portfolio
ANNEX X--PAGE 8
<PAGE>
Manager that the Funding Agent has determined that such Security is not
acceptable, in its reasonable judgment, as an Eligible Security;
(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 to exceed 60.0% of the
aggregate Fair Market Value of all Securities owned by the Issuer; PROVIDED
HOWEVER, if the Issuer simultaneously acquires a swap, eligible pursuant
to section (iv) of this definition, which converts any portion of such
Security's fixed rate to a floating rate (a "HEDGE"), that portion of the
Security with the corresponding Hedge shall not be included as a fixed rate
security for the purposes of this calculation; and
(xvii) which is not a leveraged future or other leveraged/speculative
derivative or short position.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended from time to time, and any rule or regulation issued thereunder.
"ERISA AFFILIATE" means, with respect to the Issuer, any Person which
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Internal Revenue Code of which the Issuer is a member, or (ii) solely for
the purposes of potential liability under Section 302(c)(11) of ERISA and
Section 412(c)(11) of the Internal Revenue Code and created under Section
302(f) of ERISA and Section 412(n) of the Internal Revenue Code, described in
Section 414(m) or (o) of the Internal Revenue Code of which the Issuer is a
member.
"EURODOLLAR PERPETUAL FLOATING RATE SECURITY" means a security which
pays interest and principal in U.S. Dollars held in banks outside the U.S. and
which either has no stated maturity or a maturity date so distant in the future
such that it effectively pays interest indefinitely and with respect to which
the coupon payments reset periodically typically as specified by a short-term
interest index plus a spread.
"EURODOLLAR RATE" has the meaning specified in Section 5 of the
Face-Amount Certificate Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
ANNEX X--PAGE 9
<PAGE>
"FACE-AMOUNT CERTIFICATE AGREEMENT" means that certain Installment
Face-Amount Certificate Agreement, dated as of September 15, 1998, by and
among the Issuer, PARCO, and the Funding Agent.
"FAIR MARKET VALUE" means, with respect to any Security, Short-Term
Investment or interest rate swap at any date, (i) if quotations are then
available, the price of such Security, Short-Term Investment or interest rate
swap on the preceding Business Day, as calculated based on any regularly
published reporting or quotation service, or (ii) if quotations are not then
available, the market value of such Security, Short-Term Investment or
interest rate swap as determined by the Portfolio Manager in good faith,
based on its standard valuation procedures acceptable to the Funding Agent in
its reasonable discretion, but exclusive of the portion of such price or
valuation attributable to the accrued interest or discount with respect to
such Security, Short-Term Investment or interest rate swap as of such date;
PROVIDED that, to the extent a discrepancy exists between the calculations of
the Portfolio Manager and any Independent Valuation Report, the lower of the
two calculations shall be the Fair Market Value unless such discrepancy is
resolved at the mutual agreement of the Portfolio Manager and Funding Agent
(both parties using their best efforts), then such agreed amount will be the
Fair Market Value; PROVIDED FURTHER that the Issuer may, at its expense,
obtain a third quotation from a Person (such Person to be approved by the
Funding Agent, such approval not to be unreasonably withheld), whereupon the
average of the quotation specified in the Independent Valuation Report and
such Person's quotation shall be the applicable Fair Market Value.
"FUNDING AGENT" means Chase, in its capacity as funding agent for
the benefit of the Certificateholders under the Transaction Documents.
"INDEMNIFIED AMOUNTS" has the meaning specified in Section (a) of
Exhibit D of the Face-Amount Certificate Agreement.
"INDEMNIFIED PARTY" means the Funding Agent (including, without
limitations, its officers, directors, employees and agents) or any
Certificateholder.
"INDEPENDENT VALUATION REPORT" means a report of an independent
Person (other than an Affiliate of the Issuer or the Parent) selected by the
Funding Agent and at the Purchaser's expense, which report shall state the
Fair Market Value of the Custodial Account, as of any date specified by the
Funding Agent, PROVIDED that if the Fair Market Value is reported as less
than 97% of the Invested Amount, the Funding Agent will notify the Portfolio
Manager at least one (1) Business Day
ANNEX X--PAGE 10
<PAGE>
prior to the earlier to occur of (i) the day on which the next Weekly Report
is due, or (ii) the next Settlement Date.
"INITIAL PURCHASE" has the meaning specified in Section 1 of the
Face-Amount Certificate Agreement.
"INSOLVENCY EVENT" means, with respect to any Person, the
occurrence of any of the following events: (a) such Person is wound up or
dissolved or there is appointed over it or a substantial part of its assets a
receiver, administrator, administrative receiver, trustee or similar officer;
or (b) such Person (i) ceases to be able to, or admits in writing its
inability to, pay its debts as they become due and payable, or makes a
general assignment for the benefit of, or enters into any legal composition
or arrangement with, its creditors generally; (ii) applies for or consents
(by admission of material allegations of a petition or otherwise) to the
appointment of a receiver, trustee, assignee (other than the Funding Agent),
custodian (other than the Custodian), liquidator or sequestrator (or other
similar official) of such person or entity or of any substantial part of its
properties or assets, or authorizes such an application or consent, or
proceedings seeking such appointment are commenced without such
authorization, consent or application against such person or entity; (iii)
authorizes or files a voluntary petition in bankruptcy, or applies for or
consents (by admission of material allegations of a petition or otherwise) to
the application of any bankruptcy, insolvency or similar law, or authorizes
such application or consent, or proceedings to such end are instituted
against such person or entity without such authorization, application or
consent (and such proceedings have not been dismissed for 60 days); or (iv)
permits or suffers all or any substantial part of its properties or assets to
be sequestered or attached by court order.
"INSTALLMENT PURCHASE" has the meaning specified in Section 1 of the
Face-Amount Certificate Agreement.
"INSTRUMENT" means an instrument (including, without limitation, a
promissory note) or certificated security, as each such term is defined in the
Uniform Commercial Code of any applicable jurisdiction.
"INTEGRITY CAPITAL" means Integrity Capital Advisors, Inc., a Delaware
corporation, and its successors.
"INVESTED AMOUNT" means, during all times, the aggregate principal
amount outstanding under the Face-Amount Certificate.
ANNEX X--PAGE 11
<PAGE>
"INVESTMENT ADVISERS ACT" means the Investment Advisers Act of 1940,
as amended.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"INVESTMENT GUIDELINES" means a set of investment guidelines attached
as Exhibit A to the Investment Management Agreement, and agreed upon between the
Issuer and the Funding Agent.
"INVESTMENT MANAGEMENT AGREEMENT" means that certain investment
management agreement, dated as of September 15, 1998, by and among the Issuer,
the Funding Agent, and Integrity Capital Advisors, Inc., as amended, restated,
supplemented or otherwise modified and in effect from time to time.
"ISSUER" means 212 Certificate Company, a Delaware corporation.
"LAW" means any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LIBOR RATE" means, with respect to any Eurodollar Tranche Period, the
rate at which deposits in dollars are offered to the Funding Agent, in the
London interbank market at approximately 11:00 A.M. (London time) two (2)
Business Days before the first day of such Eurodollar Tranche Period in an
amount approximately equal to the portion of the Invested Amount to which the
Eurodollar Rate is to apply and for a period of time approximately equal to the
applicable Eurodollar Tranche Period.
"LIQUIDATION EVENT" means either (A) the 270th day following the
commencement of the Amortization Period or (B) the occurrence of any
Amortization Event described in clauses (i), (v), (vi), (vii), (viii), (xi) or
(xii) of the definition thereof.
"MANAGER" means Global Securitization Services LLC, a Delaware
limited liability company, and its successors and assigns in its capacity as
manager for the Purchaser.
ANNEX X-PAGE 12
<PAGE>
"MATURITY DATE" has the meaning specified in Section 8 of the Face-
Amount Certificate Agreement.
"MONTHLY COMPLIANCE REPORT" has the meaning specified in Section
7(f)(vii) of the Investment Management Agreement.
"MOODY'S" means Moody's Investors Service, Inc., and its successors
and assigns.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
years was contributed to either by the Parent or any ERISA Affiliate.
"NON-PAYMENT EVENT" shall mean, at any time with respect to the Swap
Provider, any failure by the Swap Provider to make any payment when due under
the Swap Agreement or under any other insurance or reinsurance policy or any
other swap or hedging agreement issued by it; PROVIDED that any failure of the
Swap Provider to make payment under any other such insurance or reinsurance
policy or swap or hedging agreement (i) for the reason that all conditions to,
and defenses against, payment thereon have not been duly satisfied or related to
a BONA FIDE good faith dispute between the Swap Provider and the beneficiary or
counterparty, as the case may be, of such other insurance or reinsurance policy
or swap or hedging agreement or (ii) if such failure arose out of an inadvertent
administrative error or omission (provided that such error is corrected within a
commercially reasonable time period) shall not, in and of itself, constitute a
Non-Payment Event.
"NON-RULE 144A LETTER" has the meaning specified in Section
14(a)(ii)(y) of the Face-Amount Certificate Agreement.
"OBLIGATIONS" means the obligations of the Pledgor under the
Face-Amount Certificate, the Face-Amount Certificate Agreement and the other
Transaction Documents.
"OBLIGOR" means, with respect to any Security or Short-Term
Investment, each person or entity which is obligated to make payments with
respect to such Security or Short-Term Investment, as applicable, including any
guarantor of such person or entity's obligations.
ANNEX X-PAGE 13
<PAGE>
"OFFICIAL BODY" means any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of any such government or political subdivision, or any
court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
"ONE-MONTH LIBOR" means, with respect to any portion of the
Invested Amount funded at a Eurodollar Rate, a rate equal to the applicable
Eurodollar Rate for a Eurodollar Tranche Period of one month.
"PARCO" means Park Avenue Receivables Corporation, a Delaware
corporation, and its successors.
"PARCO WIND-DOWN EVENT" means the occurrence of any of the following
events:
(a) on the fifth Business Day prior to the date specified in the
definition of "Scheduled Liquidity Termination Date" (after giving effect
to any extensions), the Aggregate Commitment has not been extended for an
additional 364 days;
(b) any provider of the Purchaser's program liquidity and/or letter
of credit facilities shall have given notice that an event of default has
occurred and is continuing under its agreement with the Purchaser;
(c) the Purchaser has notified the Issuer that it no longer wishes
to, or is unable to, issue Commercial Paper with respect to the
Certificate;
(d) the Commercial Paper shall not be rated at least A-1/P-1 by
Standard & Poor's and Moody's, respectively; and
(e) an Amortization Event or Potential Amortization Event shall have
occurred and be continuing.
"PARENT" means ARM Financial Group, Inc., a Delaware corporation, and
its successors and assigns.
"PARTIAL AMORTIZATION NOTICE" has the meaning specified in Section
9(b) of the Face-Amount Certificate Agreement.
ANNEX X--PAGE 14
<PAGE>
"PERSON" means any corporation (including a business trust),
natural person, firm, joint venture, joint stock company, limited liability
company, partnership, trust, unincorporated organization, enterprise,
government or any department or agency of any government.
"PLEDGE AGREEMENT" means that certain Pledge and Security
Agreement, dated as of September 15, 1998, by and between 212 Certificate
Company and Chase, as Funding Agent, as amended, restated, supplemented or
otherwise modified from time to time.
"PLEDGED COLLATERAL" means all of the Pledgor's right, title and
interest, whether now owned or hereafter acquired and wherever located, in,
to and under all accounts, contract rights, general intangibles, chattel
paper, instruments, documents, money, cash, deposit accounts, certificate of
deposit, goods, letters of credit, securities investment property, financial
assets or security entitlements consisting of, arising from or relating to
any of the following property:
(i) all Securities and Short-term Investments owned by the Issuer
from time to time;
(ii) all Certificate Purchase Payments and payments in respect of any
Swap;
(iii) the Custodial Account and all funds on deposit from time to
time therein and all investments, proceeds and other property credited
thereto (including income thereon);
(iv) all rights of the Pledgor under the Investment Management
Agreement, the Swap Agreement, the Face-Amount Certificate Agreement, the
Custodial Agreement and the other Transaction Documents; and
(v) all present and future claims, demands, causes and choices in
action in respect of any or all of the foregoing, and all proceeds thereof.
"PLEDGOR" means the Issuer, in its capacity as pledgor under the
Pledge Agreement.
"PORTFOLIO" means the Pledged Collateral.
ANNEX X--PAGE 15
<PAGE>
"PORTFOLIO MANAGER" means Integrity Capital Advisors, Inc., a Delaware
Corporation, and its successors and assigns.
"PORTFOLIO MANAGER FEE" means 0.25% per annum.
"PORTFOLIO MANAGERY TRANSFER" has the meaning in Section 13(d) of the
Investment Management Agreement.
"POTENTIAL AMORTIZATION EVENT" means any event which, with the giving
of notice or the passing of time, or both, will unavoidably constitute an
Amortization Event.
"PROGRAM FEE" means the fees set forth in the Program Fee Letter.
"PROGRAM FEE LETTER" means that certain fee letter, dated as of
September 15, 1998, between the Issuer and the Funding Agent, as amended from
time to time upon the mutual agreement of the parties thereto.
"PURCHASER" means PARCO.
"REDEMPTION PRICE" means, in connection with any redemption of a
portion of the Invested Amount on any date specified by the Issuer to the
Funding Agent in a Partial Amortization Notice, an amount equal to the sum of
(i) the portion of the Invested Amount to be redeemed PLUS (ii) all interest
accrued and scheduled to accrue on such portion of the Invested Amount PLUS
(iii) all costs, fees and expenses due and owing to the Certificateholders under
the Transaction Documents which are attributable to such portion of the Invested
Amount scheduled to be redeemed.
"REMOVAL NOTICE" means any notice delivered pursuant to the first
sentence of Section 12(b) of the Investment Management Agreement.
"RULE 144A" means Rule 144A under the Securities Act, as amended from
time to time.
"RULE 144A LETTERS" has the meaning specified in Section 14(a)(ii)(x)
of the Face-Amount Certificate Agreement.
"SALE" has the meaning specified in Section 14(a)(ii) of the
Face-Amount Certificate Agreement.
ANNEX X--PAGE 16
<PAGE>
"SALE PROCEEDS" has the meaning specified in the preamble to the
Face-Amount Certificate Agreement.
"SCHEDULED LIQUIDITY TERMINATION DATE" means September 14, 1999, as
such date may be extended from time to time in writing between the Issuer and
the Certificateholders.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY" means indebtedness constituting a debenture, bond, note,
security entitlement, certificated security or other Instrument or evidence of
indebtedness issued by an Obligor or Obligors, other than a line of credit or a
loan.
"SETTLEMENT DATE" means the 12th calendar day of each month, or, if
such day is not a Business Day, the next succeeding Business Day or the Maturity
Date (as applicable).
"SETTLEMENT PERIOD" means the period commencing the first day of each
calendar month and ending on and including last day of such calendar month;
PROVIDED that the initial Settlement Period will commence on the Closing Date
and end on, and include, October 31, 1998.
"SETTLEMENT REPORT" has the meaning in Section 7(f)(vi) of the
Investment Management Agreement.
"SHORT-TERM INVESTMENTS" means the short-term interest bearing and
short-term discount obligations held by the Issuer from time to time in the
Custodial Account pursuant to Section 6 of the Custodial Agreement.
"SHORTFALL 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.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, and its successors and assigns.
ANNEX X--PAGE 17
<PAGE>
"SUCCESSOR PORTFOLIO MANAGER" has the meaning specified in Section 13
(c) of the Investment Management Agreement.
"SUCCESSOR SWAP PROVIDER" means any Person rated at least AA or better
by Standard & Poor's and Aa2 or better by Moody's, which Person has become
obligated to assume the obligations of the swap counterparty under the Swap
Agreement (with the consent of the Funding Agent).
"SURPLUS AMOUNT" means, on any date, the positive difference, if
any, of (i) 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, MINUS (ii) the outstanding Invested Amount on such date.
"SWAP AGREEMENT" means that certain ISDA Master Agreement, dated as of
September 15, 1998, together with the accompanying Schedule, Exhibits and
Confirmations delivered pursuant thereto by and between the Issuer and Integrity
Life Insurance Company, as swap counterparty thereunder, as amended, restated,
supplemented or otherwise modified and in effect from time to time.
"SWAP EVENT" means, with respect to the Swap Agreement, the occurrence
of any one or more of the following: (a) the Swap Provider shall have
voluntarily commenced any proceeding or filed any petition under any bankruptcy,
insolvency or similar law seeking the dissolutions, liquidation or
reorganization of the Swap Provider, (b) involuntary proceedings or an
involuntary petition shall have been commenced or filed against the Swap
Provider by any person or entity under any bankruptcy, insolvency or similar law
seeking the dissolution, liquidation or reorganization of the Swap Provider
which proceedings or petition have not been dismissed within sixty (60) days or
an order of relief shall have been entered, or (c) the Swap Provider (i) shall
fail to make any payment or deposit when due under the Swap Agreement or (ii)
shall fail to perform or shall breach any covenant or any other agreement under
the Swap Agreement and such failure to perform or breach is not cured within
five (5) Business Days, such period to begin at the time at which the Swap
Provider knew, or reasonably should have known, of such breach or failure to
perform.
"SWAP PROVIDER" means Integrity Capital, and its successors and
assigns in the capacity of swap counterparty thereunder.
ANNEX X-PAGE 18
<PAGE>
"TAXES" has the meaning specified in Section (d) of Exhibit D to the
Face-Amount Certificate Agreement.
"TERMINATION DATE" means the date on which the Invested Amount under
the Face-Amount Certificate and all other amounts payable by the Issuer under
the Face-Amount Certificate Agreement and the other Transaction Documents have
been fully paid in cash.
"TRANSACTION COSTS" has the meaning specified in Section (e) of
Exhibit D to the Face-Amount Certificate Agreement.
"TRANSACTION DOCUMENTS" means the Face-Amount Certificate Agreement,
the Certificate, the Custodial Agreement, the Pledge Agreement, the Control
Agreement, the Investment Management Agreement, the Asset Purchase Agreement,
the Program Fee Letter, the Swap Agreement and each of the other documents,
agreements or instruments from time to time executed and delivered by a
Transaction-Related Party to the Funding Agent or any Certificateholders in
connection with the transactions contemplated hereby or thereby.
"TRANSACTION-RELATED PARTY" means any of the Issuer, the Portfolio
Manager, the Swap Provider, the Custodian (if Chase is not the Custodian) or any
authorized agent of the foregoing.
"WEEKLY REPORT" has the meaning specified in Section 7(f)(v) of the
Investment Management Agreement.
ANNEX X--PAGE 19
<PAGE>
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.
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
(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
4
<PAGE>
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
5
<PAGE>
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:
6
<PAGE>
(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;
7
<PAGE>
(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);
8
<PAGE>
(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.
9
<PAGE>
(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.
10
<PAGE>
(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.
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
14
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT A
INVESTMENT GUIDELINES
A-1
<PAGE>
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MIN./MAX/ MAX. PER MAX. PER
CLASS EXP. ISSUE ISSUER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
- --------------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
[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.
<PAGE>
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
<PAGE>
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.
<PAGE>
EXHIBIT B
INVESTMENT PORTFOLIO MANAGER AGREEMENT
B-1
<PAGE>
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;
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
APPENDIX A
SUBSIDIARIES
312 Certificate Company
<PAGE>
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.
<PAGE>
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.
<PAGE>
EXHIBIT C
FORM OF WEEKLY REPORT
C-1
<PAGE>
WEEKLY REPORT
<TABLE>
<CAPTION>
<S><C>
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]
--------------------
<CAPTION>
- --------------------------------------------------------------------------------
I. Reconciliation of Invested Amount
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
II. Reconciliation of the Portfolio's Fair Market Value (FMV)
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
[COMPLIANCE PARAGRAPH]
<PAGE>
EXHIBIT D
FORM OF SETTLEMENT REPORT
D-1
<PAGE>
<TABLE>
<CAPTION>
<S><C>
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:
------------------- ----------
<CAPTION>
- --------------------------------------------------------------------------------
I. Reconciliation of Invested Amount
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
II. Reconciliation of the Portfolio's Fair Market Value (FMV)
- --------------------------------------------------------------------------------
<S> <C>
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.
<CAPTION>
- --------------------------------------------------------------------------------
III. Settlement Period Portfolio Book Income Determination
- --------------------------------------------------------------------------------
<S> <C>
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)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
IV. Priority Of Payments
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
V. Required Swap Payment (if any) by Swap Provider:
- --------------------------------------------------------------------------------
<S> <C>
Program Cost Subtotal - Book Income (IV.G-III.G) $0.00
Approximate LIBOR Spread (bps) (IV.H-III.H) 0.00
- --------------------------------------------------------------------------------
Page 1
<PAGE>
Settlement Report
<CAPTION>
- --------------------------------------------------------------------------------
VI. Book Income Available for Distributions
- --------------------------------------------------------------------------------
<S> <C>
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.)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
VII. Portfolio Monitoring
- --------------------------------------------------------------------------------
Termination
Actual Trigger
------ -------
<S> <C> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
VIII. Payment Summary Section:
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
EXHIBIT E
FORM OF MONTHLY COMPLIANCE REPORT
E-1
<PAGE>
Monthly Compliance Report
<TABLE>
<CAPTION>
<S><C>
Summary Information:
Purchase Limit: $500,000,000 Liquidity Termination Date:
------------- -------
On Last Day of Settlement Period: [Date]
-------------
Due to Agent on Settlement Date: [Date]
-------------
<CAPTION>
Maximum Actual Maximum Actual
Maximum Actual Per Issue Per Issue Per Issuer Per Issuer
Asset Class Exposure Exposure Exposure Exposure Exposure Exposure
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
[COMPLIANCE PARAGRAPH]
Page l
<PAGE>
SEPTEMBER 15,1998
DOMESTIC CUSTODY AGREEMENT
TO: THE CHASE MANHATTAN BANK
North American Insurance Securities Services
3 Chase MetroTech Center, 6th Floor
Brooklyn, New York 11245
Ladies and Gentlemen:
We hereby request you to open and to maintain on your records a
Custodial Account in our name as Entitlement Holder and to credit to such
account Financial Assets as our Securities Intermediary, upon the following
terms and conditions. From time to time, we may instruct you to open additional
Custodial Accounts for us. Unless we and you shall otherwise expressly agree in
writing, all such Custodial Accounts shall be governed by the terms of this
Agreement.
Financial Assets credited to the Custodial Account shall be segregated
at all times from, and shall not become part of, your proprietary assets.
Financial Assets credited to the Custodial Account shall be withdrawable or
transferable upon our instructions as hereinafter described, subject to the
further terms and conditions herein.
1. DEFINITIONS. The capitalized terms used herein shall have the
meanings set forth below:
"AGREEMENT" means this Domestic Custody Agreement.
"CASH ACCOUNT" means a separate cash account in our name on your
demand deposit account system and designated by us to be credited and debited in
respect of transactions to the Custodial Account pursuant to this Agreement.
"CUSTODIAL ACCOUNT" means each Securities Custodial Account in our
name on your records to which a Financial Asset is or may be credited pursuant
to this Agreement.
<PAGE>
"DEPOSITORY" means a Federal Reserve Bank and any clearing corporation
as defined in the Uniform Commercial Code.
"ENTITLEMENT HOLDER" means the person on the records of a Securities
Intermediary as the person having a Security Entitlement against the Securities
Intermediary.
"FINANCIAL ASSETS" means Securities. As the context requires a
Financial Asset means either the interest itself or the means by which a
person's claim to it is evidenced, including a certificated or uncertificated
Security, a Security certificate, or a Securities Entitlement.
"SECURITIES" means stocks, bonds, rights, warrants and other
negotiable and non-negotiable paper issued in certificated form or in
uncertificated form and commonly traded or dealt in on securities exchanges or
financial markets, and other obligations of an issuer, or shares, participations
and interests in an issuer recognized in an area in which it is issued or dealt
in as a medium for investment and any other property as shall be acceptable to
you for the Custodial Account.
"SECURITIES ENTITLEMENT" means the rights and property interest of a
Entitlement Holder with respect to a Financial Asset as set forth in Part 5 of
the Uniform Commercial Code.
"SECURITIES INTERMEDIARY" means you, a Depository, and any other
financial institution which in the ordinary course of its business maintains
Securities accounts for others and acts in that capacity.
"UNIFORM COMMERCIAL CODE" means Article 8 of the New York Uniform
Commercial Code, as amended.
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings assigned to such terms in, or incorporated by reference into,
that certain Face-Amount Certificate Agreement, dated as of September 15, 1998,
by and among ourselves, Park Avenue Receivables Corporation and The Chase
Manhattan Bank, as Funding Agent, as the same may from time to time be amended,
supplemented or otherwise modified and in effect.
2
<PAGE>
2. TRANSACTIONS. Unless you receive contrary written instructions
from us, and subject to the further provisions of this Agreement, you are
authorized:
(a) to receive all interest and dividends payable on the Financial
Assets credited to the Custodial Account and to credit such interest and
dividends to the Cash Account;
(b) to credit to the Cash Account all proceeds received from sales
and redemptions of Financial Assets for the Custodial Account;
(c) to debit the Cash Account for the cost of acquiring Financial
Assets for the Custodial Account;
(d) to present Financial Assets (including coupons) for payment upon
maturity, when called for redemption and when income payments are due;
(e) to exchange Financial Assets for other Financial Assets where the
exchange is purely ministerial as, for example, the exchange of Financial Assets
in temporary form for Financial Assets in definitive form or the mandatory
exchange of Financial Assets;
(f) to sell Financial Assets with fractional interests resulting from
a stock split or a stock dividend and to credit the Cash Account with the
proceeds thereof;
(g) to execute in our name, whenever you deem it appropriate, such
ownership and other certificates as may be required to obtain payments with
respect to, or to effect the sale, transfer or other disposition of, Financial
Assets in the Custodial Account and to guarantee as our signature the signature
so affixed; and
(h) to receive and hold in the Custodial Account Financial Assets
which have transfer limitations imposed upon them by the Securities Act of 1933,
as amended.
3. INSTRUCTIONS. Subject to the terms of the Control Agreement and
the Pledge Agreement, you are authorized to rely and act upon all further
written instructions given or purported to be given by one or more officers,
employees or agents of ours (i) authorized by or in accordance with a corporate
resolution of ours
3
<PAGE>
delivered to you or (ii) described as authorized in a certificate delivered to
you by our Secretary or an Assistant Secretary or similar officer of ours (each
such officer, employee or agent or combination of officers, employees and agents
authorized pursuant to clause (i) or described pursuant to clause (ii) of this
paragraph is hereinafter referred to as an "AUTHORIZED OFFICER"). (The term
"instructions" includes, without limitation, instructions to sell, assign,
transfer, deliver, purchase or receive for the Custodial Account, any and all
stocks, bonds and other Financial Assets or to transfer funds in the Cash
Account.) You may also rely and act upon instructions when bearing or purporting
to bear the facsimile signature or signatures of any of the individuals
designated by an Authorized Officer regardless of by whom or by what means the
actual or purported facsimile signature or signatures thereon may have been
affixed thereto if such facsimile signature or signatures resemble the facsimile
specimen or specimens from time to time furnished to you by any of such
Authorized Officers, our Secretary or an Assistant Secretary or similar officer
of ours. In addition, you may rely and act upon instructions received by
telephone, telex, facsimile transmission, bank wire or other teleprocess or
electronic instruction or trade information system acceptable to you which you
believe in good faith to have been given by an Authorized Officer or which are
transmitted with proper testing or authentication pursuant to terms and
conditions which you may specify. You may also rely and act upon instructions
transmitted electronically through your TITAN Data Entry System or any similar
electronic instruction system acceptable to you. You shall incur no liability to
us or otherwise as a result of any act or omission by you in accordance with
instructions on which you are authorized to rely pursuant to the provisions of
this paragraph. Any instructions delivered to you by telephone shall promptly
thereafter be confirmed in writing by an Authorized Officer, but you shall incur
no liability for our failure to send such confirmation in writing, the failure
of any such written confirmation to conform to the telephone instructions which
you received, the failure of any such written confirmation to be signed or
properly signed, or your failure to produce such confirmation at any subsequent
time. You shall incur no liability for refraining from acting upon any
instructions which for any reason you, in good faith, are unable to verify to
your own satisfaction. With respect to instructions received hereunder to
transfer funds from the Cash Account to any other account or party, we agree to
implement any callback or other authentication method or procedure or security
device required by you at any time or from time to time. Unless otherwise
expressly provided, all authorizations and instructions shall continue in full
force and effect until canceled or superseded by subsequent authorizations or
instructions received by your safekeeping account administrator with reasonable
opportunity to act thereon. Your authorization to rely and act upon
4
<PAGE>
instructions pursuant to this paragraph shall be in addition to, and shall not
limit, any other authorization which we may give you regarding our accounts with
you.
We agree that, if you require test arrangements, authentication
methods or procedures or other security devices to be used with respect to
instructions which we may give hereunder, thereafter instructions given by us
shall be given and processed in accordance with terms and conditions for the use
of such arrangements, methods or procedures or devices as you may put into
effect and modify from time to time. We shall safeguard any testkeys,
identification codes or other security devices which you make available to us
and agree that we shall be responsible for any loss, liability or damage
incurred by you or by us as a result of your acting in accordance with
instructions from any unauthorized person using the proper security device,
unless such unauthorized use is the result of your negligence or willful
misconduct. You may electronically record any instructions given by telephone,
and any other telephone discussions with respect to the Custodial Account or
transactions pursuant to this Agreement.
If you are instructed by us to purchase or sell Financial Assets for
the Custodial Account you may enter purchase and sale orders and confirmations,
and perform any other acts incidental or necessary to the performance thereof
with brokers or dealers or similar agents selected by you, including any broker
or dealer or similar agent affiliated with you, for our account and risk in
accordance with accepted industry practices in the relevant market.
Except as may be provided otherwise in this Agreement, you are
authorized to execute our instructions and take other actions pursuant to this
Agreement in accordance with your customary processing practices for customers
similar to us and, in accordance with such practices, you may retain agents,
including subsidiaries or affiliates of yours, to perform any of your duties and
responsibilities under this Agreement.
In acting upon instructions to deliver Financial Assets against
payment, you are authorized, in accordance with customary securities processing
practices, to deliver such Financial Assets to the purchaser thereof or dealer
therefor (including to an agent for any such purchaser or dealer) against a
receipt, with the expectation of collecting payment from the purchaser, dealer
or agent to whom the Financial Assets were so delivered before the close of
business on the same day.
5
<PAGE>
4. REGISTRATION. Unless you receive contrary instructions from
us, you are authorized to keep Financial Assets in your own vaults or in book
entry form registered in your name or in the name of your nominee or nominees
or, where Financial Assets are eligible for deposit in a Depository, such as
The Depository Trust Company or Participants Trust Company, you may use any
such Depository and permit the registration of registered Financial Assets in
the name of its nominee or nominees, and we agree to indemnify and hold you
and the nominees harmless from any liability as holders of record. We shall
accept the return or delivery of Financial Assets of the same class and
denomination as those deposited with you by us or otherwise received by you
for the Custodial Account, and you need not retain the particular
certificates so deposited or received.
Certificated Securities held by you for our account in your own vaults
shall be held either separate from the certificated Securities of your other
customers or in a fungible bulk of Securities as part of a Filing of Securities
by Issue (FOSBI) arrangement.
If any of our Financial Assets registered in your name or the name of
your nominee or held in a Depository and registered in the name of the
Depository's nominee are called for partial redemption by the issuer of such
Financial Assets, you are authorized to allot the called portion to the
respective beneficial holders of the Financial Assets in any manner deemed to be
fair and equitable by you in your sole discretion.
5. RECORDS AND STATEMENTS. You shall notify us of each Financial
Asset transaction effected for the Custodial Account and of income on and
redemptions of the Financial Assets in the Custodial Account, as well as
furnish us a listing of such Financial Assets, at such times upon which you
and we mutually agree. Periodic statements shall be rendered to us as we may
reasonably require, but not less frequently than monthly. You shall at all
times maintain proper books and records that shall identify us as the
Entitlement Holder of such Financial Assets. Financial Assets of ours held by
you in a fungible bulk and in a Depository or with an agent shall be
separately identified on your books and records as being held for our
account. Your records shall identify which Financial Assets are held by you
or by your agents and which Financial Assets are held with Depositories and
the names of such Depositories and agents holding such Financial Assets. Your
books and records relating to the Custodial Account shall be available for
inspection on your premises upon reasonable notice to you during your regular
business hours by duly authorized officers, employees, or agents of ours, or
by legally authorized regulatory
6
<PAGE>
officials who are then in the process of reviewing our financial affairs upon
proof to you of such official status. You agree to use reasonable efforts to
maintain records sufficient to enable us to determine and verify information
concerning the Financial Assets held for our account. You agree to furnish, upon
our request or the request of the Insurance Department of any state in which we
are licensed to do business, a verification certificate (which may be in
affidavit form) in sufficient detail to permit adequate identification of the
Financial Assets belonging to us as Entitlement Holder and held by you under the
terms of this Agreement. Such certificate shall be signed by a responsible
official of yours and furnished to the requestor, with a copy to us if the
requestor is the Insurance Department.
Upon our request, you will send to us all reports you receive from a
Depository or the Federal Reserve book-entry system concerning their respective
systems of internal accounting control. Upon our request, you will send the
annual report (SAS 70 Report) prepared by your external auditors on your systems
of internal accounting control of custodied Financial Assets.
Unless we shall send to you a written exception or objection to any
statement of account within 60 days of our receipt of such statement from you,
we shall be deemed to have approved such statement. In such event, or where we
have otherwise approved such statement, you shall, to the extent permitted by
law, be released, relieved and discharged with respect to all matters set forth
in such statement or reasonably implied therefrom as though it had been settled
by the decree of a court of competent jurisdiction in an action where we and all
persons having or claiming an interest in the Custodial Account or Cash Account
were parties.
6. CORPORATE ACTIONS. You shall send us such proxies (signed in
blank, if issued in your name or the name of your nominee or a nominee of a
Depository) and communications with respect to Financial Assets in the Custodial
Account as call for voting or relate to legal proceedings within a reasonable
time after sufficient copies are received by you for forwarding to customers. In
addition, you shall follow coupon payments, redemptions, exchanges or similar
matters with respect to Financial Assets in the Custodial Account and advise us
of rights issued, tender offers or any other discretionary rights with respect
to such Financial Assets, in each case, of which you receive notice at your
central corporate actions department from the issuer or from the Depository in
which such Financial Assets are maintained or notice published in publications
and reported in reporting services routinely used by you for this purpose.
7
<PAGE>
7. CUSTODIAN RESPONSIBILITY. Except as provided in the next
following paragraph, you shall be obligated to indemnify us for any loss of
Financial Assets received for, and credited to the Custodial Account
resulting from (i) the negligence or willful misconduct of you or your
officers, employees or agents retained by you to hold such Financial Assets
or (ii) the burglary, robbery, hold-up, theft or mysterious disappearance,
including loss by damage or destruction. In the event of a loss of Financial
Assets in the Custodial Account for which you are required to indemnify us
pursuant to the immediately preceding sentence, at your option, you shall
promptly replace such Financial Assets (by among other means posting
appropriate security or bond with the issuer(s) of such Financial Assets and
obtaining their reissue) or the value thereof (determined based upon the
market value of the Financial Assets which are the subject of such loss as of
the date of the discovery of such loss) and the value of any loss of rights
or privileges resulting from the loss of such Financial Assets. The foregoing
indemnity shall be your exclusive liability to us for your loss of Financial
Assets from the Custodial Account. In respect of all your other duties and
obligations pursuant to the terms of this Agreement, you shall be liable to
us only to the extent of our general damages suffered or incurred as a result
of any act or omission of you or your officers, employees or agents which
constitutes negligence or willful misconduct. General damages shall mean only
those damages as directly and necessarily result from such act or omission
without reference to any special conditions or circumstances of ours or of
any transaction, whether or not you have been advised of any such special
conditions or circumstances. Anything in this Agreement to the contrary
notwithstanding, in no event shall you be liable to us under this Agreement
for special, indirect or consequential loss or damage of any kind whatsoever,
whether or not you are advised as to the possibility of such loss or damage
and regardless of the form of action in which any such loss or damage may be
claimed.
You shall not be liable for the acts or omissions of (or the
bankruptcy or insolvency of) any Depository. If, however, as a result of any act
or omission of, or the bankruptcy or insolvency of, any Depository we suffer any
loss or liability, you will take such steps with respect thereto in order to
effect a recovery as you shall reasonably deem appropriate under the
circumstances (including the bringing and settling of legal proceedings),
provided that unless you shall be liable as set forth in the immediately
preceding paragraph of this Agreement, for such loss or liability by virtue of
the negligence or misconduct of you or your officers, employees or agents, the
amount of any cost or expense in effecting, or attempting to effect, such
recovery shall be for our account, and you shall have the right to charge such
cost or expense to the Cash Account. We further agree to be bound by the
Depository rules and
8
<PAGE>
procedures applicable to you as a participant in respect of any Financial Assets
held by you in your account with such Depository.
All collection and receipt of funds or Financial Assets and all
payment and delivery of funds or Financial Assets under this Agreement shall be
made by you as our agent, at our risk with respect to our actions or omissions
and those of persons other than you, including, without limitation, the risk
associated with the securities processing practice of delivering Financial
Assets against a receipt and the risk that the counterparty in any transaction
into which we enter will not transfer funds or Financial Assets or otherwise
perform in accordance with our expectation of its obligations thereunder
(including, without limitation, where, as a result of such nonperformance, a
Depository reverses, or requires repayment of, any credit given in connection
with the transfer of Financial Assets).
In no event shall you be responsible or liable for any loss due to
forces beyond your control, including, but not limited to, acts of God, flood,
fire, nuclear fusion, fission or radiation, war (declared or undeclared),
terrorism, insurrection, revolution, riot, strikes or work stoppages for any
reason, embargo, closure or disruption of any market, government action,
including any laws, ordinances, regulations or the like which restrict or
prohibit the providing of the services contemplated by this Agreement, inability
to obtain equipment or communications facilities or the error in transmission of
information caused by any machines or systems or the failure of equipment or
interruption of communications facilities, and other causes whether or not of
the same class or kind as specifically named above. In the event that you are
unable substantially to perform for any of the reasons described in the
immediately preceding sentence, you shall so notify us as soon as reasonably
practicable.
You shall be responsible for only those duties expressly stated in
this Agreement or expressly contained in instructions to perform the services
described herein given to you pursuant to the provisions of this Agreement and
accepted by you and, without limiting the foregoing, you shall have no duty or
responsibility:
(a) to questions instructions, to supervise the investment of, or
make recommendations with respect to the purchase, retention or sale of,
Financial Assets relating to the Custodial Account, to review or reconcile trade
confirmations received from brokers, or to maintain for our benefit any
insurance on Financial Assets in the Custodial Account, except that you will
maintain insurance protection which covers your duties and responsibilities
generally as a custodian of Financial
9
<PAGE>
Assets and you will maintain such coverage to the extent required by your
banking regulators and, upon our request, you will provide to us a description
of your insurance coverage as in effect at the time of our request;
(b) with regard to any Financial Asset in the Custodial Account as to
which a default in the payment of principal or interest has occurred, (i) to
give notice of default, or make demand for payment, to the issuer, or (ii) take
any other action with respect to such default; except, in each instance, where
you have been requested by us and you have agreed in writing to do so;
(c) except as otherwise specifically provided in this section
under the heading "Custodian Responsibility", for any act or omission, or for
the solvency or insolvency, or notice to us of the solvency or insolvency, of
any broker or agent which is selected by you with reasonable care or by us or
any other person to effect any transaction on for the Custodial Account or to
perform any service under this Agreement;
(d) to evaluate, or report to us regarding, the financial condition
of any person, firm or corporation to which you deliver Financial Assets or
funds pursuant to this Agreement;
(e) for any loss occasioned by delay in the actual receipt of notice
by you of any payment, redemption or other transaction in respect to which you
are authorized to take some action pursuant to this Agreement; or
(f) for any errors or omissions made by any pricing services used by
you to value Financial Assets credited to the Custodial Account as part of any
service subscribed to by us from you.
8. SETTLEMENTS. We agree with you that all credits of Financial
Assets and proceeds by you to the Custodial Account and the Cash Account,
respectively, on the settlement or payable date shall be provisional when made
and you shall be entitled to reverse any such credits subject to actual receipt
or collection of immediately available funds, and you shall have the right to
reverse any such provisional credits or erroneous entries to the Cash Account
retroactively to the date upon which the correct entry, or no entry, should have
been made.
We shall have sufficient immediately available funds each day in the
Cash Account to pay for the settlement of all Financial Assets delivered against
10
<PAGE>
payment to you and credited to the Custodial Account. Should we fail to have
sufficient immediately available funds in the Cash Account to settle these
deliveries of Financial Assets pursuant to the preceding sentence (a "DEFICIT"),
you, in your sole discretion, may elect (i) to reject the settlement of any or
all of the Financial Assets delivered to you that day to the Custodial Account,
(ii) to settle the deliveries on our behalf and debit the Cash Account (A) for
the amount of such Deficit and (B) for the amount of the funding or other cost
or expense incurred or sustained by you for our failure to have sufficient
immediately available funds in the Cash Account by the applicable settlement
deadlines for you or (iii) to reverse the posting of the Financial Assets
credited to the Custodial Account.
The foregoing rights are in addition to and not in limitation of any
other rights or remedies available to you under this Agreement or otherwise. Any
advances made by you to us in connection with the purchase, sale, redemption,
transfer or other designation of Financial Assets or in connection with
disbursements of funds to any party, which create or result in an overdraft in
the Cash Account shall be deemed a loan by you to us, payable on demand, and
bear interest on the amount of the loan each day that the loan remains unpaid at
your prime rate in effect as announced by you from time to time (unless another
rate has been separately agreed upon, in writing, between you and us in respect
of such advances).
No prior action or course of dealing on your part with respect to the
settlement of Financial Asset transactions on our behalf shall be used by or
give rise to any claim or action by us against you for your refusal to pay or
settle for a Financial Asset transactions we have not timely funded as required
herein.
9. RESPONSIBLE AS PRINCIPAL. We agree that we shall be responsible to
you as a principal for all of our obligations to you arising under or in
connection with this Agreement, notwithstanding that we may be acting on behalf
of other persons, and we warrant our authority to deposit in the Custodial
Account and Cash Account, respectively, any Financial Assets and funds which you
or your agents receive therefor and to give instructions relative thereto. We
further agree that you shall not be subject to, nor shall your rights and
obligations with respect to this Agreement and the Custodial Account or the Cash
Account be affected by, any agreement between us and any such person.
10. CREDITING AND DEBITING PROCEDURES. With respect to all
transactions for the Custodial Account and the Cash Account, including, without
limitation, dividend and interest payments and sales and redemptions of
Financial
11
<PAGE>
Assets, availability of funds credited to the Custodial Account and Cash Account
shall be based on the type of funds used in the trade settlement or payment,
including, but not limited to, same day availability for federal or same day
funds and next business day availability for clearing house or next day funds.
Furthermore, with respect to all purchases and sales of Financial Assets for the
Custodial Account, the proceeds from the sale of such Financial Assets shall be
credited to the Cash Account on the date proceeds are received by you and the
cost of Financial Assets purchased shall be debited to the Cash Account on the
date such Financial Assets are received by you, unless we have requested and you
have agreed to provide to us your contractual settlement service upon your
customary terms for such service.
11. SWEEP OF CASH BALANCES. Whenever we shall instruct you to do so,
you shall arrange for the automatic investment of cash in the Cash Account in
mutual funds (including, without limitation, the VISTA Money Market Funds and
any other mutual fund with respect to which you or an affiliate or subsidiary of
yours serves as an investment adviser, administrator, shareholder servicing
agent, and/or custodian or subcustodian and regardless of whether or not you or
an affiliate or subsidiary of yours receives any fees for services rendered to
any such mutual fund in addition to the fees received by you pursuant to this
Agreement, all of which such fees you are specifically authorized to retain) or
money market accounts (including, without limitation, accounts of yours or an
affiliate or subsidiary of yours) which you make available for such purposes and
which we shall select through our instructions to you. Further, in this regard,
you are directed automatically to arrange for the redemption of such mutual fund
shares or for the withdrawal of amounts from such money market accounts as may
be necessary to avoid any potential overdraft hereunder that you perceive based
upon the information available to you at the time of such redemption or
withdrawal. We agree that we shall read the prospectus for any mutual fund prior
to investing and acknowledge that investments in mutual fund shares are not
insured by the Federal Deposit Insurance Corporation and are not obligations of
or guaranteed by you.
12. TAXES. Unless we have already done so, we shall deliver promptly
to you with respect to each Custodial Account established under this Agreement,
two duly completed and executed copies of the proper United States Internal
Revenue Service: (i) Form W-9; or (ii) if we are not a United States person,
Form 1001, Form 4224, Form W-8 or Form 8709 (as applicable), certifying our
status as a Beneficial Owner, and therefore, we are entitled to receive United
States source payments under or in connection with this Agreement without
deduction as withholding or at a reduced rate of withholding for United States
federal income
12
<PAGE>
taxes. We agree to provide duly executed and completed updates of such form(s)
(or successor applicable forms), on or before the date that such form(s) expire
or become obsolete or after the occurrence of an event requiring a change in the
most recent form previously delivered by us to you.
"BENEFICIAL OWNER" shall have the meaning defined in United States
Income Tax regulation 1.1441-1(c)(6).
We shall be responsible for the payment of all taxes relating to the
Financial Assets in the Custodial Account. You are authorized to deduct from the
cash received or credited to the Cash Account any taxes or levies required by
any revenue or governmental authority for whatever reason in respect of the
Custodial Account.
We agree to pay, indemnify, and hold you harmless from and against any
and all liabilities, penalties, interest or additions to tax with respect to, or
resulting from, any delay in, or failure by, you (i) to pay, withhold or report
any Federal, state, local or foreign taxes imposed on, or in respect of, the
property held in the Custodial Account(s), or this Agreement, or (ii) to report
interest, dividend or other income paid or credited to the Cash Account, whether
such failure or delay by you to pay, withhold or report tax or income is a
result of (x) our failure to comply with the terms of this section, or (y) your
own acts or omissions; provided, however, we shall not be liable to you for any
penalty or additions to tax due as a result of your failure to pay or withhold
tax or to report to us interest, dividend or other income paid or credited to
the Cash Account solely as a result of your negligent acts or omissions.
13. FEES. We agree to pay you compensation for your services pursuant
to this Agreement at the fees of which you shall notify us from time to time.
14. INDEMNIFICATION. (a) We agree to indemnify and hold you and your
directors, officers, agents and employees (collectively the "INDEMNITEES")
harmless from and against any and all claims, liabilities, losses, damages,
fines, penalties, and expenses, including out-of-pocket and incidental expenses
and legal fees ("LOSSES") that may be imposed on, incurred by, or asserted
against, the Indemnitees or any of them for following any instructions or other
directions upon which you are authorized to rely pursuant to the terms of this
Agreement.
13
<PAGE>
(b) In addition to and not in limitation of paragraph (a) immediately
above, we also agree to indemnify and hold the Indemnitees and each of them
harmless from and against any and all Losses that may be imposed on, incurred
by, or asserted against, the Indemnitees or any of them in connection with or
arising out of your performance under this Agreement, provided the Indemnitees
have not acted with negligence or engaged in willful misconduct.
15. SECURITY INTEREST. To the extent you have advanced funds on our
behalf in connection with the settlement of purchases and sales of Financial
Assets for the Custodial Account you shall have a security interest in the
Financial Assets which are the subject of such purchases and sales until we
shall have repaid the amount of such advance to you, and your security interest
in such Financial Assets shall be released upon our repayment of such advance to
you.
16. TERMINATION. Either party may terminate this Agreement at any
time upon thirty days written notice (with a copy to the Funding Agent). Our
obligations pursuant to the paragraphs under the headings "Registration",
"Settlements", "Fees", "Indemnification", "Taxes" and "Security Interest" shall
survive the termination of this Agreement.
17. NOTICES. Notices with respect to termination, specification of
Authorized Officers and terms and conditions for instructions required hereunder
shall be in writing, and shall be deemed to have been duly given if delivered
personally, and when received if delivered by courier service or by mail,
postage prepaid, to the following addresses (or to such other address as either
party hereto may from time to time designate by notice duly given in accordance
with this paragraph):
To us at: 212 Certificate Company
515 West Market Street, 8th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox
To you, to the attention of the individual designated by you as the
safekeeping account administrator for our account, at:
The Chase Manhattan Bank
North American Insurance Securities Services
3 Chase Metro Tech Center, 6th Floor
14
<PAGE>
Brooklyn, New York 11245
18. GOVERNING LAW, SUCCESSORS AND ASSIGNS, HEADINGS. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, and shall be binding on our and your respective successors and
assigns. We and you hereby irrevocably submit to the exclusive jurisdiction of
the state and federal courts in the State and County of New York for the
purposes of any suit, action or other proceedings arising out of this Agreement.
We and you hereby irrevocably waive any objection on the ground of venue, FORUM
NON CONVENIENS, or any similar grounds, and irrevocably consent to service of
process by mail or in any manner permitted by New York law, and irrevocably
waive our rights to any jury trial. The headings of the paragraphs hereof are
included for convenience of reference only and do not form a part of this
Agreement.
19. PRIOR PROPOSALS. Subject to the Terms of the Control Agreement and
the Pledge Agreement, this Agreement (including any Riders relating to
additional services in respect of the Custodial Account we may request of you)
shall contain the complete agreement of the parties hereto with respect to the
Custody Account (except as may be expressly provided to the contrary herein) and
supersedes and replaces any previously made proposals, representations,
warranties or agreements with respect thereto by either or both of the parties
hereto. This Agreement shall become effective upon execution hereof by us and
acceptance by you.
20. SEPARABILITY. Any provisions of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
21. RESERVATION OF RIGHT. You shall have the right not to accept for
deposit to the Custodial Account any Financial Assets which are in a form or
condition which you, in your sole discretion, determine not to be suitable for
the services you provide under this Agreement.
Your rights and remedies under this Agreement are in addition to, and
not in limitation of, any other rights and remedies you may have under
applicable law.
15
<PAGE>
22. ADDITIONAL DUTIES. If we shall ask you to perform duties or
responsibilities not specifically set forth in this Agreement and you choose to
perform such additional duties or responsibilities, you shall be held to the
same standard of care and you shall be entitled to all the protective provisions
(including but not limited to limitation of liability and indemnification) set
forth herein.
23. COUNTERPARTS. This Agreement may be executed in several
counterparts each of which shall be deemed to be an original and together shall
constitute one and the same agreement.
24. MISCELLANEOUS. We understand that we may request to have a
Custodial Account established under this Agreement which is not linked to a
separate Cash Account. We understand further that with respect to any such
Custodial Account so established any funds received by you in respect of
transactions for such Custodial Account will be credited to a cash ledger which
shall be part of the Custodial Account and, further, funds credited to the
Custodial Account are not subject to withdrawal by check or draft and must be
transferred by us by means of instruction (a "payment order") to one of your
account administrators assigned by you for the Custodial Account, which you will
identify to us. We agree that payment orders and communications seeking to
cancel or amend payment orders which are issued by telephone, telecopier or in
writing shall be subject to a mutually agreed security procedure and you may
execute or pay payment orders issued in our name when verified by you in
accordance with such procedure.
In executing or paying a payment order you may rely upon the
identifying number (e.g. Fedwire routing number or account) or any party as
instructed in the payment order. We assume full responsibility for any
inconsistency between the name and identifying number of any party in payment
orders issued to you in our name.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
16
<PAGE>
25. MERGERS. Any corporation or banking association into which you
may be merged or with which you may be consolidated, or any corporation or
banking association resulting from any merger or consolidation to which you
shall be a party, or any corporation or banking association succeeding to your
corporate custody business, shall succeed to all your rights, obligations and
immunities hereunder without the execution or filing of any paper or further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
212 CERTIFICATE COMPANY
By: /s/ Robert L. Maddox
--------------------------
Name: ROBERT L. MADDOX
Title: PRESIDENT
Accepted by:
THE CHASE MANHATTAN BANK,
as Custodian
By: /s/ Chris J. Ledies
-------------------------------
Name: Chris J. Ledies
Title: Vice President
THE CHASE MANHATTAN BANK,
as Funding Agent
By: /s/ Andrew Taylor
-------------------------------
Name: Andrew Taylor
Title: Vice President
17
<PAGE>
ACCOUNT CONTROL AGREEMENT
September 15, 1998
THE CHASE MANHATTAN BANK, in its capacity as Funding Agent for the benefit of
the Certificateholders (in such capacity, the "SECURED PARTY"); 212 CERTIFICATE
COMPANY, a Delaware corporation, (the "CUSTOMER"); and THE CHASE MANHATTAN BANK
(the "BANK") hereby agree as follows:
PREAMBLE
1. The Bank has established at the request of the Customer a securities
custody account number G07360 in the name of Customer (the
"CUSTODIAL ACCOUNT").
2. The Customer has granted the Secured Party a security interest in the
Account pursuant to the Pledge Agreement.
3. The Secured Party and the Customer and the Bank, at the request of the
Secured Party and the Customer, are entering into this Agreement to
provide for the control of the Custodial Account and to perfect the
security interest of Secured Party in the Custodial Account. It is
understood that the Bank has no responsibility with respect to the
validity or perfection of the security interest otherwise than to act in
accordance with the terms of this Agreement.
DEFINITIONS
Unless otherwise defined herein, capitalized terms used herein shall have
the meanings assigned to such terms in, or incorporated by reference into, Annex
X to that certain Installment Face-Amount Certificate Agreement, dated as of
September 15, 1998, by and among the Customer, Park Avenue Receivables
Corporation, a Delaware corporation, and the Secured Party, as the same may from
time to time be amended, supplemented or otherwise modified and in effect. As
used herein the following terms shall have the following meanings:
"ENTITLEMENT HOLDER" shall mean a person identified in the books and
records of the Bank as the person having a Security Entitlement against the
Bank.
<PAGE>
"ENTITLEMENT ORDER" shall mean a notification communicated to the Bank
directing transfer or redemption of a Financial Assets which the Entitlement
Holder has a Security Entitlement.
"FINANCIAL ASSETS" shall mean any securities and other property held in
the Custodial Account, but does not include any cash credit balance which may be
maintained in the Custodial Account.
"PLEDGED ASSETS" shall mean, at any time, any Financial Assets and any
cash credit balance which may be maintained in the Custodial Account.
"Security Entitlement" shall mean the rights and property interest of an
Entitlement Holder with respect to a Financial Asset specified in Part 5 of
Article 8 of the New York Uniform Commercial Code (the "UCC").
TERMS
SECTION 1. THE CUSTODIAL ACCOUNT. All Financial Assets credited to the
Custodial Account shall be registered in the name of the Bank or, if registered
in the name of the Customer, shall be endorsed to the Bank or in blank. All
Security Entitlements arising out of the Financial Assets carried in the
Custodial Account shall be valid and legally binding obligations of the Bank,
and except for the claims and interest of the Secured Party and the Customer in
the Custodial Account (subject to any claim in favor of the Bank permitted under
Section 2 hereof), the Bank has not been notified in writing of any claim to or
interest in the Custodial Account except as described in the Pledge Agreement.
SECTION 2. PRIORITY OF LIEN. The Bank hereby acknowledges the security
interest granted to the Secured Party by the Customer. The Bank hereby waives
and releases all liens, encumbrances, claims and rights of setoff it may have
against the Custodial Account or any Pledged Assets carried in the Custodial
Account, except that the Bank shall retain a lien on any Pledged Assets in the
Custodial Account for the payment of its fees and for the payment of any Pledged
Assets credited to the Custodial Account for which payment or reimbursement to
the Bank has not been made or received. The Bank will not agree with any third
party to comply with Entitlement Orders concerning the Custodial Account
originated by such third party without the prior written consent of the Secured
Party and the Customer.
2
<PAGE>
SECTION 3. CONTROL. After receipt of a "Notice of Exclusive Control" (as
defined below), the Bank will comply with Entitlement Orders and other
directions originated by the Secured Party concerning the Custodial Account
without further consent by the Customer. Except as otherwise provided by Section
2 above and 4 below, the Bank shall comply with Entitlement Orders and other
directions concerning Pledged Assets held in the Custodial Account at the
direction of the Customer or its authorized representatives, until such time as
the Secured Party delivers a written notice to the Bank in the form annexed
hereto as Exhibit A, that the Secured Party is thereby exercising exclusive
control over the Custodial Account (such notice may be referred to herein as the
"NOTICE OF EXCLUSIVE CONTROL"). After the Bank receives the Notice of Exclusive
Control, it will promptly cease complying with Entitlement Orders or other
directions concerning the Custodial Account originated by the Customer or its
representatives.
SECTION 4. PAYMENT OF INCOME; VOTING RIGHTS; WITHDRAWALS. Unless the
Bank has received a Notice of Exclusive Control, the Bank shall (a) without
further action by the Customer or Secured Party, (i) remit or make available to
the Customer all interest, dividends and other income on the Financial Assets in
the Custodial Account, and (ii) pursuant to the terms of the Custodial Account
agreement with the Customer, send to the Customer any proxies and other voting
rights and corporate actions received by the Bank in respect of the Pledged
Assets and follow any instructions and directions from the Customer in respect
of such proxies and rights, and (b) comply with each Entitlement Order and other
directive received from the Customer.
SECTION 5. STATEMENTS, CONFIRMATIONS AND NOTICES OF ADVERSE CLAIMS. The
Bank will send or make available by electronic means copies of all statements
and confirmations concerning the Custodial Account to each of the Customer and
the Secured Party, at the address set forth in the heading of this Agreement or
such other address or location as instructed by the Customer and the Secured
Party. If any person notifies the Bank of its assertion of any lien, encumbrance
or adverse claim against the Custodial Account or in any Financial Asset
contained therein, the Bank will promptly notify the Secured Party and the
Customer thereof.
SECTION 6. RESPONSIBILITY OF THE BANK. The Bank shall have no
responsibility or liability to the Secured Party for executing settlements of
Financial Assets held in the Custodial Account at the direction of the
Customer or its authorized representatives, or complying with Entitlement
Orders or other directions concerning the Custodial Account from the Customer
or its authorized representatives, which are
3
<PAGE>
received by the Bank before the Bank has received, and had a reasonable
opportunity to comply with, a Notice of Exclusive Control. The Bank shall have
no responsibility or liability to the Customer for complying with a Notice of
Exclusive Control or complying with Entitlement Orders or other directives
concerning the Custodial Account originated by the Secured Party. The Bank shall
have no duty to investigate or make any determination as to whether a default
exists under any agreement between the Customer and the Secured Party and shall
comply with a Notice of Exclusive Control even if it believes that no such
default exists. This Agreement does not create any obligation or duty for the
Bank other than those expressly set forth herein.
SECTION 7. STANDARD OF CARE. Notwithstanding any provision contained
herein to the contrary, neither the Bank nor any of its officers, employees or
agents shall be liable for (i) following the instruction of the Secured Party
and (ii) in all other respects, any action taken or not taken by it (or them)
under or in connection with this Agreement, except for the Bank's (or their) own
negligence or willful misconduct. In no event shall the Bank be liable for
indirect, special or consequential damages of any kind whatsoever (including
lost profits and lost business opportunity) even if it is advised of the
possibility of such damages and regardless of the form of action in which any
such damages may be claimed. Without limiting the foregoing, and notwithstanding
any provision to the contrary elsewhere, the Bank and its officers, employees
and agents:
(a) shall have no responsibilities, obligations or duties other than those
expressly set forth in this Agreement, and no implied duties,
responsibilities or obligations shall be read into this Agreement against
the Bank; without limiting the foregoing, the Bank shall have no duty to
preserve, exercise or enforce rights in the Pledged Assets (against prior
parties or otherwise);
(b) may in any instance where the Bank determines that it lacks or is
uncertain as to its authority to take or refrain from taking certain
action, or as to the requirements of this Agreement under any
circumstance before it, delay or refrain from taking action unless and
until it has received instructions from the Secured Party (or, prior to
receipt by the Bank of a Notice of Exclusive Control, the Customer) or
advice from legal counsel (or other appropriate advisor), as the case may
be;
(c) so long as it and they shall have acted (or refrained from acting) in
good faith, shall not be liable for any error of judgement in any action
taken, suffered or
4
<PAGE>
omitted by, or for any act done or step taken, suffered or omitted by, or for
any mistake of fact or law, unless such action constitutes gross negligence or
willful misconduct on its (or their) part;
(d) may consult with legal counsel selected by it (or other experts for the
Secured Party or the Customer), and shall not be liable for any action
taken or not taken by it or them in good faith in accordance with the
advice of such experts;
(e) will not be responsible to the Secured Party for any statement, warranty
or representation made by any party other than the Bank in connection
with this Agreement;
(f) will have no duty to ascertain or inquire as to the performance or
observance by the Customer of any of the terms, conditions or covenants
of any security agreement with the Secured Party;
(g) will not be responsible to the Secured Party or the Customer for the due
execution, legality, validity, enforceability, genuineness, effectiveness
or sufficiency of this Agreement (PROVIDED, HOWEVER, that the Bank
warrants below that the Bank has legal capacity to enter into this
Agreement);
(h) will not incur any liability by acting or not acting in reliance upon any
notice, consent, certificate, statement or other instrument or writing
believed by it or them to be genuine and signed or sent by the proper
party or parties;
(i) will not incur liability for any notice, consent, certificate, statement,
wire instruction, telecopy, or other writing which is delayed, canceled
or changed without the actual knowledge of the Bank;
(j) shall not be deemed to have or be charged with notice or knowledge of any
fact or matter unless a written notice thereof has been received by the
Bank at the address and to the person designated in (or as subsequently
designated pursuant to) this Agreement;
(k) shall not be obligated or required by any provision of this Agreement to
expend or risk the Bank's own funds, or to take any action (including but
not limited to the institution or defense of legal proceedings) which in
its or their judgment may cause it or them to incur or suffer any expense
or liability;
5
<PAGE>
provided, however, if the Bank elects to take any such action it shall be
entitled to security or indemnity for the payment of reasonable costs,
expenses (including but not limited to attorneys' fees) and liabilities
which may be incurred therein or thereby, satisfactory to the Bank;
(l) shall not incur any liability for acts or omissions of any domestic or
foreign depository or book-entry system for the central handling of
Financial Assets or any domestic or foreign custodian or subcustodian;
and
(m) shall not be responsible for the title, validity or genuineness of any
Financial Asset in or delivered into the Custodial Account.
SECTION 8. INDEMNIFICATION OF THE BANK.
(a) The Customer and the Secured Party, jointly and severally, agree to
indemnify and hold the Bank and its directors, officers, agents and employees
(collectively the "INDEMNITEES") harmless from and against any and all claims,
liabilities, losses, damages, fines, penalties, and expenses, including
out-of-pocket and incidental expenses and reasonable legal fees (collectively
"LOSSES") that may be imposed on, incurred by, or asserted against, the
Indemnitees, or any of them for following any Entitlement Orders, instructions
or other directions upon which you are authorized to rely pursuant to the terms
of this Agreement.
(b) In addition to and not in limitation of paragraph (a) immediately
above, the Customer and the Secured Party also jointly and severally agree to
indemnify and hold the Indemnitees and each of them harmless from and against
any and all Losses that may be imposed on, incurred by, or asserted against, the
Indemnitees or any of them in connection with or arising out of the Bank's
performance under this Agreement provided the Indemnitees have not acted with
negligence or engaged in willful misconduct.
(c) The foregoing indemnifications shall survive any termination of this
Agreement.
SECTION 9. COMPLIANCE WITH LEGAL PROCESS AND JUDICIAL ORDERS. If any
Pledged Assets subject to this Agreement are at any time attached or levied
upon, or in case the transfer, delivery, redemption or withdrawal of any such
Pledged Assets shall be stayed or enjoined, or in the case of any other legal
process or judicial order affecting such Pledged Assets, the Bank is authorized
to comply with any such
6
<PAGE>
order in any matter as the Bank or its legal counsel reasonably deems
appropriate. If the Bank complies with any process, order, writ, judgment or
decree relating to the pledged Assets subject to this Agreement, then the Bank
shall not be liable to the Customer or the Secured Party or to any other person
or entity even if such order or process is subsequently modified, vacated or
otherwise determined to have been without legal force or effect.
SECTION 10. FORCE MAJEURE. The Bank shall not be responsible for delays
or failures in performance resulting from acts beyond its control. Such acts
shall include but not be limited to acts of God, strikes, lockouts, riots, acts
of war or terrorism, epidemics, nationalization, expropriation, currency
restrictions, governmental regulations superimposed after the fact, fire,
communication line failures, power failures, earthquakes or other disasters.
SECTION 11. REPRESENTATIONS. Each of the parties represents and warrants
that (i) it is duly incorporated or organized and is validly existing in good
standing in its jurisdiction of incorporation or organization, (ii) the
execution, delivery and performance of this Agreement and all documents and
instruments to be delivered hereunder or thereunder have been duly authorized,
(iii) the person executing this Agreement on its behalf has been duly authorized
to act on its behalf, (iv) this Agreement constitutes its legal, valid, binding
and enforceable agreement, and (v) its entry into this Agreement will not
violate any agreement, law, rule or regulation by which it is bound or by which
any of its assets are affected.
SECTION 12. CUSTOMER AGREEMENT. In the event of a conflict between this
Agreement any other agreement between the Bank and the Customer relating to the
Custodial Account, the terms of this Agreement will prevail, and in all other
respects the terms of the other agreement relating to the Custodial Account
shall apply with respect to any matters not covered by this Agreement.
Regardless of any provision in any such agreement, the State of New York shall
be deemed to be the Bank's location for the purposes of this Agreement and the
perfection and priority of the Secured Party's security interest in the
Custodial Account.
SECTION 13. TERMINATION. The rights and powers granted herein to the
Secured Party have been granted in order to perfect its security interest in the
Custodial Account, are powers coupled with an interest and will neither be
affected by the bankruptcy of the Customer nor by the lapse of time. The
obligations of the Bank under this Agreement shall continue in effect (i) until
the security interest of the Secured Party in the Custodial Account has been
terminated and the Secured
7
<PAGE>
Party has notified the Bank of such termination in writing, or (ii) this
Agreement is terminated. Any of the parties may terminate this Agreement upon
30 days' prior written notice to both of the other parties hereto; PROVIDED,
HOWEVER, that any, pledged Assets which have not been released by the Secured
Party at or prior to the time of termination shall be transferred to a
substitute bank designated by the Customer and acceptable to the Secured
Party. The provisions of Sections 7 and 8 shall survive the termination of
this Agreement.
SECTION 14. ENTIRE AGREEMENT. This Agreement and the exhibits hereto and
the agreements and instruments required to be executed and delivered hereunder
set forth the entire agreement of the parties with respect to the subject matter
hereof and supersede and discharge all prior agreements (written or oral) and
negotiations and all contemporaneous oral agreements concerning such subject
matter and negotiations. There are no oral conditions precedent to the
effectiveness of this Agreement.
SECTION 15. AMENDMENTS. No amendment, modification or termination of this
Agreement or waiver of any right hereunder shall be binding on any party hereto
unless it is in writing and is signed by the party to be charged.
SECTION 16. SEVERABILITY. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement, or
the application of such terms or provisions to persons or circumstances, other
than those to which it is held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.
SECTION 17. SUCCESSORS. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
succesors and assigns.
SECTION 18. RULES OF CONSTRUCTION. In this Agreement, words in the
singular number include the plural, and in the plural include the singular;
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates words of the neuter gender may refer to any gender and the
word "or" is disjunctive but not exclusive. The captions and section numbers
appearing in this Agreement are inserted only as a matter of convenience. They
do not define, limit or describe the scope or intent of the provisions of this
Agreement.
8
<PAGE>
SECTION 19. NOTICES. Any notice, request, Entitlement Order or other
Communication required or permitted to be given under this Agreement shall be in
writing and deemed to have been properly given when delivered in person, or when
sent by telecopy or other electronic means (acceptable to the Bank, if to the
Bank) and electronic confirmation of error free receipt is received, or after
being sent by certified or registered United States mail, return receipt
requested, postage prepaid:
If to the Bank:
THE CHASE MANHATTAN BANK
3 Chase Metrotech Center, 6th Floor
Brooklyn, NY 11245
Attention: Jack Barry
Telephone: (718) 242-5379
Telecopier: (718) 242-1079
If to the Customer:
212 CERTIFICATE COMPANY
515 West Market Street, 8th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox
Telephone: (502) 540-2014
Telecopier: (502) 582-7903
If to the Secured Party:
THE CHASE MANHATTAN BANK
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Andrew Taylor
Telephone: (212) 946-7861
Telecopier: (212) 946-7776
SECTION 20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument,
9
<PAGE>
and any party hereto may execute this Agreement by signing and delivering one or
more counterparts.
SECTION 21. CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 22. FEES. The Customer shall pay to the Bank the compensation
agreed upon in writing from time to time and any other includable expenses
incurred in connection herewith.
SECTION 23. CONSENT TO JURISDICTION AND SERVICE. The Secured Party and
the Customer each hereby absolutely and irrevocably consents and submits to the
jurisdiction of the courts of the State of New York and of any Federal court
located in the County and State of New York in connection with any actions or
proceedings brought against the Secured Party or the Customer by the Bank or by
the Secured Party or the Customer against the Bank and arising out of or
relating to this Agreement. Each party hereto hereby irrevocably waives any
objection on the grounds of venue, forum non conveniens, or any similar grounds,
and irrevocably consents to service of process by mail or in any other manner
permitted by New York law, and irrevocably waives its right to any jury trial.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Account
Control Agreement as of the date set forth above.
THE CHASE MANHATTAN BANK,
as Funding Agent for the benefit of
the Certificateholders, as
Secured Party
By:/s/ Andrew Taylor
-------------------------------
Name: Andrew Taylor
Title: Vice President
212 CERTIFICATE COMPANY, as
Customer
By:/s/ Robert L. Maddox
-------------------------------
Name: Robert L. Maddox
Title: President
THE CHASE MANHATTAN BANK,
as Securities Intermediary
By:/s/ Chris J. Ledes
-------------------------------
Name: Chris J. Ledes
Title: Vice President
11
<PAGE>
EXHIBIT A
[TO BE PLACED ON SECURED PARTY'S LETTERHEAD]
NOTICE OF EXCLUSIVE CONTROL
_______________19__
The Chase Manhattan Bank
[Address]________________
__________________________
__________________________
Attention:________________
Re: Account Control Agreement dated as of September 15, 1998 (the
"Agreement") among The Chase Manhattan Bank, as Funding Agent for the
benefit of the Certificateholders, as Secured Party, 212 Certificate
Company, a Delaware corporation, as Customer, and The Chase Manhattan
Bank, as Bank, relating to Securities Account No.______________.
Ladies and Gentlemen:
This constitutes the Notice of Exclusive Control referred to in the above
referenced Agreement.
THE CHASE MANHATTAN BANK,
as Funding Agent
By:
-------------------
Name:
Title:
A-1
<PAGE>
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, dated as of September 15, 1998 (as
amended, supplemented or otherwise modified and in effect from time to time,
this "AGREEMENT"), is made by 212 CERTIFICATE COMPANY, a corporation
organized and existing under the laws of the State of Delaware (the
"PLEDGOR"), in favor of THE CHASE MANHATTAN BANK, a New York banking
corporation, as funding agent (in such capacity, the "FUNDING AGENT") for the
benefit of Park Avenue Receivables Corporation, a corporation organized and
existing under the laws of the State of Delaware, as purchaser (in such
capacity, the "PURCHASER") and its assignees, pursuant to the Face-Amount
Certificate Agreement.
W I T N E S S E T H:
WHEREAS, it is a condition precedent to the obligation of the Purchaser
to enter into the Face-Amount Certificate Agreement that the Pledgor shall have
executed and delivered this Agreement to the Purchaser;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Purchaser to enter into the Face-Amount Certificate Agreement and to
purchase the Face-Amount Certificate, as defined therein, and for other good and
valuable consideration, receipt and sufficiency of which is hereby acknowledged,
the Pledgor hereby agrees with the Purchaser as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in Annex X to that
certain Face-Amount Certificate Agreement, dated as of September 15, 1998,
between the Pledgor, the Purchaser and the Funding Agent, 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. PLEDGE; GRANT OF SECURITY INTEREST. To secure the prompt and
complete payment and performance of the Obligations, the Pledgor hereby (a)
pledges, assigns, hypothecates, transfers, and delivers to the Funding Agent, on
behalf of and for the benefit of the Certificateholders, all of its right, title
and interest to the Certificate Purchase Payments and (b) grants to the Funding
Agent, for the benefit of the Certificateholders, a first priority lien on, and
a security interest in, all of the Pledgor's right, title and interest, whether
now owned or hereafter acquired and
<PAGE>
wherever located, in, to and under all accounts, contract rights, general
intangibles, chattel paper, instruments, documents, money, cash, deposit
accounts, certificates of deposit, goods, letters of credit, securities
investment property, financial assets or security entitlements consisting of,
arising from or relating to any of the Pledged Collateral.
3. RIGHTS OF THE FUNDING AGENT AND THE CERTIFICATEHOLDERS. Neither the
Funding Agent nor any Certificateholder shall be liable for any failure to
collect or realize upon the Obligations or any Pledged Collateral security or
guarantee therefor, or any part thereof, or for any delay in so doing, nor shall
any of them be under any obligation to take any action whatsoever with regard
thereto. If a Liquidation Event has occurred and is continuing, the Funding
Agent, for the benefit of the Certificateholders, may thereafter, upon notice to
the Pledgor, exercise all rights, privileges or options pertaining to any
Certificate Purchase Payments as if it were the absolute owner thereof, upon
such terms and conditions as it may determine, all without liability except to
account for property actually received by it, but the Funding Agent, for the
benefit of the Certificateholders, shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.
4. DELIVERY; TRANSFER OF PLEDGED COLLATERAL. The Issuer shall cause,
or direct the Portfolio Manager to cause, all instruments, chattel paper and
certificated securities representing or evidencing any Pledged Collateral to be
delivered to, and held by, the Custodian on behalf of the Funding Agent and, in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Funding Agent. Notwithstanding the preceding sentence, the
Issuer shall deliver the Swap Agreement directly to the Funding Agent on the
date hereof. Following the occurrence of (i) a Liquidation Event or (ii) the
270th day following the commencement of the Amortization Period, the Funding
Agent shall have the right, at any time in its discretion and without notice to
the Pledgor, to deliver to the Custodian a "Notice of Exclusive Control" under
and as defined in the Control Agreement stating that the Funding Agent is
exercising exclusive control over the Custodial Account. Following delivery of
such notice, neither the Pledgor nor the Portfolio Manager (i) shall issue any
entitlement order to the Custodian withdrawing any financial assets from the
Custodial Account or (ii) accept delivery of any such financial assets
including, without limitation, any instruments, chattel paper or certificated
securities or any free credit balance or other amount owing from the Custodian
to the Issuer with respect to the Custodial Account.
2
<PAGE>
5. REMEDIES. If a Liquidation Event shall have occurred and be
continuing, the Funding Agent, for the benefit of the Certificateholders,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or
private sale), to or upon the Pledgor or any other Person (all and each of
which demands, advertisements and/or notices are hereby expressly waived),
may forthwith collect, receive, appropriate and realize upon the Pledged
Collateral, or any part thereof, and/or may forthwith sell, assign, give
option or options to purchase, contract to sell or otherwise dispose of and
deliver such Pledged Collateral, or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange, broker's board or at any
of the Funding Agent's offices or elsewhere upon such terms and conditions as
it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk, with the
right to the Funding Agent upon any such sale or sales, public or private, to
purchase the whole or any part of such Pledged Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby expressly waived or released. The Funding Agent shall apply the net
proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of
every kind incurred therein or incidental to the care, safekeeping or
otherwise of any and all of the Pledged Collateral or in any way relating to
the rights of the Certificateholders hereunder, including reasonable
attorney's fees and legal expenses to the payment, in whole or in part, of
the Obligations in such order as the Certificateholders may elect, the
Pledgor remaining liable for any deficiency remaining unpaid after such
application, and only after so applying such net proceeds and after the
payment by the Funding Agent (for the account of the Certificateholders) of
any other amount required to be paid by any provision of law, need the
Funding Agent, on behalf of and for the account of the Certificateholders,
account for the surplus, if any, to the Pledgor. The Pledgor agrees that the
funding Agent need not give more than five days' notice of the time and place
of any public sale or of the time after which a private sale or other
intended disposition is to take place and that such notice is reasonable
notification of such matters. No notification need be given to the Pledgor if
it has signed, after default, a statement renouncing or modifying any right
to notification of sale or other intended disposition. In addition to the
rights and remedies granted to it in this Agreement and in any other
instrument or agreement securing, evidencing or relating to any of the
Obligations, the Funding Agent, for the benefit of the Certificateholders,
shall have all the rights and remedies of a secured party under applicable
law. The Pledgor shall be liable for the deficiency if the proceeds of any
sale or other disposition of the Pledged Collateral is insufficient to pay
all amounts to which the Funding Agent, on behalf of the Certificateholders,
is
3
<PAGE>
entitled, and the fees of any attorneys employed by the Funding Agent or
any Certificateholder to collect such deficiency.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR. The
Pledgor hereby reaffirms its representations, warranties and covenants set forth
in Exhibit C to the Face-Amount Certificate Agreement. The Pledgor covenants and
agrees that it will protect and defend the right, title and interest of the
Funding Agent, for the benefit of the Certificateholders, in, to and under the
Pledged Collateral and the proceeds thereof against the claims and demands of
any and all Persons.
7. NO DISPOSITION, ETC. Without the prior written consent of the
Funding Agent, the Pledgor agrees that it will not sell, assign, transfer,
exchange or otherwise dispose of, or grant any option with respect to, the
Pledged Collateral, except as set forth in, and as permitted by, the Face-Amount
Certificate Agreement and/or the other Transaction Documents, nor will it
create, incur or permit to exist any pledge, lien, mortgage, hypothecation,
security interest, charge, option or any other encumbrance with respect to any
of the Pledged Collateral, or any interest therein, or any proceeds thereof,
except for the lien and security interest provided for by this Agreement.
8. FURTHER ASSURANCES. The Pledgor agrees that, at any time and from
time to time upon the written request of the Funding Agent, the Pledgor will
execute and deliver such further documents and do such further acts and things
as the Funding Agent, on behalf of the Certificateholders, may reasonably
request in order to effect the purposes of this Agreement.
9. PLACE OF PERFECTION; RECORDS. The Pledgor shall keep its chief
place of business, chief executive office, registered agent for service of
process within the Commonwealth of Kentucky and the office where it keeps its
records concerning the Pledged Collateral at the location therefor specified in
the Face-Amount Certificate Agreement or, upon 30 days' prior written notice to
the Funding Agent, at any other locations in a jurisdiction where all actions
required by Section 8 shall have been taken with respect to the Pledged
Collateral. The Pledgor will hold and preserve such records and will permit
representatives of the Funding Agent at any time during normal business hours to
inspect and make abstracts from such records.
10. FUNDING AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
irrevocably appoints the Funding Agent as the Pledgor's attorney-in-fact, with
4
<PAGE>
full authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time to take any action and execute any
instrument which the Funding Agent may deem necessary or appropriate in order to
perfect its interest granted under this Agreement, or following a (i) a
Liquidation Event or (ii) the 270th day following the commencement of the
Amortization Period, exercise its remedies hereunder, including, without
limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Pledged Collateral,
(b) to receive, indorse, and collect any drafts or other instruments,
documents, security certificates and chattel paper, in connection therewith, and
(c) to file any claims or take any action or institute any proceedings
which the Funding Agent may deem necessary or desirable for the collection of
any of the Pledged Collateral or otherwise to enforce compliance with the terms,
conditions or rights of the Funding Agent with respect to any of the Pledged
Collateral.
11. FUNDING AGENT MAY PERFORM. If the Pledgor fails to perform any
agreement contained herein, the Funding Agent may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Funding Agent
incurred in connection therewith shall be payable by the Pledgor.
12. DUTIES OF THE FUNDING AGENT. The powers conferred on the Funding
Agent hereunder are solely to protect its interest in the Pledged Collateral and
shall not impose any duty upon it to exercise any such powers. Except for the
safe custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Funding Agent shall have no duty
as to any Pledged Collateral, as to ascertaining or taking action with respect
to matters relative to any of the Pledged Collateral, whether or not the Funding
Agent has or is deemed to have knowledge of such matters, or as to the taking of
any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Pledged Collateral. The Funding Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially equal to that which the Funding Agent accords its own property.
5
<PAGE>
13. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER FACE-AMOUNT
CERTIFICATE AGREEMENT. This Agreement shall create a continuing security
interest in the Pledged Collateral and shall (i) remain in full force and
effect until the later of (x) the payment in full of the Obligations and (y)
the date on which the Face Amount Certificate Agreement has terminated in
accordance with the terms hereof, (ii) be binding upon the Pledgor, its
successors and assigns, and (iii) inure to the benefit of, and be enforceable
by, the Funding Agent, the Certificateholders and their respective
successors, transferees and assigns. On the ninety-first day following the
Termination Date, the security interest granted hereby shall terminate and
all rights to the Pledged Collateral shall revert to the Pledgor. Upon any
such termination, the Funding Agent will, at the Pledgor's expense, execute
and deliver to the Pledgor such documents as the Pledgor shall reasonably
request to evidence such termination.
14. SEVERABILITY. If any term or provision set forth in this Agreement
shall be invalid or unenforceable, the remainder of this Agreement, or the
application of such terms or provisions to persons or circumstances, other than
those to which it is held invalid or unenforceable, shall be construed in all
respects as if such invalid or unenforceable term or provision were omitted.
15. NO WAIVER; REMEDIES CUMULATIVE. Neither the Funding Agent nor any
Certificateholder shall, by any act, delay, omission or otherwise, be deemed to
have waived any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by the Funding Agent, for the benefit of each
Certificateholder, and then only to the extent therein set forth. A waiver by
the Funding Agent, on behalf of any Certificateholder, of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Funding Agent or such Certificateholder would otherwise have on
any future occasion. No failure to exercise nor any delay in exercising on the
part of the Funding Agent or any Certificateholder any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by the
operative documents or by law.
16. WAIVERS, AMENDMENTS; APPLICABLE LAW. None of the terms or provisions
of this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Funding Agent on behalf of the
Certificateholders. This Agreement and all obligations of the Pledgor hereunder
6
<PAGE>
shall be binding upon the successors and assigns of the Pledgor and shall,
together with the rights and remedies of the Funding Agent and each
Certificateholder hereunder, inure to the benefit of the Funding Agent, the
Certificateholders and their respective successors and assigns. This Agreement
shall be governed by, and be construed and interpreted in accordance with, the
laws of the State of New York.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Pledge and Security
Agreement to be duly executed and delivered on the day and year first above
written.
212 CERTIFICATE COMPANY
By: /s/ Robert L. Maddox
-------------------------------
Name: Robert L. Maddox
Title: President
Accepted and agreed as of the date
first above written:
THE CHASE MANHATTAN BANK,
as Funding Agent for the benefit of the
Certificateholders
By: /s/ Andrew Taylor
-------------------------------
Name: Andrew Taylor
Title: Vice President
8
<PAGE>
(MULTICURRENCY--CROSS BORDER)
ISDA-Registered Trademark-
INTERNATIONAL SWAP DEALERS ASSOCIATION, INC.
MASTER AGREEMENT
dated as of September 15, 1998
-------------
ANNUITY LIFE INSURANCE COMPANY and 212 CERTIFICATE COMPANY
- ------------------------------- ------------------------------------
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of
the relevant Transaction has occurred or been effectively designated and
(3) each other applicable condition precedent specified in this Agreement.
Copyright -C- 1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING: If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same date
in the same currency in respect of such Transactions, regardless of whether
such amounts are payable in respect of the same Transaction. The election may
be made in the Schedule or a Confirmation by specifying that subparagraph
(ii) above will not apply to the Transactions identified as being subject to
the election, together with the starting date (in which case subparagraph
(ii) above will not, or will cease to. apply to such Transactions from such
date). This election may be made separately for different groups of
Transactions and will apply separately to each pairing of Offices through
which the parties make and receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. ALL payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified by
the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that party
("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to
be deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y
under this Section 2(d)) promptly upon the earlier of determining
that such deduction or withholding is required or receiving
notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities, and
(4) if such tax is an Indemnifiable Tax, pay to Y, in addition to
the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure that
the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will equal
the full amount Y would have received had no such deduction or
withholding been required. However, X will not be required to pay
any additional amount to Y to the extent that it would not be
required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure
would not have occurred but for (i) any action taken by a
taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is
entered into (regardless of whether such action is taken or
brought with respect to a party to this Agreement) or (ii) a
Change in Tax Law.
2 ISDA-Registered Trademark- 1992
<PAGE>
(ii) LIABILITY. If:--
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not be
required to pay an additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision of
its constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
3 ISDA-Registered Trademark- 1992
<PAGE>
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official of any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs--
(i) any forms, documents or certificates relating to taxation specified in
the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any
deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of such
demand), with any such form or document to be accurate and completed in a
manner reasonably satisfactory to such other party and to be executed and
to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated.
4 ISDA-Registered Trademark- 1992
<PAGE>
organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
notice of a Termination Event or any agreement or obligation under Section
4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party
in accordance with this Agreement if such failure is not remedied on or
before the thirtieth day after notice of such failure is given to the
party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period his elapsed.
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction; (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default event
of default or other similar condition or event (however
5 ISDA-Registered Trademark- 1992
<PAGE>
described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) in an aggregate amount of not less than the
applicable Threshold Amount as specified in the Schedule) which has
resulted in such Specified Indebtedness becoming, or becoming capable at
such time of being declared, due and payable under such agreements or
instruments, before it would otherwise have been due and payable or (2) a
default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on the
due date thereof in an aggregate amount of not less than the applicable
Threshold Amount under such agreements or instruments (after giving effect
to any applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or other
similar law affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and, in the case of
any such proceeding or petition instituted or presented against
it, such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or liquidation or (B) is
not dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof; (5)
has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation
or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver,.
trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged
stayed or restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7) (inclusive);
or (9) takes any action in furtherance of, of indicating its
consent to, approval of, or acquiescence in, any of the foregoing
acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into. or
transfers all or substantially all its assets to, another entity and, at
the time of such consolidation, amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it
or, its predecessor was a party by operation of law or pursuant to
an agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event
6 ISDA-Registered Trademark- 1992
<PAGE>
Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or (y) a Change in
Tax Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount is required to be deducted or withheld for or
on account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in
respect of such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B)).
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X consolidates
or amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, another entity and such action does not
constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and. in such event, X or its successor or transferee, as appropriate, will
be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event"
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
7 ISDA-Registered Trademark- 1992
<PAGE>
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however.
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying the
nature of that Termination Event and each Affected Transaction and will
also give such other information about that Termination Event as the other
party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such other party's policies in effect at
such time would permit it to enter into transactions with the transferee on
the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or
a Tax Event occurs and there are two Affected Parties, each party will use
all reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that Termination
Event.
(iv) RIGHT TO TERMINATE. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in the case
of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event
or an Additional Termination Event if there is more than one Affected
Party, or the party which is not the Affected Party in the case of a Credit
Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, by not more than 20 days notice to the other party and
provided that the relevant Termination Event is then
8 ISDA-Registered Trademark- 1992
<PAGE>
continuing, designate a day not earlier than the day such notice is
effective is an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section 2(a)(i)
or 2(e) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement. The
amount, if any, payable in respect of an Early Termination Date shall be
determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date. each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable,
detail, such calculations (including all relevant quotations and specifying
any amount payable under Section 6(e)) and (2) giving details of the
relevant account to which any amount payable to it is to be paid. In the
absence of written confirmation from the source of a quotation obtained in
determining a Market Quotation, the records of the party obtaining such
quotation will be conclusive evidence of the existence and accuracy of
such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment) in the
Termination Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:--
(1) FIRST METHOD AND MARKET QUOTATION. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to the Defaulting Party.
(2) FIRST METHOD AND LOSS. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of this
Agreement.
(3) SECOND METHOD AND MARKET QUOTATION. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the
sum of the Settlement Amount (determined by the
9 ISDA-Registered Trademark- 1992
<PAGE>
Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to the Defaulting
Party. If that amount is a positive number, the Defaulting Party
will pay it to the Non-defaulting Party: if it is a negative
number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party.
(4) SECOND METHOD AND LOSS. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's
Loss in respect of this Agreement. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting
Party: if it is a negative number, the Non-defaulting Party will
pay the absolute value of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) ONE AFFECTED PARTY. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(c)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is not
the Affected Party, respectively, and, if Loss applies and fewer
than all the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions,
and an amount will be payable equal to (I) the sum of (a)
one-half of the difference between the Settlement Amount of
the party with the higher Settlement Amount ("X") and the
Settlement Amount of the party with the lower Settlement
Amount ("Y") and (b) the Termination Currency Equivalent of
the Unpaid Amounts owing to X less (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with
the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
10 ISDA-Registered Trademark- 1992
<PAGE>
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that: --
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without prejudice
to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii)
for the payment of any amount relating to any early termination in respect of
this Agreement or (iii) in respect of a judgment or order of another court
for the payment of any amount described in (i) or (ii) above, the party
seeking recovery, after recovery in full of the aggregate amount to which
such party is entitled pursuant to the judgment or order, will be entitled to
receive immediately from the other party the amount of any shortfall of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency and will refund promptly to the other party any excess of
the Contractual Currency received by such party as a consequence of sums paid
in such other currency if such shortfall or such excess arises or results
from any variation between the rate of exchange at which the Contractual
Currency is converted into the currency of the judgment or order for the
purposes of such judgment or order and the rate of exchange at which such
party is able, acting in a reasonable manner and in good faith in converting
the currency received into the Contractual Currency, to purchase the
Contractual Currency with the amount of the currency of the judgment or order
actually received by such party. The term "rate of exchange" includes,
without limitation, any premiums and costs of exchange payable in connection
with the purchase of or conversion into the Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
11 ISDA-Registered Trademark- 1992
<PAGE>
9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
12 ISDA-Registered Trademark- 1992
<PAGE>
to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received:
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the Borough of Manhattan in New
York City, if this Agreement is expressed to be governed by the laws of the
State of New York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any
13 ISDA-Registered Trademark- 1992
<PAGE>
reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL TERMINATION EVENT", has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate:
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any Law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
14 ISDA-Registered Trademark- 1992
<PAGE>
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
15 ISDA-Registered Trademark- 1992
<PAGE>
been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that, Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value. then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
16 ISDA-Registered Trademark- 1992
<PAGE>
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and
the other party to this Agreement (or any Credit Support Provider of such
other party or any applicable Specified Entity of such other party) which is
a rate swap transaction, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of these
transactions), (b) any combination of these transactions and (c) any other
transaction identified as a Specified Transaction in this Agreement or the
relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto) that
is imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
17 ISDA-Registered Trademark- 1992
<PAGE>
value of that which was (or would have been) required to be delivered as of
the originally scheduled date for delivery, in each case together with (to
the extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding)
such Early Termination Date, at the Applicable Rate. Such amounts of interest
will be calculated on the basis of daily compounding and the actual number of
days elapsed. The fair market value of any obligation referred to in clause
(b) above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
INTEGRITY LIFE INSURANCE COMPANY 212 CERTIFICATE COMPANY
- --------------------------------------- ------------------------------
(Name of Party) (Name of Party)
By: /s/ Tom Bauer By: /s/ Robert L. Maddox
------------------------------------ ---------------------------
Name: Tom Bauer Name: Robert L. Maddox
Title: Derivatives Portfolio Manager Title: President
Date: 9/15/98 Date: 9/15/98
18 ISDA-Registered Trademark- 1992
<PAGE>
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of September 15, 1998
between Integrity Life Insurance Company ("PARTY A")
and 212 Certificate Company ("PARTY B")
PART 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" has no meaning for the purpose of this Agreement.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14
of this Agreement.
(c) The provisions of the following "EVENT OF DEFAULT" provisions shall
apply only to Party A, and shall not apply to Party B:
Section 5(a)(i) Failure to Pay;
Section 5(a)(ii) Breach of Agreement;
Section 5(a)(iv) Misrepresentations; and
Section 5(a)(v) Default under Specified Transaction.
(d) The "CROSS DEFAULT" has no meaning for the purpose of this
Agreement.
(e) The "TAX EVENT" and "TAX EVENT UPON MERGER" provisions of
Section 5(b)(ii) and 5(b)(iii) will not apply to either Party A nor
Party B.
(f) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will apply to Party A
will not apply to Party B.
(g) "TERMINATION CURRENCY" means U.S. Dollars.
(h) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not
apply to either Party A or Party B.
(i) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this
Agreement:
<PAGE>
(i) Neither Market Quotation nor Loss will apply; and
(ii) Neither The First Method or The Second Method will apply
Instead the Provisions set out in a Confirmation in relation to the
relevant Transaction will apply.
PART 2. TAX REPRESENTATIONS.
(a) PAYER TAX REPRESENTATION. For the purpose of Section 3(e) of this
Agreement, Party A and Party B will make the following representation:
It is not required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of
any Tax from any payment (other than interest under Section 2(e),
6(d)(ii) or 6(e) of this Agreement) to be made by it to the other
party under this Agreement. In making this representation, it may rely
on:
(i) the accuracy of any representation made by the other party
pursuant to Section 3(f) of this Agreement;
(ii) the satisfaction of the agreement of the other party contained
in Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided by the
other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement; and
(iii) the satisfaction of the agreement of the other party contained
in Section 4(d) of this Agreement;
PROVIDED THAT it shall not be a breach of this representation where
the reliance is placed on clause (ii) and the other party does not
deliver a form or document under Section 4(a)(iii) by reason of
material prejudice to its legal or commercial position.
(b) PAYEE TAX REPRESENTATION. For the purposes of Section 3(f) of this
Agreement, Party A and Party B make the representations specified
below:
(i) Party A and Party B each hereby represents that each payment
received or to be received by it in connection with this
Agreement will be effectively connected with its conduct of a
trade or business in the United States of America.
2
<PAGE>
(ii) Party A hereby represents that it is a stock insurance company
organized and existing under the laws of the State of Ohio,
and its U.S. tax identification number is 86-0214103.
(iii) Party B hereby represents that it is a corporation organized
and existing under the laws of the State of Delaware, and
its U.S. tax identification number is 61-1328607.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees
to deliver the following documents, which (other than the opinion of counsel
referred to in clause (b)(5) below) will be covered by the Section 3(d)
REPRESENTATION:
(a) Tax forms, documents or certificates to be delivered are:
Any document or certificate reasonably required and reasonably
requested by a party in connection with its obligations to make a
payment under this Agreement which would enable such party to make the
payment free from any deduction or withholding for or on account of
any Tax or as would reduce the rate at which deduction or withholding
for or on account of any Tax is applied to that payment.
Party required to deliver: Party A and Party B
Date by which to be delivered: As soon as reasonably practicable
following a request by the other party.
(b) Other documents to be delivered are:
(1) A certificate or list providing the names, signatures and
giving evidence satisfactory in form and substance to the
other party of the authority of the officers of the party to
execute this Agreement and any Confirmation.
Party required to deliver: Party A and Party B
Date by which to be delivered: Upon execution of this Agreement or
Confirmation, and when the list is updated as the case may be.
(2) Certified copies of all documents evidencing necessary
corporate and other authorizations and approvals with
respect to the execution, delivery and performance by the
party of this Agreement.
Party required to deliver: Party A and Party B
3
<PAGE>
Date by which to be delivered: Upon execution of this Agreement.
(3) Certificate of Incorporation and By-laws as in effect from
time to time, certified by the Secretary or an Assistant
Secretary of the applicable party.
Party required to deliver: Party A and Party B
Date by which to be delivered: Upon execution of this Agreement.
(4) A copy of the annual report of Party A, or its parent,
containing audited consolidated financial statements for
each fiscal year certified by independent certified public
accountants and prepared in accordance with accounting
principles that are generally accepted in the country in
which such party is organized.
Party required to deliver: Party A
Date by which to be delivered: As soon as reasonably practicable after
public availability.
(5) Such other documents as the other party may reasonably request
in connection with each Transaction, including, without
limitation, an opinion of counsel and such other written
information with respect to the condition or operations,
financial or otherwise, of either party as the other party
may reasonably request from time to time.
Party required to deliver: Party A and Party B
Date by which to be delivered: Upon reasonable request of the other
party.
PART 4. MISCELLANEOUS.
<TABLE>
<S> <C>
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this
Agreement:
Address of notices or communications to Party A:
Address: 515 West Market Street, 4th Floor, Louisville, Kentucky 40202
Attention: General Counsel
Facsimile No.: 502/582-7995
Address of notices or communications to Party B:
Address: 515 West Market Street, 8th Floor, Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
4
<PAGE>
Facsimile No.: 502/582-7903
and with a copy to: The Chase Manhattan Bank, as as Funding Agent
Address: 450 West 53rd Street, 15th Floor, New York, New York 10001
Attention: Andrew Taylor
Facsimile No.: (212) 946-7776
</TABLE>
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement:
Party A appoints as its Process Agent, Not applicable.
Party B appoints as its Process Agent, Not applicable.
(c) OFFICES. The provisions of Section 10(a) will not apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) CREDIT SUPPORT PROVIDER means in relation to Party A, not applicable
CREDIT SUPPORT PROVIDER means in relation to Party B, not applicable
(f) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
(g) "AFFILIATE" will have the meaning specified in Section 14 of this
Agreement
(h) CALCULATION AGENT. The Calculation Agent shall be Party B, unless
otherwise specified in a Confirmation in relation to the relevant
Transaction.
PART 5. OTHER PROVISIONS.
(1) SEPARATE AGREEMENTS. Section 1(c) of this Agreement shall be deleted
and replaced with the following:
"Notwithstanding anything to the contrary in this Agreement, each
Transaction is entered into on the basis that this document is
incorporated by reference into the Confirmation relating to that
Transaction so that this document and the relevant Confirmation shall
form a single agreement with respect to that Transaction, and
"Transaction" and "Agreement" shall be interpreted accordingly. This
document shall not be construed to
5
<PAGE>
form a single agreement with two or more Confirmations together unless
specific provision to that effect is made in the relevant
Confirmations. It is understood that the parties would not enter into
any Transaction except on the foregoing terms. References to this
"Agreement" mean, with respect to a Transaction, this document
together with the Confirmation relating to that Transaction."
Section 6(a) of this Agreement shall be amended by deleting from the
fifth and sixth lines thereof the words "all outstanding
Transactions", and inserting in each case the words "the Transaction".
(1) OBLIGATIONS. In Section 2(a)(iii), the words "or Potential Event of
Default" shall be deleted.
(2) PAYMENTS. The following shall be inserted as Section 2(d)(iii) of the
Agreement:
"(iii) REFUNDS. If Party A or Party B has paid an Additional Amount
under Section 2(d)(i) or paid any amount pursuant to Section 2(d)(ii)
and the other party subsequently receives any refund of any amount
deducted or withheld in respect thereof from any revenue authority it
shall promptly pay the amount refunded over to the paying party,
together with any interest received thereon."
(3) Section 3 of this Agreement is hereby amended by adding the following
additional subsections:
"(g) NO AGENCY. It is entering into this Agreement and each
Transaction as principal (and not as agent or in any other capacity,
fiduciary or otherwise).
(h) ELIGIBLE SWAP PARTICIPANT. It is an "eligible swap participant" as
defined in the Part 35 Regulations of the U.S. Commodity Futures
Trading Commission (the "CFTC"). Neither this Agreement nor any
Transaction is one of a fungible class of agreements that are
standardized as to their material economic terms, within the meaning
of CFTC Regulations Section 35.2(b). The creditworthiness of the other
party was or will be a material consideration in entering into or
determining the terms of this Agreement and each Transaction,
including pricing, cost or credit enhancement terms of the Agreement
or Transaction, within the meaning of CFTC Regulations Section
35.2(c). It has entered into this Agreement (including each
Transaction) in conjunction with its line of business (including
financial intermediation services) or the financing of its business."
(4) Section 5(a)(iv) of this Agreement is hereby amended by the insertion
of the words "specified in Section 3 or in the Schedule hereto" after
the word "representation".
(5) CROSS DEFAULT. Section 5(a)(vi) of this Agreement is replaced in its
entirety with the following:
6
<PAGE>
"(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule
as applying to the party, the occurrence or existence of (1) a default
by such party in making one or more payments on the due date thereof
relating to Specified Indebtedness of such party in an aggregate
amount of not less than the applicable Threshold Amount (as specified
in the Schedule) which has resulted in such Specified Indebtedness
becoming, or becoming capable at such time of being declared, due and
payable under such agreements or instruments, before it would
otherwise have been due and payable or (2) a default by such party in
making one or more payments on the due date thereof in an aggregate
amount of not less than the applicable Threshold Amount under such
agreements or instruments (after giving effect to any applicable
notice requirement or grace period);"
(5A) TAX EVENT. The parties acknowledge that the occurrence of a Tax Event
shall not constitute a Termination Event for purposes of this
Agreement. Notwithstanding the foregoing, if a Tax Event occurs, the
Affected Party will comply with the notice requirements of Section
6(b)(i).
(6) TRANSFERS. Section 7 of this Agreement is replaced in its entirety
with the following:
"(a) Neither this Agreement nor any interest or obligation in or under
this Agreement may be transferred by Party A to another entity
without the prior written consent of Party B and the "Funding
Agent" (as such term is defined in clause (b) below); and
(b) Neither this Agreement nor any interest in or under this
Agreement may be transferred by Party B to any other entity
without Party A's prior written consent, such consent not to be
unreasonably withheld, PROVIDED, HOWEVER, that notwithstanding
the foregoing, Party A hereby consents to Party B's assignment
of all of Party B's interest hereunder as security for its
obligations (the "SECURED OBLIGATIONS") under that certain Face
Amount Certificate Agreement dated as of September 15, 1998 (as
the same may be amended, restated, supplemented or otherwise
modified from time to time, the "FACE AMOUNT CERTIFICATE
AGREEMENT") among Party B, Park Avenue Receivables Corporation
and The Chase Manhattan Bank, as Funding Agent thereunder (the
"FUNDING AGENT"), and certain related agreements, and hereby
agrees that it shall recognize any such secured party
transferee as having all of the rights of Party B hereunder."
(7) JURISDICTION; WAIVER OF JURY TRIAL. Section 13 of this Agreement is
replaced in its entirety with the following:
"(i) With respect to any suit, action or proceeding relating to this
Agreement ("PROCEEDINGS"), each party irrevocably submits to the
exclusive jurisdiction of the state or federal courts located in New
York County, New York; PROVIDED, that the parties acknowledge that any
appeals from those courts may have to be heard
7
<PAGE>
by a court located outside of New York County, New York, and,
PROVIDED, FURTHER, that nothing in this agreement shall be deemed
or operate to preclude either party from bringing suit or taking
other legal action in any other jurisdiction to enforce a judgment
or other court order in its favor. Each party hereto expressly
submits and consents in advance to such jurisdiction in any action
or suit commenced in any such court, and waives any objection which
it may have based upon lack of personal jurisdiction, improper
venue or FORUM NON CONVENIENS and hereby consents to the granting
of such legal or equitable relief as is deemed appropriate by such
court.
(ii) Because disputes arising in connection with complex financial
transactions are most quickly and economically resolved by an
experienced and expert person and the parties wish applicable state
and federal laws to apply (rather than arbitration rules), the
parties desire that disputes arising hereunder or relating hereto be
resolved by a judge applying such applicable laws. Therefore, to
achieve the best combination of the benefits of the judicial system
and of arbitration, the parties hereto waive all right to trial by
jury in any Proceedings brought to resolve any dispute, whether
sounding in contract, tort, or otherwise, between the parties hereto
arising out of, connected with, related to, or incidental to the
relationship established in connection with, this Agreement."
(8) INTERPRETATION. References in this Agreement to the parties hereto, Party A
and Party B shall (for the avoidance of doubt) include, where appropriate,
any permitted successor or assign thereof.
(9) DEFINITIONS. This Agreement, each Confirmation and each Transaction are
subject to the 1991 ISDA Definitions (as published by the International
Swaps and Derivatives Association, Inc.) (the "DEFINITIONS") and will be
governed in all respects by the provisions set forth in the Definitions,
without regard to any amendments to the Definitions subsequent to the date
hereof. The provisions of the Definitions are incorporated by reference in
and shall be deemed to be part of this Agreement and each Confirmation as
if set forth in full in this Agreement and in each such Confirmation. In
the event of any inconsistency between the provisions of this Agreement and
the Definitions, this Agreement will prevail.
(10) PERFORMANCE BY THE FUNDING AGENT. Party A acknowledges that the
obligations of Party B under the Agreement may be performed by the Funding
Agent.
(11) NO PROCEEDINGS AGAINST PARTY B. Party A hereby agrees (which agreement
shall, pursuant to the terms of this Agreement, be binding upon its
successors and assigns) that it shall not institute against, or join any
other person in instituting against, Party B any bankruptcy,
reorganization, arrangement, insolvency, or liquidation proceeding, or
other proceeding under any federal or state bankruptcy or similar law, for
one year and a day
8
<PAGE>
after the Secured Obligations of Party B have been paid in full and the
Face Amount Certificate Agreement shall have terminated in accordance
with its terms. The provisions of this Section 11 shall survive the
termination of this Agreement.
(12) NO RECOURSE. Anything contained in this Agreement to the contrary
notwithstanding, all payments to be made by Party B under this Agreement
shall be made by Party B solely from cash available to Party B for the
payment of such obligations following application of Party B's funds in
accordance with the priority of payments set forth in the Investment
Management Agreement dated as of September 15, 1998 (as the same may be
amended, restated, supplemented or otherwise modified from time to time,
the "INVESTMENT MANAGEMENT AGREEMENT") among Party B, Integrity Capital
Advisors, Inc., a Delaware corporation, as the "Portfolio Manager"
thereunder (in such capacity, the "PORTFOLIO MANAGER") and the Funding
Agent (collectively "AVAILABLE FUNDS"). No recourse shall be had against
Party B personally or against any incorporator, shareholder, officer,
director, employee, agent, attorney, accountant or other representative
of Party B with respect to any of the covenants, agreements,
representations or warranties of Party B contained in this Agreement, it
being understood that such covenants, representations or warranties are
enforceable only to the extent of Available Funds. The provisions of this
Section 12 shall survive the termination of this Agreement. Party A
hereby acknowledges that, pursuant to the terms and conditions of this
Agreement, Party B is or may be required, from time to time, to make
certain payments to Party A, either as compensation for services
rendered, reimbursement for out of pocket expenses, indemnification, or
otherwise, as set forth herein. Party A hereby agrees that,
notwithstanding any other provision of this Agreement, at any time that
any Secured Obligations are outstanding and no Insolvency Event (as
defined below) has occurred and is continuing, (i) Party B shall not make
any such payment to Party A, (ii) Party B shall have no duty, liability
or obligation to make any such payment to Party A, (iii) no such payment
shall be due from Party B and (iv) Party A shall have no right to enforce
any claim against Party B in respect of any such payment, in each case
unless and to the extent (x) that the making of such payment by Party B
would not render Party B insolvent and (y) Party B has received funds
with respect to such obligations which may be used to make such payment
and which funds are not required to pay Secured Obligations when due. As
used in this Section the term "INSOLVENCY EVENT" shall mean an event of
the type described in Section 5(a)(vii) of the Agreement with respect to
Party B.
(13) NO SET-OFF. Notwithstanding any Set-off right contained in any Other
Agreement (as defined below) or any agreement relating to any Other
Agreement between Party A or any Affiliate of Party A, on the one hand, and
Party B or any Affiliate of Party B on the other, whether now in existence
or hereafter entered into, each party agrees that all payments required to
be made by it under this Agreement shall be made without Set-off, and that
it shall not withhold payment or delivery under this Agreement in respect
of, any default by the other party or any Affiliate of the other party
under any Other Agreement or any amount relating to any Other Agreement
between the other party or any Affiliate
9
<PAGE>
of the other party, on the one hand, and it or any affiliate of it, on
the other, PROVIDED, HOWEVER, that the foregoing shall not be construed
so as to preclude the operation of the netting provision of Section
2(c)(ii). As used herein, "OTHER AGREEMENT" means any agreement,
including, but not limited to, (i) any transaction (including an
agreement with respect thereto) which is a rate swap transaction, basis
swap, forward rate transaction, commodity swap, commodity option, equity
or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction floor
transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (ii) any
obligation (whether present or future, contingent or otherwise) in
respect of borrowed money, or (iii) any combination of one or more of the
transactions described above. Furthermore, for this purpose, "SET-OFF"
means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which each party is
entitled or subject (whether arising under this Agreement, another
contract, applicable law or otherwise) that is exercised by, or imposed
on, each party.
10
<PAGE>
(14) No amendment, modification or waiver in respect of this Agreement which
otherwise conforms to the requirements set forth in Section 9(b) shall be
effective unless the prior written approval of the Funding Agent has been
obtained.
INTEGRITY LIFE INSURANCE COMPANY 212 CERTIFICATE COMPANY
By: /s/ Tom Bauer By: /s/ Robert L. Maddox
--------------------------------- ------------------------
Name: Tom Bauer Name: Robert L. Maddox
--------------------------------- ------------------------
Title: Derivatives Portfolio Manager Title: President
--------------------------------- ------------------------
11
<PAGE>
INTEGRITY LIFE INSURANCE COMPANY
515 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
Swap Transaction
September 15, 1998
212 Certificate Company
515 West Market Street, 8th Floor
Louisville, Kentucky 40202
Attn: Robert L. Maddox
Tel: (502) 582-7903
Re: SWAP TRANSACTION
Dear Sir or Madam:
The purpose of this Confirmation is to set forth the terms and
conditions of the Swap Transaction entered into between you and us on the Trade
Date specified below (the "Swap Transaction"). This Confirmation constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA
Definitions (as published by the International Swaps and Derivatives
Association, Inc.) are incorporated into this Confirmation. In the event of
any inconsistency between those definitions and provisions and this
Confirmation, this Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the ISDA
Master Agreement dated as of September 15, 1998, as amended and
supplemented from time to time (the "Agreement") between Integrity Life
Insurance Company ("Party A") and 212 Certificate Company ("Party B"). All
provisions contained in the Agreement govern this Confirmation except as
expressly modified below.
2. The terms of the particular Swap Transaction to which this Confirmation
relates are as follows:
Notional Amount: the average daily "Invested Amount" under and as defined
in the
<PAGE>
Face Amount Certificate Agreement.
Trade Date: September 15, 1998
Effective Date: September 15, 1998
Termination Date: September 14, 1999; PROVIDED, that the Termination Date
shall be automatically extended for a period of 364
days on each Termination Date then in effect unless
Party B shall otherwise request that such extension not
occur, which request shall only be effective if
consented to in writing by the Funding Agent.
Calculation Period: Each "Settlement Period" under and as defined in the
Face Amount Certificate Agreement.
Floating Amounts
A. Floating Rate Payer: Party A
Party A Payment Dates: Each "Settlement Date" under and as defined
in the Face Amount Certificate Agreement or
following notice from Party B or the Funding
Agent that a "Liquidation Event" has
occurred, then upon the written request of
the Funding Agent, each Business Day
thereafter.
Party A Floating Amount: The amount equal to the greater of (a) the
product of (i) the average daily outstanding
"Invested Amount" under and as defined in the
Face Amount Certificate Agreement during the
most recently ended Settlement Period or on
such Business Day, as applicable, and (ii)
the sum of (x) the applicable One-Month LIBOR
under and as determined in accordance with
the terms of the Face Amount Certificate
Agreement for the Settlement Period most
recently ended or on each day since the last
Party A Payment Date (under this clause A),
as applicable and (y) 0.25% per annum, or (b)
the aggregate amount payable to or for the
account of Party B, the Portfolio Manager,
the Custodian or the Funding Agent, for its
benefit or the benefit of the
Certificateholders, for application to any
obligations of Party B described in clauses
(1) through (4), (6) and (7) of subsection
5(b) of the Investment
2
<PAGE>
Management Agreement on such Settlement Date
or Business Day, as applicable.
Provided, however, that the Party A Floating
Payment Dates and the Party A Floating Amount
described above are subject to Section 3
below.
B. Floating Rate Payer: Party A
Party A Payment Dates: Each Business Day following notice from Party
B or the Funding Agent that an Amortization
Event as described in Section (xi) of such
definition or any other Liquidation Event has
occurred.
Party A Floating Amount: The Shortfall Amount, if any.
Provided, however, that the Party A Floating
Payment Dates and the Party A Floating Amount
described above are subject to Section 3
below.
C. Floating Rate Payer: Party B
Party B Payment Dates: Each "Settlement Date" under and as defined
in the Face Amount Certificate Agreement or
following notice from Party B or the Funding
Agent that a "Liquidation Event" (as such
term is defined in the Face Amount
Certificate Agreement) has occurred, then
upon the written request of the Funding
Agent, each Business Day thereafter.
Party B Floating Amount: The amount equal to the sum of (x) the
amount of Book Income for the Settlement
Period most recently ended or on each day
since the last Party B Payment Date, MINUS
(y) the aggregate amount payable to or for
the account of the Portfolio Manager for
application to any obligations of Party B
described in clause (8) of subsection 5(b) of
the Investment Management Agreement.
Provided, however, that the Party B Floating
Payment Dates and the Party B Floating Amount
described above are subject to Section 3
below.
3
<PAGE>
If an Early Termination Date occurs the provisions of Section 6(e)(i) and
6(e)(ii) of the Agreement will not apply to this Transaction. In addition to the
foregoing and without prejudice to either party's rights under the succeeding
sentence, neither party hereto shall have the right to terminate this Agreement
pursuant to Section 6(a) or 6(b) of the Agreement, notwithstanding the fact
that an Event of Default or Termination Event may exist. Without duplication,
upon the occurrence of the Maturity Date, then upon the Funding Agent or Party
B's delivery of notice to Party A, the parties hereto shall make the following
payments:
Party A Final Settlement
Payment Amount: The amount equal to the greater of (a) the
product of (i) the average daily outstanding
"Invested Amount" under and as defined in the
Face Amount Certificate Agreement during the
period from the later of the last Party A
Payment Date referred to in clause "A" above
or the last day of the most recently ended
Settlement Period (such period, the "Final
Settlement Period") and (ii) the sum of (x)
the applicable One-Month LIBOR under and as
determined in accordance with the terms of
the Face Amount Certificate Agreement for
the Final Settlement Period and (y) 0.25% per
annum, and (b) the aggregate amount payable
to or for the account of Party B, the
Portfolio Manager, the Custodian or the
Funding Agent, for its benefit or the benefit
of the Certificateholders, for application to
any obligations of Party B described in
clauses (1) through (7) of subsection 5(b) of
the Investment Management Agreement on such
date.
Party B Final Settlement
Payment Amount: An amount equal to the excess of (x) the sum
of the aggregate Fair Market Value of the
Portfolio on such date plus any free cash
balances on deposit in the Custodial Account
on such date, MINUS (y) the aggregate amount
payable to or for the account of the
Portfolio Manager for application to any
obligations of Party B described in clause
(8) of subsection 5(b) of the Investment
Management Agreement on such date.
Upon payment of the Party A Final Settlement Payment Amount in full, Party A
shall be discharged from all further and future obligations (except for
obligations which were due on
4
<PAGE>
or prior to the happening of the above event) hereunder without affecting the
obligations of Party B hereunder
Condition Precedent
Section 2(a)(iii) of the Agreement shall apply in respect of the obligations of
Party B but shall not apply in respect of the obligations of the Party A.
Instead, the following shall apply in respect of the obligations of Party A:
"Party A shall pay all Party A Floating Amounts and the Party A Final Settlement
Payment Amount, any unpaid amounts payable by it and any other amounts due in
respect of this Transaction to Party B promptly when due and, notwithstanding
the fact that at any time Party B fails to make any payment due to Party A in
respect of this Transaction."
Netting
Notwithstanding anything to the contrary set forth in the Agreement (including
Section 2(c) thereof), Party A shall not be permitted to net or offset the
amount of the Party B Final Settlement Amount against its obligations hereunder
in order to reduce the amount of the Party A Final Settlement Amount payable on
any date.
Account Details
Payments to Party A:
Account for payments in USD: The Chase Manhattan Bank
ABA#: 021-000-021
A/C#: 037-2-406926
A/C Name: Integrity Life Concentration
Payments to Party B:
Account for payments in USD: The Chase Manhattan Bank
ABA#: 021-000-021
A/C#: 323-847005
A/C Name: Chase Custody
For further credit to:
A/C Name: 212 Certificate
5
<PAGE>
Additional Definitions
"BOOK INCOME" means, with respect to any applicable period of time,
the sum of the following amounts (i) interest income received in cash during
such period with respect to the Portfolio, MINUS (ii) accrued interest on any
Security or Short-Term Investment paid in connection with the purchase of
such Security or Short-Term Investment by the Issuer during such period, PLUS
(iii) accrued income on the Portfolio as of the last day of such period,
MINUS (iv) accrued income on the Portfolio as of the day immediately
preceding the first day of such period, PLUS (v) accretion of any discount on
the Portfolio during such period, MINUS (vi) amortization of any premium
amounts accrued during such period.
"BUSINESS DAY" means any day on which banks are not authorized or
required to close in New York, New York or Louisville, Kentucky, and, if the
applicable Business Day relates to any computation or payment to be made with
respect to the One-Month LIBOR, any day on which dealings in U.S. Dollar
deposits are carried on in the London interbank market.
"CUSTODIAL ACCOUNT" shall have the meaning given to such term in
the Face Amount Certificate Agreement.
"FAIR MARKET VALUE" shall have the meaning specified in the
Face-Amount Certificate Agreement.
"ONE-MONTH LIBOR" shall have the meaning given to such term in the
Face-Amount Certificate Agreement.
"PORTFOLIO" means the Securities and Short-Term Investments of the
Issuer held from time to time in the Custodial Account.
"SHORT-TERM INVESTMENTS" shall have the meaning given to such term
in the investment Management Agreement.
"SECURITY" means indebtedness constituting a debenture, bond, note
or other Instrument or evidence of indebtedness issued by an obligor or
obligors, other than a line of credit or a loan.
8. Calculations
All calculations of applicable amounts hereunder shall, to the
extent applicable, be calculated based on actual days over a year consisting
of 360 days.
6
<PAGE>
Please confirm that the foregoing correctly sets forth the terms of
our agreement by executing a copy of this Confirmation and returning it to us.
Yours sincerely,
INTEGRITY LIFE INSURANCE COMPANY
By: /s/ Tom Bauer
--------------------------------------
Name: Tom Bauer
Title: Derivatives Portfolio Manager
Confirmed as of the date first written:
212 CERTIFICATE COMPANY
By: /s/ Robert L. Maddox
------------------------------------
Name: Robert L. Maddox
Title: President
7
<PAGE>
FACE-AMOUNT CERTIFICATE
THIS INSTALLMENT FACE-AMOUNT CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "33 ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA (THE
"BLUE SKY LAWS"). THE HOLDER HEREOF, BY PURCHASING THIS INSTALLMENT
FACE-AMOUNT CERTIFICATE OR ANY INTEREST HEREIN (THE "INTEREST"), REPRESENTS
THAT IT IS AN "ACCREDITED INVESTOR" AS THAT TERM IS DEFINED IN
RULE 501(a)(1),(2),(3) OR (7) UNDER THE '33 ACT AND AGREES THAT SUCH
INTEREST WILL ONLY BE OFFERED, RESOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED IN COMPLIANCE WITH THE '33 ACT, THE APPLICABLE BLUE SKY LAWS,
AND THE RESTRICTIONS SET FORTH IN THE FACE-AMOUNT CERTIFICATE AGREEMENT.
THIS FACE-AMOUNT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
THIS INSTALLMENT FACE-AMOUNT CERTIFICATE IS SUBJECT TO PREPAYMENT AND/OR
REDEMPTION PRIOR TO ITS STATED MATURITY AS SET FORTH IN THE FACE-AMOUNT
CERTIFICATE AGREEMENT.
212 Certificate Company
$500,000,000 Installment Face-Amount Certificate
September 15, 1998
212 CERTIFICATE COMPANY, a corporation duly organized and existing
under the laws of the State of Delaware (the "Issuer"), shall pay to THE
CHASE MANHATTAN BANK, as funding agent (the "Funding Agent") for the benefit
of Park Avenue Receivables Corporation (the "Purchaser") and any subsequent
entity which in the future purchases an interest in this installment
face-amount certificate (this "Certificate") pursuant to the Asset Purchase
Agreement (collectively, the Purchaser and such future potential purchasers
are hereinafter referred to as the "Certificateholders") the unpaid principal
amount of all installment purchase payments made by the Certificateholders
from time to time (the "Invested Amount"), up to an aggregate principal
amount not to exceed $500,000,000, and to pay interest on the Invested Amount
as more fully set forth in that certain Face-Amount Certificate Agreement,
dated as of September 15, 1998, among the Issuer, the Purchaser and the
Funding Agent (as amended, restated, supplemented or otherwise modified and
in effect from time to time, the "Face-Amount Certificate Agreement").
<PAGE>
This Face-Amount Certificate is issued pursuant to the Face-Amount
Certificate Agreement. Reference is hereby made to the Face-Amount
Certificate Agreement for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Issuer, the Funding Agent
and the Certificateholders and the terms upon which this Face-Amount
Certificate is delivered. All terms used in this Face-Amount Certificate
which are not defined herein shall have the meanings assigned to them in, or
incorporated by reference into, the Face-Amount Certificate Agreement. The
provisions of the Face-Amount Certificate Agreement are hereby incorporated
by reference herein and shall be binding on the Issuer, the Funding Agent
and the Certificateholders as if fully set forth herein. As provided in the
Face-Amount Certificate Agreement, this Face-Amount Certificate is secured by
the Pledged Collateral. To the extent provided in the Face-Amount
Certificate Agreement and the Pledge Agreement, the Certificateholders (and
the Funding Agent on their behalf) shall be entitled to the benefits of a
security interest in the Pledged Collateral, for the benefit of the
Certificateholders.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
duly executed as of the date first above-written.
212 CERTIFICATE COMPANY
By: /s/ Robert L. Maddox
------------------------------------
Name: Robert L. Maddox
Title: President
2
<PAGE>
EMPLOYMENT AGREEMENT dated as of April 16, 1999 between ARM FINANCIAL
GROUP, INC., a Delaware corporation (the "COMPANY") and James G. Kaiser, an
individual (the "EXECUTIVE").
WHEREAS, the Company desires to employ the Executive and to enter into
the Agreement to set forth the terms of such employment; and
WHEREAS, the Executive desires to accept such employment and enter into
the Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EFFECTIVENESS OF AGREEMENT
This agreement shall become effective as of the date first set
forth above (the "Effective Date").
2. EMPLOYMENT AND DUTIES
2.1 GENERAL. The Company hereby employs the Executive, and the
Executive agrees to serve the Company, upon the terms and
conditions herein contained. The Executive shall serve in
such professional capacities and positions, and shall perform
such duties and services for the Company and its affiliates,
as may be designated from time to time by the Board of
Directors of the Company (the "Board") and the Chief Executive
Officer. The Executive agrees to serve the Company faithfully
and to the best of his ability under the direction of the
Board and any Chief Executive Officer of the Company. The
Executive's office shall be located in or adjacent to
Stamford, Connecticut for the entire term of this Agreement,
but the Executive shall undertake such reasonable
business-related travel as may from time to time be required
in the performance of his duties hereunder.
2.2 EXCLUSIVE SERVICES. Except as may otherwise be approved in
advance by the Board, and except during vacation periods and
reasonable periods of absence due to sickness, personal
injury or other disability, the Executive shall devote his
full working time throughout the Employment Term (as defined
in Section 2.3) to the services required of him hereunder.
The Executive shall render his services exclusively to the
Company during the Employment Term (subject to involvement in
the activities set forth in Exhibit C attached hereto), and
shall use his best efforts, judgment and energy to improve
and advance the business and interests of the Company in a
manner consistent with the duties of his position. Without
limiting the foregoing, the Executive may devote a reasonable
period of time to community service and
<PAGE>
charitable activities, and may manage his personal investment
portfolio, subject to Section 7.3 below.
2.3 TERM OF EMPLOYMENT. The Executive's employment under this
Agreement shall commence as of the Effective Date and shall
terminate on the earlier of (a) the third anniversary of the
Effective Date or (b) the date of termination of the
Executive's employment pursuant to Section 5 or 6 below;
PROVIDED, HOWEVER, that the term of the Executive's employment
may be automatically extended by mutual consent of Executive
and Company for additional one year periods, by means of the
Board giving written notice to the Executive of its intention
to extend the term at least sixty days prior to the expiration
of the then effective term. The period commencing as of the
Effective Date and ending on the third anniversary of the
Effective Date or such later date to which the term of the
Executive's employment under this Agreement shall have been
extended is hereinafter referred to as the "EMPLOYMENT TERM".
2.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall reimburse
the Executive for reasonable travel and other business
expenses incurred by him in the fulfillment of his duties
hereunder upon presentation by the Executive of an itemized
account of such expenditures, in accordance with the Company
practices consistently applied.
3. COMPENSATION
3.1 BASE SALARY. From the Effective Date, the Executive shall be
entitled to receive a base salary ("Base Salary") at a rate of
$300,000 per annum, payable in arrears in equal installments
not less frequently than semi-monthly, on the business day
coincident with or immediately succeeding each of the 15th day
and the last of each month, in accordance with the Company's
payroll practices, with such increases as may be provided in
accordance with the terms hereof. Once increased, such higher
amount shall constitute the Executive's annual Base Salary.
3.2 ANNUAL REVIEW. The Executive's Base Salary shall be reviewed
by the Board, based upon the Executive's performance and then
current titles and responsibilities, not less often than
annually, and may be increased, but not decreased, upon the
recommendation of the Company's Chief Executive Officer, based
on his performance and upon the Board's view of the
appropriate Base Salary for the title and responsibilities
assigned to the Executive from time to time.
<PAGE>
3.3 BONUS. The Executive shall not be eligible to participate in
the Company's Incentive Compensation Plan or other similar
bonus plan.
3.4 COMMISSION OVERRIDES. The Executive shall receive, not less
frequently than semi-monthly, on the business day coincident
with or immediately succeeding each of the 15th day, and the
last day of each month, in accordance with the Company's
payroll practices, commission overrides of (a) five (5) basis
points on sales of proprietary products (New Momentum, Omni
Select, SPDA Series, Grand Master, Pinnacle, IQ Smart Annuity,
and other products agreed to in advance by the Company) in the
Broker-Dealer distribution channel (unless otherwise agreed to
in advance); (b) an additional two (2) basis points on sales
of the above listed proprietary products in excess of the
amounts set forth in Exhibit A attached hereto for the periods
described; and (c) three (3) basis points on sales of
non-proprietary products during 1999 under distribution
agreements with Allmerica, Canada Life and Mutual of Omaha.
3.5 TITLE. The Executive's title will be Executive Vice President,
Broker-Dealer Distribution reporting to the President, Retail
Business Division.
3.6 AUTOMOBILE LEASE. During the initial two (2) years of the
Employment Term, provided this Agreement is in full force and
effect, the Company shall reimburse the Executive for certain
automobile lease payments in the amount of $500.00 per month.
3.7 CERTAIN TRAILER COMMISSIONS. Executive shall be entitled to
receive trailer commissions from sales made prior to the date
of this Agreement under the Wholesaler Agreements listed in
Exhibit B attached hereto. Executive covenants and agrees
that he will promptly terminate the Agreements listed in
Exhibit B upon executing this Agreement, subject to the
continuation of the trailer commissions thereunder.
4. EMPLOYEE BENEFITS; INDEMNIFICATION
Except as set forth in Section 3.3 above and excluding
participation in the 1997 Equity Incentive Plan, the Executive shall, during
his employment under this Agreement, be included to the extent eligible
thereunder in all employee benefit plans, programs or arrangements
(including, without limitation, any plans, programs or arrangements
providing for retirement benefits, profit sharing, disability benefits,
health, dental and life insurance, or vacation and paid holidays) which
shall be established by the Company for, or made available to, other
Executive Vice Presidents. The Company will indemnify Executive to the
fullest extent permitted by the laws of the State of Delaware and the
Certificate of Incorporation and By-Laws of the Company as in effect on the
date
<PAGE>
hereof, and the Company shall procure and maintain insurance policies, to
the extent reasonably available, for the benefit of its directors and
officers, including the Executive.
5. TERMINATION OF EMPLOYMENT
5.1 TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON.
5.1.1 GENERAL. Subject to the provisions of Sections 5.1.2 and 5.1.3,
if, prior to the expiration of the Employment Term, the
Executive's employment is terminated by the Company without
Cause (as defined in Section 5.3), or if the Executive
terminates his employment hereunder for Good Reason (as
defined in Section 5.4), the Company shall continue to pay
the Executive severance pay in an amount equal to the Base
Salary for the remainder of the Employment Term (such period
being referred to hereinafter as the "Severance Period"), at
such intervals as the same would have been paid had the
Executive remained in the active service of the Company.
Furthermore, the Company shall continue to pay all (or the
applicable portion) of the premiums for such group insurance
benefits (such as health, life and disability) that covered
Executive on the day next preceeding Executive's
termination of employment for the Severance Period.
5.1.2 CONDITIONS APPLICABLE TO THE SEVERANCE PERIOD. If, during
the Severance Period, the Executive breaches his obligations
under Sections 7.1, 7.2, 7.3, 7.4, or 7.5 of this Agreement,
the Company may, upon written notice to the Executive,
terminate the Severance Period and cease to make any further
payments or provide any benefits described in Section 5.1.1.
5.1.3 DEATH DURING SEVERANCE PERIOD. In the event of the Executive's
death during the Severance Period, payments of the severance
amounts under this Section shall continue to be made during
the remainder of the Severance Period to the beneficiary
designated in writing for this purpose by the Executive or,
if no such beneficiary is specifically designated, to the
Executive' estate.
5.1.4 DATE OF TERMINATION. The date of termination of employment
without Cause shall be the date specified in a written
notice of termination to the Executive (which date shall be
coincident with or subsequent to the date of such notice).
The date of resignation for Good Reason shall be the date
specified in the written notice of resignation from the
Executive to the Company (which date shall be coincident
with or subsequent to the date of such notice); PROVIDED,
HOWEVER, that no such written notice shall be effective
unless the cure period specified in Section 5.4 has expired
without
<PAGE>
the Company having corrected, to the reasonable satisfaction
of the Executive, the event or events subject to cure. If
no date of resignation is specified in the written notice
from the Executive to the Company, the date of termination
shall be the first day following such expiration of such
cure period.
5.1.5 TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON.
5.2.1 GENERAL. If, prior to the expiration of the Employment Term,
the Executive's employment is terminated by the Company for Cause,
or the Executive resigns from his employment hereunder other than
for Good Reason, the Executive shall be entitled to payment of his
Base Salary as then in effect through and including the date of
termination or resignation. The Executive shall have no further
right to receive any other compensation or benefits after such
termination or resignation of employment, except as determined in
accordance with the terms of the employee benefit plans or programs
of the Company.
5.2.2 DATE OF TERMINATION. Subject to the provision to Section 5.3,
the date of termination for Cause shall be the date specified in a
written notice of termination to the Executive. The date of
resignation without Good Reason shall be the date specified in the
written notice of resignation from the Executive to the Company
(which date shall be coincident with or subsequent to the date of
such notice), or if no date is specified therein, 10 business days
after receipt by the Company of written notice resignation from the
Executive.
5.3. CAUSE. Termination for "Cause" shall mean termination of the
Executive's employment because of:
(i) any act or omission that constitutes a material breach by the
Executive of any of his material obligations under this
Agreement (other than by reason of his death or Permanent
Disability);
(ii) the continued failure or refusal of the Executive to perform
the material duties required of him (and reasonably able to
be performed by him) as an employee of the Company (other
than by reason of his death or Permanent Disability);\
(iii) any willful material violation by the Executive of any law or
regulation applicable to the business of the Company or any
of its subsidiaries, or the Executive's conviction of a
felony, or any willful perpetration by the Executive of a
common law fraud; or
(iv) any other willful misconduct by the Executive which is
materially injurious to the financial condition or business
reputation of, or is otherwise materially injurious to, the
Company or any of its subsidiaries or affiliates;
<PAGE>
PROVIDED, HOWEVER, that if any such Cause relates to the
Executive' obligations under this Agreement and (x) is
susceptible to cure and (y) does not constitute a repetition
of such Cause, the Company shall not terminate the
Executive's employment hereunder unless the Company first
gives the Executive notice of its intention to terminate and
of the grounds for such termination, and the Executive has
not, within ten (10) business days following the receipt of
the notice, cured such Cause, or in the event such Cause is
not susceptible to cure within such 10 business day period,
the Executive has not taken all reasonable steps within such
10 business day period to cure such Cause as promptly as
practicable thereafter.
5.4 GOOD REASON. For purposes of this Agreement, "Good Reason" shall
mean any of the following (without the Executive's prior written
consent);
(i) a decrease in the Executive's base rate of compensation or a
failure by the Company to pay material compensation due and
payable to the Executive in connection with his employment;
(ii) a sale of substantially all of the Company's business; or
(iii) a Change in Control (as defined in Section 5.5. below).
5.5 CHANGE IN CONTROL. As used herein, the term "CHANGE IN CONTROL"
means:
(a) any person (other than the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company, or any person or entity organized,
appointed or established by the Company or any subsidiary of the
Company for or pursuant to the terms of any such plan), alone or
together with its affiliates and associates (collectively, an
"Acquiring Person"), shall become the beneficial owner of fifty-one
percent (51%) or more of the then outstanding shares of common stock
or the combined voting power of the Company;
(b) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director who is a representative or nominee
of an Acquiring Person) whose election by the Board or nomination
for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously approved (collectively, the
"CONTINUING DIRECTORS"), cease for any reason to constitute a
majority of the Board;
<PAGE>
(c) the consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted into
voting securities of the surviving entity of any parent of such
surviving entity) at least 51% of the combined voting power of the
Company, such surviving entity or the parent of such surviving entity
outstanding immediately after such merger or consolidation; or
(d) the shareholders of the Company approve a plan of
reorganization (other than a reorganization under the United States
Bankruptcy Code) or complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets;
PROVIDED, HOWEVER, that a Change in Control shall not be deemed to
have occurred in the event of (i) a sale or conveyance in which the
Company continues as a holding company of an entity or entities that
conduct all or substantially all of the business or businesses
formerly conducted by the company or (ii) any transaction undertaken
for the purpose of reincorporating the Company under the laws of
another jurisdiction, if such sale, conveyance or transaction does
not materially affect the beneficial ownership of the Company's
capital stock.
6. DEATH OR DISABILITY
In the event of termination of the Executive's employment by reason
of death or Permanent Disability (as hereinafter defined), the
Executive (or his estate, as applicable) shall be entitled to Base
Salary and benefits determined under Sections 3 and 4 hereof through
the date of termination or, in the case of disability, through the
later of the date of termination or the date (not later than one
year following the date of termination) on which the Executive
commences to receive disability benefits. Other benefits shall be
determined in accordance with the benefit plans maintained by the
Company, and the Company shall have no further obligation hereunder.
For purposes of this Agreement, "PERMANENT DISABILITY" means a
physical or mental disability or infirmity of the Executive that
prevents the normal performance of substantially all his duties as
an employee of the Company, which disability or infirmity shall
exist, or in the opinion of an independent physician is reasonably
likely to exist, for any continuous period of 180 days.
<PAGE>
7. NONSOLICITATION; CONFIDENTIALITY; NONCOMPETITION
7.1 NONSOLICITATION. For so long as the Executive is employed by
the Company and, upon termination of Executive's employment for
any reason, continuing for two years thereafter (unless
Executive is terminated on or after the third anniversary of
this Agreement, in which case continuing for one year
thereafter), the Executive shall not, without the prior
written consent of the Company, directly or indirectly, as a
sole proprietor, member of a partnership or limited
liability company, stockholder or investor, officer or
director of a corporation, or as an employee, associate,
consultant or agent of any person, partnership, or limited
liability company, corporation or other business
organization or entity other than the Company: (x) solicit
or endeavor to entice away from the Company or any of its
subsidiaries any person or entity who is, or, during the
then most recent 12-month period, was employed by, or had
served as an agent or key consultant of, the Company or any
of its subsidiaries (in the case of a consultant, only if
such solicitation or enticement is reasonably likely to
cause a termination of or otherwise materially interferes
with the continued relationship between the Company and such
consultant); or (y) solicit or endeavor to entice away from
the Company or any of its subsidiaries any existing or
reasonably anticipated (to the general knowledge of the
Executive or the public) policy, contract or other business
with any person or entity who is, or was within the then
most recent 12-month period, a customer or client (or
reasonably anticipated (to general knowledge of the Executive
or the public) to become a customer or client) of the Company
or any of its subsidiaries.
7.2 CONFIDENTIALITY
The Executive covenants and agrees with the Company that he
will not at any time, except in performance of his
obligations to the Company hereunder or with the prior
written consent of the Company, directly or indirectly,
disclose any secret or confidential information that he may
learn or has learned by reason of his association with the
Company or any of its subsidiaries and affiliates. The term
"confidential information" includes information not
previously disclosed to the public or to the trade by the
management of the Company or otherwise in the public domain,
with respect to the products, facilities, applications and
methods, trade secrets and other intellectual property,
systems, procedures, manuals, confidential reports, product
price lists, customer lists, technical information, financial
information (including the revenues, costs or profits
associated with any of the Company's products or services),
business plans, prospects or opportunities, but shall exclude
any information which (i) is or becomes available to the
<PAGE>
public or is generally known in the industry or industries in
which the Company operates other than as a result of
disclosure by the Executive in violation of his agreements
under this Section 7.2 or (ii) the Executive is required to
disclose under any applicable laws, regulations or directives
of any government agency, tribunal or authority having
jurisdiction in the matter or under subpoena or other process
of law.
7.3 NO COMPETING EMPLOYMENT. For so long as the Executive is
employed by the Company and, upon the termination of
Executive's employment for any reason, continuing for two
years thereafter (unless Executive is terminated on or after
the third anniversary of this Agreement, in which case
continuing for one year thereafter), the Executive shall not,
directly or indirectly, as a sole proprietor, member of a
partnership or limited liability company, stockholder or
investor (other than a stockholder or investor owning not
more than a 5% interest), officer or director of a
corporation, or as an employee, associate, consultant or
agent of any person, partnership, limited liability company,
corporation or other business organization or entity other
than the Company or any of its subsidiaries, render any
service to or in any way be affiliated with a competitor (or
any person or entity that is reasonably anticipated (to the
general knowledge of the Executive or the public) to become a
competitor) of the Company or any of its subsidiaries in the
business of accumulation products, insurance businesses and
other financial services businesses in which the Company or
any of its subsidiaries is engaged. This noncompetition
covenant shall be limited geographically to the United States
of America. Notwithstanding anything contained in this
Section 7.3 to the contrary, the period of applicability of
this Section 7.3 shall be extended an additional day for each
day on which the Executive is in breach of this Section 7.3.
7.4 EXCLUSIVE PROPERTY. The Executive confirms that all
confidential information of the Company is and shall remain
the exclusive property of the Company. All business records,
papers and documents kept or made by the Executive for the
Company relating to the business of the Company shall be and
remain the property of the Company, except for such papers
customarily deemed to be the personal copies of the Executive.
7.5 LIMITATION ON COMMENTS. At no time during or after the
Employment Term shall the Executive utter, issue or circulate
any false, inappropriate for disparaging statements, remarks
or rumors about the Company, its subsidiaries or any of their
respective affiliates. Similarly, at no time during the
Employment Term or thereafter shall the Company, its
subsidiaries or any of their respective affiliates utter,
<PAGE>
issue or circulate any false, inappropriate or disparaging
statements, remarks or rumors about the Executive.
7.6 INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the parties hereto, the parties acknowledge that
a breach of any of the covenants contained in this Section 7
by the other (in the case of the Executive, a breach of
Section 7.1, 7.2, 7.3, 7.4 or 7.5 and in the case of the
Company, a breach of Section 7.5) may result in material and
irreparable injury to the other party for which there is not
adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, the damaged party
shall be entitled to seek a temporary restraining order and/or
a preliminary or permanent injunction restraining the breaching
party from engaging in activities prohibited by this Section 7
or such other relief as may be required specifically to
enforce any of the covenants in this Section 7. If for any
reason, it is held that the restrictions under this Section 7
are not reasonable or that consideration therefor is
inadequate, such restrictions shall be interpreted or modified
to include as much of the duration and scope identified in
this Section 7 as will render such restriction valid and
enforceable.
8. ARBITRATION
Any dispute or controversy arising under or in connection
with this Agreement that cannot be mutually resolved by the parties hereto
shall be settled exclusively by arbitration in Louisville, Kentucky before
one arbitrator of exemplary qualifications and stature, who shall be selected
jointly by the Company and the Executive, or, if the Company and Executive
cannot agree on the selection of the arbitrator, shall be selected by the
American Arbitration Association (PROVIDED that any arbitrator selected by
the American Arbitration Association shall not, without the consent of the
parties hereto, be affiliated with the Company or the Executive or any of
their respective affiliates). Judgment may be entered on the arbitrator's
award in any court having jurisdiction. The parties hereby agree that the
arbitrator shall be empowered to enter an equitable decree mandating specific
enforcement of the terms of this Agreement. The Company shall bear all
expenses of the arbitrator incurred in any arbitration hereunder and shall
reimburse the Executive for any related reasonable legal fees and
out-of-pocket expenses directly attributable to such arbitration; PROVIDED
that such legal fees are calculated on an hourly, and not on a contingency fee,
basis; and PROVIDED, FURTHER, that the Executive shall bear all expenses of
the arbitrator and all of his legal fees and all out-of-pocket expenses (and
reimburse the Company for its portion of such expenses) if the arbitrator or
relevant trier-of-fact determines that the Executive's claim or position was
frivolous and with reasonable foundation.
<PAGE>
9. MISCELLANEOUS
9.1 NOTICES. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
ARM Financial Group, Inc.
515 West Market Street
Louisville, Kentucky 40202
Telecopier No: (502) 582-7995
Attention: John R. Lindholm
Copy to: General Counsel
Or to such other address as either party may have furnished to the
other in writing in accordance herewith. All such notices shall be
conclusively deemed to be received and shall be effective, (i) if
sent by hand delivery, upon receipt, (ii) if sent by telecopy or
facsimile transmission, upon confirmation of receipt by the sender
of such transmission or (iii) if sent by registered or certified
mail, on the third day after the day on which such notice is mailed.
9.2 SEVERABILITY. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement
is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of
this Agreement.
9.3 ASSIGNMENT. The Company's rights and obligations under this
Agreement shall not be assignable by the Company except as
incident to a reorganization, merger or consolidation, or
transfer of all or substantially all of the Company's
business and properties (or portion thereof in which the
Executive is employed). Neither this Agreement nor any
rights hereunder shall be assignable or otherwise subject to
hypothecation by the Executive. Nothing herein is intended
to affect the provision of Section 5.4 (ii) and (iii).
9.4 ENTIRE AGREEMENT. Except as expressly set forth herein, this
Agreement represents the entire agreement of the parties
concerning the subject matter hereof and shall supersede any
and all previous contracts, arrangements or understandings
between the Company and
<PAGE>
the Executive. This Agreement may be amended at any time by
mutual written agreement of the parties hereto.
9.5 WITHHOLDING. The Payment of any amount pursuant to this
Agreement shall be subject to applicable withholding and
payroll taxes, and such other deductions as may be required
under the Company's employee benefit plans, if any.
9.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Kentucky.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed
and the Executive has hereunto set his hand, as of the day and year first
above written.
ARM FINANCIAL GROUP, INC.
By: /s/ John R. Lindholm
------------------------------------
Title: President
---------------------------------
EXECUTIVE
By: /s/ James G. Kaiser
------------------------------------
James G. Kaiser
<PAGE>
EXHIBIT A
(Target Bonus Override Amounts)
4/1/1999 - 12/31/99 $500,000,000
1/1/2000 - 12/31/2000 $750,000,000
1/1/2001 - 12/31/2001 $750,000,000
1/1/2002 - Termination of this Agreement $750,000,000
(multiplied by
(number of
days Executive worked
in 2002) divided by 365)
<PAGE>
EXHIBIT B
(Wholesaler Agreements - Trailer Commissions)
SECURITY LIFE OF DENVER WHOLESALER AGREEMENT
(TERMINATED 6/98)
<PAGE>
EXHIBIT C
(Other Activities)
<PAGE>
EXHIBIT C
JAMES G. KAISER (JGK) PERSONAL INVESTMENT PORTFOLIO
JGK is a member of the Board of Directors of AffinCorp. Inc., Orinda, CA
and an investor in many private companies. These types of investment
activities are expected to continue into the future, including possible
directorships; provided, that such activities do not violate Section
7.3 of this Agreement and do not substantially interfere with
the obligations of JGK under Section 2.1 of this Agreement.
<PAGE>
AMENDMENT NO. 1 TO
INSTALLMENT FACE-AMOUNT CERTIFICATE AGREEMENT
AMENDMENT NO.1 (this "AMENDMENT"), dated as of February 23, 1999, TO
INSTALLMENT FACE-AMOUNT CERTIFICATE AGREEMENT, dated as of September 15,
1998, by and among 212 CERTIFICATE COMPANY, a Delaware corporation
(hereinafter, together with its successors and assigns, the "ISSUER"), PARK
AVENUE RECEIVABLES CORPORATION, a Delaware corporation (hereinafter, together
with its successors and assigns in such capacity, "PARCO"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, as Funding Agent and as APA
Bank (hereinafter, together with its successors and assigns in such
capacities, the "FUNDING AGENT" and the "APA BANK").
WITNESSETH:
WHEREAS, the Issuer, the Funding Agent, the APA Bank and PARCO have
entered into an Installment Face-Amount Certificate Agreement, dated as of
September 15, 1998 (as amended, supplemented or otherwise modified and in effect
from time to time, the "AGREEMENT");
WHEREAS, the parties hereto wish to amend the Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, the terms
used herein shall have the meanings assigned to such terms in, or
incorporated by reference into, the Agreement. As used herein, "EFFECTIVE
DATE" shall mean the first day on which (i) each of PARCO, the APA Bank, the
Funding Agent and the Issuer shall have received executed copies of this
Amendment and the Face-Amount Certificate dated February 23, 1999, (ii) the
Funding Agent shall have received executed copies of Amendment No. 1, dated
as of February 23, 1999, to the Invest-
<PAGE>
ment Management Agreement and Amendment No. 1, dated as of February 23, 1999, to
the Asset Purchase Agreement (iii) PARCO and the Funding Agent shall have
received a Rating Confirmation (as defined in the Asset Purchase Agreement)
relating to this Amendment and (iv) the Funding Agent shall have received an
executed copy of an amended Swap Agreement, together with all schedules and
annexes thereto, in form and substance acceptable to the Funding Agent.
SECTION 2. AMENDMENTS TO AGREEMENT.
The Agreement is hereby amended, effective on the Effective Date, as
follows:
(a) All references in the Agreement to the term "500,000,000" shall be
deleted and shall be replaced with the term "600,000,000".
(b) Section 1 of the Agreement shall be amended at the end of the first
sentence thereof by inserting the following words before the period:
;PROVIDED that the aggregate principal amount of all Installment Purchases
related to Additional Securities shall not exceed $100,000,000 (as
permanently reduced from time to time after giving effect to any payments
received by the Issuer in respect of principal of Additional Securities
that are sold by the Issuer prior to a redemption or the scheduled maturity
thereof); PROVIDED FURTHER that, upon payment of all principal due and
owing to the Certificateholders in respect of Additional Securities prior
to a redemption or the scheduled maturity thereof, (i) all references in
this Agreement to the term "$600,000,000" shall be deleted and shall be
replaced with the term "$500,000,000" and (ii) the immediately preceding
proviso shall be deleted in its entirety; PROVIDED FURTHER that, to the
extent any such Additional Securities are the subject of a redemption or
are otherwise paid on the scheduled maturity date thereof, the Issuer shall
be entitled to reinvest payments received in respect of such Additional
Securities in Securities satisfying the requirements of this Agreement and
the other Transaction Documents, which Securities shall be acquired at a
market price by or through Chase Securities Inc. (or, if Chase Securities
Inc. is not offering Securities satisfying the requirements of this
Agreement and the other Transaction Documents, from another Person).
2
<PAGE>
(c) Annex X to the Agreement shall be amended in the definition of
"Aggregate Commitment" by deleting the reference to the term $510,000,000" and
by replacing it with "$612,000,000".
(d) Annex X to the Agreement shall be amended by inserting the
following definition in alphabetical order therein:
"ADDITIONAL SECURITY" has the meaning specified in the Investment
Guidelines.
(e) Annex X to the Agreement shall be amended in the definition of
"Amortization Event" by deleting clause (v) of such definition in its entirety
and by replacing it with the following:
"(v) The Swap Provider shall (i) cease to have short term ratings
of at least A-1 by Standard and Poor's or D-1 by Duff and Phelps; or (ii)
fail to comply with Section 6.14 entitled "Risk-Based Capital Ratio" (as
such section may be amended from time to time, with copies to the Funding
Agent) of that certain Credit Agreement, dated as of June 24, 1997, by and
among ARM Financial Group, Inc., Chase Securities, Inc. as Arranger and The
Chase Manhattan Bank as Administrative Agent, as amended and in effect from
time to time, and in either case a Successor Swap Provider has not assumed
the obligations of the Swap Provider under the Swap Agreement within thirty
(30) days;".
SECTION 3. EXECUTION IN COUNTERPARTS.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Amendment.
SECTION 4. CONSENTS: BINDING EFFECT
The execution and delivery by the Issuer, the Funding Agent, the APA
BANK, PARCO and the Portfolio Manager of this Amendment shall constitute the
written consent of each of them to this Amendment. This Amendment shall be
3
<PAGE>
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns.
SECTION 5. GOVERNING LAW.
This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
SECTION 6. SEVERABILITY OF PROVISIONS.
Any provision of this Amendment which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
SECTION 7. CAPTIONS.
The captions in this Amendment are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
SECTION 8. AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT.
Except as amended hereby, the Agreement shall remain in full force and
effect and is hereby ratified, adopted and confirmed in all respects. This
Amendment shall be deemed to be an amendment to the Agreement. All references in
the Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of
like import, and all references to the Agreement in any other agreement or
document shall hereafter be deemed to refer to the Agreement as amended hereby.
(REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to the Face-Amount Certificate Agreement to be executed as of the date
and year first above written.
212 CERTIFICATE COMPANY, as Issuer
By /s/ Robert L. Maddox
-----------------------------
Name: Robert L. Maddox
Title: President
PARK AVENUE RECEIVABLES
CORPORATION, as Purchaser
By /s/ Andrew L. Stidd
-----------------------------
Name: Andrew L. Stidd
Title: President
THE CHASE MANHATTAN BANK, as
Funding Agent
By /s/ Andrew Taylor
-----------------------------
Name: Andrew Taylor
Title: Vice President
THE CHASE MANHATTAN BANK, as
APA Bank
By /s/ Bradley S. Schwartz
-----------------------------
Name: Bradley S. Schwartz
Title: Vice President
<PAGE>
Accepted and agreed as of the
date and year first above written:
INTEGRITY CAPITAL ADVISORS, INC.,
as Portfolio Manager
By /s/ Barry G. Ward
-----------------------------
Name: Barry G. Ward
Title: Controller
<PAGE>
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
(212 Certificate Company)
AMENDMENT NO. I (this "AMENDMENT"), dated as of February 23, 1999, TO ASSET
PURCHASE AGREEMENT, dated as of September 15,1998, between PARK AVENUE
RECEIVABLES CORPORATION, a Delaware corporation (hereinafter, together with its
successors and assigns, called the "COMPANY") and THE CHASE MANHATTAN BANK, a
New York banking corporation, as Funding Agent and as APA Bank thereunder
(hereinafter, together with its successors and assigns in such capacities, the
"FUNDING AGENT" and the "APA BANK", respectively).
WITNESSETH:
WHEREAS, the Company, the Funding Agent and the APA Bank have entered
into an Asset Purchase Agreement, dated as of September 15, 1998 (as amended,
supplemented or otherwise modified and in effect from time to time, the
"AGREEMENT");
WHEREAS, the Company has requested that the Commitment be increased
from $510,000,000 to $612,000,000, and the APA Bank has agreed to such request
on the terms and conditions set forth in the Agreement; and
WHEREAS, in order to effectuate the increase in the Commitment, the
parties hereto wish to amend the Agreement as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, the terms
used herein shall have the meanings assigned to such terms in, or incorporated
by reference into, the Agreement.
<PAGE>
SECTION 2. AMENDMENTS TO AGREEMENT.
The Agreement is hereby amended, effective on the first day on which
each of the Company, the Funding Agent and the APA Bank receives executed
counterparts of this Amendment, as follows:
(a) Section 1.2 of the Agreement shall be amended in the definition of
"Commitment" by deleting the reference to "$510,000,000" therein and by
replacing it with "$612,000,000".
SECTION 3. EXECUTION IN COUNTERPARTS.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Amendment.
SECTION 4. CONSENTS: BINDING EFFECT.
The execution and delivery by the Company, the Funding Agent and the
APA Bank of this Amendment shall constitute the written consent of each of them
to this Amendment. This Amendment shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
SECTION 5. GOVERNING LAW.
This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
SECTION 6. SEVERABILITY OF PROVISIONS.
Any provision of this Amendment which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
2
<PAGE>
SECTION 7. CAPTIONS.
The captions in this Amendment are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
SECTION 8. AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT.
Except as amended hereby, the Agreement shall remain in full force and
effect and is hereby ratified, adopted and confirmed in all respects. This
Amendment shall be deemed to be an amendment to the Agreement. All references in
the Agreement to "this Agreement", "hereunder", "hereof, "herein", or words of
like import, and all references to the Agreement in any other agreement or
document shall hereafter be deemed to refer to the Agreement as amended hereby.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to the Asset Purchase Agreement to be executed as of the date and year
first above written.
PARK AVENUE RECEIVABLES
CORPORATION, as Company
By /s/ Andrew L. Stidd
-----------------------------------
Name: Andrew L. Stidd
Title: President
THE CHASE MANHATTAN BANK, as
Funding Agent
By /s/ Andrew Taylor
-----------------------------------
Name: Andrew Taylor
Title: Vice President
THE CHASE MANHATTAN BANK, as
APA Bank
By /s/ Bradley S. Schwartz
-----------------------------------
Name: Bradley S. Schwartz
Title: Vice President
<PAGE>
AMENDMENT NO. 1 TO
INVESTMENT MANAGEMENT AGREEMENT
AMENDMENT NO. 1 (this "AMENDMENT"), dated as of February 23, 1999,
TO INVESTMENT MANAGEMENT AGREEMENT, dated as of September 15, 1998, by and
among 212 CERTIFICATE COMPANY, a Delaware corporation (hereinafter, together
with its successors and assigns, the "ISSUER"), INTEGRITY CAPITAL ADVISORS,
INC., a Delaware corporation (hereinafter, together with its successors and
assigns in such capacity, the "PORTFOLIO MANAGER"), and THE CHASE MANHATTAN
BANK, a New York banking corporation, as Funding Agent (hereinafter, together
with its successors and assigns in such capacity, the "FUNDING AGENT").
W I T N E S S E T H:
WHEREAS, the Issuer, the Funding Agent and the Portfolio Manager have
entered into an Investment Management Agreement, dated as of September 15, 1998
(as amended, supplemented or otherwise modified and in effect from time to time,
the "AGREEMENT");
WHEREAS, the parties hereto wish to amend the Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, the terms
used herein shall have the meanings assigned to such terms in, or incorporated
by reference into, the Agreement.
<PAGE>
SECTION 2. AMENDMENTS TO AGREEMENT.
The Agreement is hereby amended, effective on the first day on which
each of the Issuer, the Funding Agent and the Portfolio Manager receives
executed counterparts of this Amendment, as follows:
(a) Exhibit A to the Agreement shall be deleted in its entirety and
shall be replaced with Annex A hereto.
SECTION 3. EXECUTION IN COUNTERPARTS.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Amendment.
SECTION 4. CONSENTS: BINDING EFFECT.
The execution and delivery by the Issuer, the Funding Agent and the
Portfolio Manager of this Amendment shall constitute the written consent of each
of them to this Amendment. This Amendment shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
SECTION 5. GOVERNING LAW.
This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
SECTION 6. SEVERABILITY OF PROVISIONS.
Any provision of this Amendment which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
2
<PAGE>
SECTION 7. CAPTIONS.
The captions in this Amendment are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
SECTION 8. AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT.
Except as amended hereby, the Agreement shall remain in full force and
effect and is hereby ratified, adopted and confirmed in all respects. This
Amendment shall be deemed to be an amendment to the Agreement. All references in
the Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of
like import, and all references to the Agreement in any other agreement or
document shall hereafter be deemed to refer to the Agreement as amended hereby.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to the Investment Management Agreement to be executed as of the date
and year first above written.
212 CERTIFICATE COMPANY, as Issuer
By: /s/ Robert L. Maddox
-------------------------------
Name: Robert L. Maddox
Title: President
THE CHASE MANHATTAN BANK, as
Funding Agent
By /s/ Andrew Taylor
--------------------------------
Name: Andrew Taylor
Title: Vice President
INTEGRITY CAPITAL ADVISORS, INC.,
as Portfolio Manager
By /s/ Barry G. Word
-------------------------------
Name:
Title: Controller
<PAGE>
ANNEX A
INVESTMENT GUIDELINES
(Attached)
<PAGE>
- --------------------------------------------------------------------------------
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
<TABLE>
<CAPTION>
MIN./MAX/ MAX. PER MAX. PER
ASSET CLASS EXP.(7)(8) ISSUE(7)(8) ISSUER(7)(8)
- -------------------------------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
U.S. Government & Agencies 0/100% unlimited unlimited
Mortgage-backed Securities
Agency CMOs 0/50% 5% 9.5%
Non-agency CMOs (residential) 0/50% 5% 9.5%
Non-agency CMOs (commercial) (1) 0/10% 5% 9.5%
Agency Pass Throughs, 0/50% 5% 9.5%
Support Tranches 0/10% 5% 9.5%
Asset-backed Securities (8) 0/30% 5%
Auto Loans
Credit Card Receivable
Home Equity
Manufactured Housing
Corporate Debt (2) 0/60% 5% 5%
Industrials
Telecommunications
Utilities
Banks
Finance Companies
144A Private Placements (3)(8) 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 0/100% 5% 5%
Non-Speculative Hedging Instruments (5) 0/3% 3% 3%
</TABLE>
(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) See "Non-Speculative Hedging Instruments" herein.
(6) 10% Maximum Issue/Issuer during 90 day ramp up period for AI/P1.
(7) Limitations are calculated at the time of purchase.
(8) Exposure limitations are calculated exclusive of Additional Securities.
<PAGE>
- --------------------------------------------------------------------------------
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
General
1. The average effective duration of the portfolio cannot exceed 1.75 years.
2. The average credit quality of the portfolio cannot be less than AA/NAIC "1"
(exclusive of Additional Securities).
3. The portfolio cannot contain investments in real estate, direct commercial
mortgages, common stocks, leveraged futures or other leveraged/speculative
derivatives.
4. Any derivative position must be used for hedging only and must result in
the portfolio still being in compliance with all other investment
guidelines.
5. Securities lending shall be permitted, PROVIDED that (i) any such
securities must be collateralized by cash or cash equivalents in an
aggregate amount equal to 102% of the mark-to-market value of such
securities and (ii) such cash or cash equivalents must be held in a
segregated account for the benefit of the Funding Agent on the books and
records of the applicable lending agent; PROVIDED FURTHER that for purposes
of calculating the mark-to-market value of the portfolio, the
mark-to-market value of the underlying Securities shall be used.
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"
(exclusive of Additional Securities). 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.
2
<PAGE>
- --------------------------------------------------------------------------------
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO 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.
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 into includes auto loans, credit card receivables,
home-equity loans, manufactured housing loans or Additional Securities.
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.
3
<PAGE>
- --------------------------------------------------------------------------------
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
ADDITIONAL SECURITIES
"Additional Securities" shall mean Securities purchased with the proceeds of
the Installment Purchase up to a limit of $100,000,000 occurring subsequent
to February 5, 1999 and prior to February 28, 1999.
FOREIGN DEBT
Debt issued by a legal entity incorporated outside of the United States. Only
U.S. dollar denominated securities are permitted. Must be the equivalent of U.S.
investment grade (i.e., rated BBB-1Baa3 or better).
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
- Applicable agreed upon Money Market Deposit Accounts
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.
NON-SPECULATIVE HEDGING INSTRUMENTS.
Caps, floors or swaps may only be used as part of a hedging program to
explicitly manage the risk profile of the portfolio, and will only be paired
with specified securities (e.g., an interest rate swap coupled with a fixed
rate security, thereby creating a synthetic floating rate security). They may
not be used for speculative purposes. This does not imply that all such
security structures in the portfolio will be hedged at all times, Credit
quality of acceptable counterparties will be AA or better. Hedging instrument
will be valued at their mark-to-market value (at the most disadvantageous
side of the bid/offer spread), whether positive or negative. A positive
market value means the Issuer has exposure to the counterparty; a negative
market value means the counterparty has exposure to the Issuer. Aggregate
exposure to any given counterparty shall not exceed 5% of the total value of
the Portfolio (such aggregate exposure to be measured as the sum of (a) the
sum of all Non-Speculative Hedging exposures with that counterparty, whether
positive or negative, if a master netting agreement has been executed with
such counterparty; or the sum of all positive Non-Speculative Hedging
Instrument exposures with that counterparty, if a master netting
4
<PAGE>
- --------------------------------------------------------------------------------
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
agreement is not in place with such counterparty, and (b) the market value of
all securities issued by such counterparty and held in the Portfolio).
ADDITIONAL DEFINITIONS
Newly issued and TBA securities as well as extended settlements on purchases of
permitted securities are explicitly allowed as long as the securities involved
otherwise comply with these stated investment guidelines. Such transactions are
not considered to be forward contacts.
PROHIBITED ASSET CLASSES
The following asset classes are prohibited investments:
- Interest only CMO class
- Principal only CMO class
- Inverse floater CMO class
- Forwards*
- Forwards*
- Forwards*
Except as explicitly discussed under Permitted Asset Classes.
MORTGAGE-BACKED SECURITIES
Ownership claim in a pool of mortgages or an obligation that is secured by such
a pool.
5
<PAGE>
PORTFOLIO ELIGIBILITY AND INVESTMENT
GUIDELINES
PORTFOLIO ELIGIBILITY CRITERIA
Eligible Securities are defined as any Security:
(1) Denominated and payable in U.S. dollars in the United States;
(11) Where We issuer of a Security is not an affiliate of any of the parties
hereto;
(111) Whose terms do not require the consent of the issuer of the Security
to sell or assign and provide for principal to be paid no later than
maturity;
(IV) Where the Certificate holder has not notified the Issuer or Portfolio
Manager that the Security is not acceptable, in its reasonable good faith
judgment;
(V) That satisfies all applicable requirements of the Short-Term Portfolio
Guidelines;
(VI) That is an "instrument" under Section 8 of the Uniform Commercial Code;
(VII) Where the obligor of the Security is not the obligor of any Defaulted
Securities;
(VIII) Where final maturity on the Security is no longer than 30 years from
original issuance or the security is a European Perpetual Preferred
security rated NAIC whose base level index resets at least semiannually;
(IX) Not currently in default;
(X) At the time of purchase by 212 Certificate Company, not in redemption;
(XI) Whose coupon payments are not subject to withholding taxes;
(XII) Rated by at least Moody's or S&P (the "Rating Agencies"), including NAIC
ratings for private placements. When a Security is rated by both Rating
Agencies, the lower rating shall be applicable;
(XIII) With no prohibition on sale;
(XIV) That, if the Security's issuer is a non-US issuer, the issuer is from an
OECD country;
(XV) that is not investments in real estate, direct commercial mortgages,
common stock, leveraged futures or other leveraged/speculative
derivatives, and Cannot be converted into equity; and
(XVI) whose purchase will not cause the percentage of securities in the
portfolio win fixed rate coupons to exceed 60%.
6
<PAGE>
FACE-AMOUNT CERTIFICATE
THIS INSTALLMENT FACE-AMOUNT CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "'33 ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA (THE "BLUE SKY
LAWS"). THE HOLDER HEREOF, BY PURCHASING THIS INSTALLMENT FACE-AMOUNT
CERTIFICATE OR ANY INTEREST HEREIN (THE "INTEREST"), REPRESENTS THAT IT IS AN
"ACCREDITED INVESTOR" AS THAT TERM IS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE '33 ACT AND AGREES THAT SUCH INTEREST WILL ONLY BE OFFERED, RESOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE '33 ACT,
THE APPLICABLE BLUE SKY LAWS AND THE RESTRICTIONS SET FORTH IN THE FACE-AMOUNT
CERTIFICATE AGREEMENT. THIS FACE-AMOUNT CERTIFICATE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
THIS INSTALLMENT FACE-AMOUNT CERTIFICATE IS SUBJECT TO PREPAYMENT AND/OR
REDEMPTION PRIOR TO ITS STATED MATURITY AS SET FORTH IN THE FACE-AMOUNT
CERTIFICATE AGREEMENT.
212 Certificate Company
$600,000,000 Installment Face-Amount Certificate
February 23, 1999
Certificate No. 2
212 CERTIFICATE COMPANY, a corporation duly organized and existing
under the laws of the State of Delaware (the "Issuer"), shall pay to THE CHASE
MANHATTAN BANK, as funding agent (the "Funding Agent") for the benefit of Park
Avenue Receivables Corporation (the "Purchaser") and any subsequent entity
which, in the future purchases an interest in this installment face-amount
certificate (this "Certificate") pursuant to the Asset Purchase Agreement
(collectively, the Purchaser and such future potential purchasers are
hereinafter referred to as the "Certificateholders") the unpaid principal amount
of all installment purchase payments made by the Certificate holders from time
to time (the "Invested Amount"), up to an aggregate principal amount not to
exceed $600,000,000, and to pay interest on the Invested Amount as more fully
set forth in that certain Face-Amount Certifi-
<PAGE>
cate Agreement, dated as of September 15, 1998, among the Issuer, the Purchaser
and the Funding Agent (as amended, restated, supplemented or otherwise modified
and in effect from time to time, the "Face-Amount Certificate Agreement").
This Face-Amount Certificate is issued and delivered pursuant to the
Face-Amount Certificate Agreement in substitution for that certain Face-Amount
Certificate made by the Issuer dated September 15, 1998, and this Face-Amount
Certificate shall not, in any event, be deemed to cancel or extinguish, or
otherwise to affect the rights of the Funding Agent and the Certificate holders
with respect to, any amounts outstanding thereunder on the date of execution and
delivery of this Face-Amount Certificate. Reference is hereby made to the Face-
Amount Certificate Agreement for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Issuer, the
Funding Agent and the Certificateholders and the terms upon which this Face-
Amount Certificate is delivered. All terms used in this Face-Amount Certificate
which are not defined herein shall have the meanings assigned to them in, or
incorporated by reference into, the Face-Amount Certificate Agreement. The
provisions of the Face-Amount Certificate Agreement are hereby incorporated by
reference herein and shall be binding on the Issuer, the Funding Agent and the
Certificateholders as if fully set forth herein. As provided in the Face-Amount
Certificate Agreement, this Face-Amount Certificate is secured by the Pledged
Collateral. To the extent provided in the Face-Amount Certificate Agreement and
the Pledge Agreement, the Certificateholders (and the Funding Agent on their
behalf) shall be entitled to the benefits of a security interest in the Pledged
Collateral, for the benefit of the Certificateholders.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed as of the date first above-written.
212 CERTIFICATE COMPANY
By: /s/Robert L. Maddox
-------------------------
Name: Robert L. Maddox
Title: President
<PAGE>
AMENDMENT NO. 2 TO
INVESTMENT MANAGEMENT AGREEMENT
AMENDMENT NO. 2 (this "AMENDMENT"), dated as of May 11, 1999, TO
INVESTMENT MANAGEMENT AGREEMENT, dated as of September 15, 1998, by and among
212 CERTIFICATE COMPANY, a Delaware corporation (hereinafter, together with
its successors and assigns, the "ISSUER"), INTEGRITY CAPITAL ADVISORS, INC.,
a Delaware corporation (hereinafter, together with its successors and assigns
in such capacity, the "PORTFOLIO MANAGER"), and THE CHASE MANHATTAN BANK, a
New York banking corporation, as Funding Agent (hereinafter, together with
its successors and assigns in such capacity, the "FUNDING AGENT").
WITNESSETH:
WHEREAS, the Issuer, the Funding Agent and the Portfolio Manager have
entered into an Investment Management Agreement, dated as of September 15, 1998,
as amended by Amendment No. 1 thereto dated as of February 23, 1999 (as further
amended, supplemented or otherwise modified and in effect from time to time, the
"AGREEMENT");
WHEREAS, the parties hereto wish to amend the Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, the terms
used herein shall have the meanings assigned to such terms in, or incorporated
by reference into, the Agreement.
<PAGE>
SECTION 2. AMENDMENTS TO AGREEMENT. The Agreement is hereby amended,
effective on the first day on which each of the Issuer, the Funding Agent and
the Portfolio Manager receives executed counterparts of this Amendment, as
follows:
(a) Section 4 of the Agreement shall be amended:
(i) by deleting the name "ARM Capital" appearing in the heading
thereof and by inserting the name "BlackRock Financial Management, Inc." in
its place,
(ii) by deleting the second sentence of such Section and by
replacing it with the following words: "The Funding Agent, for the benefit
of the Certificateholders, hereby consents to the appointment of BlackRock
Financial Management, Inc. (together with its permitted successors and
assigns, "BlackRock"), as exclusive investment sub-Portfolio Manager 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 provided to the Funding Agent", and
(iii) by deleting the third sentence thereof and by replacing it
with the following words: "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 obligations under this
Agreement shall remain unchanged, and the Portfolio Manager shall remain
solely responsible for the performance of its obligations hereunder."
(b) Section 7(f)(v) of the Agreement shall be deleted in its entirety
and shall be replaced by the following:
"(v) on the second Business Day of each calendar week, a "Weekly
Report" with respect to the Portfolio as of the Business Day immediately
preceding 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;".
2
<PAGE>
SECTION 3. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Amendment.
SECTION 4. CONSENTS, BINDING EFFECT. The execution and delivery by the
Issuer, the Funding Agent and the Portfolio Manager of this Amendment shall
constitute the written consent of each of them to this Amendment. This Amendment
shall be binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns.
SECTION 5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. SEVERABILITY OF PROVISIONS. Any provision of this Amendment
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 7. CAPTIONS. The captions in this Amendment are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 8. AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT. Except as
amended hereby, the Agreement shall remain in full force and effect and is
hereby ratified, adopted and confirmed in all respects. This Amendment shall be
deemed to be an amendment to the Agreement. All references in the Agreement to
"this Agreement", "hereunder", "hereof", "herein", or words of like import, and
all references to the Agreement in any other agreement or document shall
hereafter be deemed to refer to the Agreement as amended hereby.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2
to the Investment Management Agreement to be executed as of the date and year
first above written.
212 CERTIFICATE COMPANY, as Issuer
By /s/ William D. Morris
------------------------------------
Name: William D. Morris
Title: CEO
THE CHASE MANHATTAN BANK, as
Funding Agent
By
------------------------------------
Name:
Title:
INTEGRITY CAPITAL ADVISORS, INC.,
as Portfolio Manager
By /s/ William H. Panning
------------------------------------
Name: William H. Panning
Title: Chief Investment Officer
<PAGE>
$500,000,000
FACE AMOUNT CERTIFICATE AGREEMENT
This is a FACE AMOUNT CERTIFICATE AGREEMENT (this "Agreement") in the
principal amount of $500,000,000 made as of the 24th day of April, 1998, by and
among (i) 312 CERTIFICATE COMPANY, a bankruptcy-remote Delaware corporation (the
"Issuer"); (ii) INTERNATIONAL SECURITIZATION CORPORATION, a bankruptcy-remote
Delaware corporation ("ISC"); and (iii) THE FIRST NATIONAL BANK OF CHICAGO
("FNBC") as agent (the "Agent") for ISC and any subsequent entity which,
pursuant to the Liquidity Agreement (as defined below), purchases an interest in
the installment face amount certificate being issued hereunder substantially in
the form attached hereto as EXHIBIT A (as amended, substituted or replaced from
time to time, the "Certificate") (collectively, ISC and such future potential
Certificate purchasers are hereinafter referred to as the "Certificateholders").
WHEREAS, the Issuer desires to sell the Certificate to ISC and place
the periodic proceeds of such sale (the "Sale Proceeds") into that certain
custodial account #3402824200 (the "Custodial Account") held with Bank One,
Kentucky, N.A., an independent, third-party custodian (the "Custodian"); and
WHEREAS, the Issuer and ISC desire that such Sale Proceeds be
maintained as security for the Certificate and invested in a pool of
fixed-income securities (the "Portfolio") which will be actively managed
pursuant to that certain Investment Management Agreement of even date herewith
by and among the Issuer, the Agent and Integrity Capital Advisors, Inc., as the
Portfolio Advisor thereunder (in such capacity, the "Portfolio Manager") (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "Investment Management Agreement"); and
WHEREAS, ISC desires to pay for its purchase of the Certificate
through the issuance of its A-1/P-1 asset-backed commercial paper notes (the
"Asset-Backed CP") and the Agent desires to hold the Certificate for the benefit
of the Certificateholders and perform the administrative functions set forth
herein and in the other documents related to the transaction contemplated
hereby;
NOW, THEREFORE, in consideration of the premises and mutual promises
set forth herein, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. INSTALLMENT PURCHASES. Upon execution of this Agreement (hereinafter
such time shall be referred to as the "Closing" and the date on which the
Closing occurs shall hereinafter be referred to as the "Closing Date"), ISC,
subject to the conditions set forth below, will purchase an initial amount of
the principal of the Certificate (the "Initial Purchase") and may thereafter, in
its sole discretion and subject to the conditions contained elsewhere herein,
make additional installment purchases (the Initial Purchase and any subsequent
installment purchases are hereinafter each referred to as an "Installment
Purchase") from time to time up to a total principal
<PAGE>
amount of $500,000,000.
2. CONDITIONS PRECEDENT TO EACH INSTALLMENT PURCHASE. The initial
Purchase and any subsequent Installment Purchases hereunder shall be subject to
satisfaction of the conditions precedent contained in EXHIBIT B attached hereto
and hereby incorporated herein by reference thereto (each as applicable to any
given Installment Purchase).
3. INSTALLMENT PURCHASE PAYMENTS. Installment Purchases shall be made in
immediately available U.S. funds by wire transfer to the Custodian pursuant to
wire transfer instructions to be provided to the Agent by the Issuer.
4. CERTIFICATE YIELD. During all times that any or all of the principal
amount of the Certificate is outstanding (the "Invested Amount"), the Issuer
shall pay with respect to each Settlement Period (or portion thereof) an amount
equal to the sum of (a) + (b) + (c), where:
(a) is equal to the applicable Earned Yield (as defined below) with
respect to such Settlement Period (or portion thereof),
(b) is equal to the applicable Liquidity Fee (as defined below)
payable by the Issuer pursuant to the Liquidity Fee Letter with respect to such
Settlement Period (or portion thereof), and
(c) is equal to the applicable Letter of Credit Fee (as defined
below) payable by the Issuer to the Agent pursuant to the FNBC Fee Letter for
the benefit of the Letter of Credit Banks (in each case, as defined below) with
respect to such Settlement Period (or portion thereof) (collectively, the sum
(a) + (b) + (c) for any calculation period shall be referred to as the
"Certificate Yield").
For purposes of making the above-referenced calculation and payment, the
foregoing capitalized terms shall have the following meanings:
"EARNED YIELD" means, with respect to any Settlement Period (or portion
thereof), the sum of:
(i) with respect to any portion of the Invested Amount held on the
books and records of the Agent by ISC and funded through sales of
Asset-Backed CP from time to time, the product of (x) the applicable
average daily outstanding Invested Amount during such Settlement Period (or
portion thereof), TIMES (y) a rate as reasonably selected and determined by
the Agent which, acting in good faith, reflects the basis for maintaining
ISC's interest in the Invested Amount, which is equal to either (a) from
the Closing Date to the date which is 364 days thereafter, the excess of
(i) the One-Month LIBOR applicable with respect to such period, LESS (ii)
0.08% per annum, and thereafter, unless otherwise agreed by the parties
hereto in writing, the "Pass-Through Rate" (as defined below) or (b) the
Base rate; PLUS
2
<PAGE>
(ii) with respect to any portion of the Invested Amount held on the
books and records of the Agent by the Liquidity Banks as a result of sales
of interests in any Invested Amount by ISC to the Liquidity Banks under the
Liquidity Agreement from time to time, the product of (x) the applicable
average daily outstanding Invested Amount during such Settlement Period (or
portion thereof), TIMES (y) a rate as reasonably selected and determined by
the Agent which, acting in good faith, reflects the basis for maintaining
such Liquidity Bank's interest in the Invested Amount which is equal to
either (a) the sum of the applicable One-Month Bank LIBOR with respect to
such period plus 0.75% per annum or (b) the Base Rate; PLUS
(iii) the sum of (x) any and all applicable commissions of placement
agents and commercial paper dealers in respect of any Asset-Backed CP
issued by ISC to maintain its interest in the Invested Amount (such fees
not to exceed 0.05% per annum on such Invested Amount for such Settlement
Period (or portion thereof)), (y) any and all issuing and paying agent fees
in respect of any Asset-Backed CP issued by ISC to maintain its interest in
the Invested Amount for such Settlement Period (or portion thereof) and (z)
the "Administrative Fee" as defined in, and payable under, the FNBC Fee
Letter with respect to such Settlement Period (or portion thereof).
PROVIDED, HOWEVER that notwithstanding the foregoing, upon the occurrence of an
Amortization Event, the Earned Yield payable with respect to clauses (i) and
(ii) above shall thereafter be calculated based on an applicable interest rate
equal to the Base Rate plus 2.00% per annum. If any Liquidity Bank notifies the
Agent that it has determined in good faith that funding its portion of the
Invested Amount at a rate equal to One-Month Bank LIBOR would violate any
applicable law, rule, regulation, or directive of any governmental or regulatory
authority, whether or not having the force of law, or that (x) deposits of a
type and maturity appropriate to match fund its portion of the Invested Amount
at a rate equal to One-Month Bank LIBOR are not available or (y) such One-Month
Bank LIBOR does not accurately reflect the cost of acquiring or maintaining the
outstanding Invested Amount at such One-Month Bank LIBOR, then the Agent shall
suspend the availability of such One-Month Bank LIBOR, and the amount of Earned
Yield determined pursuant to clause (ii) above during the period of such
suspension shall be calculated based on an applicable interest rate equal to the
Base Rate. The Agent shall promptly inform the Issuer of the rate used to
calculate the Earned Yield payable on the Invested Amount upon its determination
thereof.
"LIQUIDITY FEE" means the then-applicable fees payable (on an annualized
basis) under that certain fee letter of even date herewith between the Issuer
and the Agent as amended from time to time (as amended from time to time, the
"Liquidity Fee Letter").
"LETTER OF CREDIT FEE" means the then-applicable fees payable (on an
annualized basis) under that certain fee letter agreement between the FNBC and
the Issuer (as amended from time to time, the "FNBC Fee Letter") for benefit of
the "Letter of Credit Banks" party to that certain Letter of Credit
Reimbursement Agreement of even date herewith among ISC, such Letter of Credit
Banks and FNBC, as the Letter of Credit Agreement thereunder (as amended from
time to time, the "Letter of Credit Agreement").
3
<PAGE>
"PASS-THROUGH RATE" means an interest rate equivalent to the weighted
average rate at which ISC's Asset-Backed CP, which is allocated, in whole or in
part, by ISC to fund its investment in the Certificate during the relevant
Settlement Period, is sold by the placement agents or commercial paper dealers
selected by ISC, as agreed between each such dealer or agent and ISC; PROVIDED,
HOWEVER, that if the rate (or rates) as agreed between any such agent or dealer
and ISC is a discount rate (or rates), the "Pass-Through Rate" for such period
shall be the rate (or if more than one rate, the weighted average of the rates)
resulting from ISC's converting such discount rate (or rates) to an
interest-bearing equivalent rate per annum.
5. DEFINITIONS. Each capitalized term used but not defined herein shall
have the meaning given to such term in the applicable Transaction Document where
such definition appears, or in any exhibit or schedule thereto (as defined
below). For purposes of this Agreement and any exhibits and schedules hereto,
the following terms shall have the meanings set forth below:
"AMORTIZATION EVENT" means the occurrence of any of the following events:
(i) The failure of the Issuer, the Portfolio Manager or the Swap
Provider to make any payment, or deposit, when due under this Agreement or
any Transaction Document;
(ii) The Issuer, the Portfolio Manager, the Swap Provider or any
agent of any of the foregoing (each a "Transaction-Related Party" and,
collectively, the "Transaction-Related Parties") shall fail to perform, or
shall breach any covenant or other agreement under any of the Transaction
Documents as they may be applicable to such parties, including, without
limitation, any "Event of Default" or "Termination Event" with respect to
the Swap Provider under the Swap Agreement (but excluding any payment
default thereunder with respect to which clause (i) above shall apply) and
such breach or failure to perform remains uncured for a period of five
Business Days, such period to begin at the time at which such
Transaction-Related Party knew, or reasonably should have known, of such
breach or failure to perform;
(iii) Any representation or warranty made by any of the Transaction-
Related Parties contained in any of the Transaction Documents shall be
untrue when made;
(iv) A Change of Control shall occur;
(v) The senior short-term claims paying ability of the Swap
Provider shall cease to be rated A-1 or better by Standard & Poor's and
D-1 or better by Duff & Phelps Credit Rating Co.;
(vi) The weighted average credit quality of the Portfolio falls
below AA (as determined pursuant to the then-applicable "Investment
Guidelines" (as such term is defined in the Investment Management
Agreement)), subject to an ongoing five Business
4
<PAGE>
Day cure period as long as the weighted average credit quality remains above A
during such cure period;
(vii) The average effective duration of the Portfolio is above 1.75
years (as determined pursuant to the then applicable Investment
Guidelines), subject to an ongoing five Business Day cure period as long as
the average effective duration remains below 2.00 years during such cure
period;
(viii) Any Transaction-Related Party becomes unable to pay its debts as
such debts become due or shall admit in writing its inability to pay its
debts generally or shall make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against any
Transaction-Related Party seeking to adjudicate it bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee or other similar official for it or any substantial
part of its property and any such proceeding is not dismissed within sixty
Business Days of the institution thereof, or any Transaction-Related Party
shall take any corporate action to authorize any of the actions set forth
above;
(ix) The Issuer is required to register as an investment company by
the provisions of the Investment Company Act of 1940, as amended; or
(x) The failure of the Issuer to cause the Agent to have a first
priority perfected security interest with respect to any Pledged
Collateral.
"AMORTIZATION PERIOD" means the period commencing on the earliest of (i)
the Scheduled Liquidity Termination Date, as the same may be extended from
time to time in accordance with the terms hereof, (ii) the delivery of notice
of, or the automatic occurrence of, an Amortization Event hereunder and (iii)
the Maturity Date, as the same may be extended from time to time in
accordance with the terms hereof, and ending on the date on which the
Invested amount under the Certificate and all other amounts payable by the
Issuer hereunder have been fully paid in cash (such date, the "Termination
Date").
"BASE RATE" means a rate per annum equal to the base rate of interest
determined and announced by FNBC from time to time, changing when and as such
rate changes.
"BUSINESS Day" means any day on which national banks are not authorized
or required to close in New York or Chicago and The Depository Trust Company
of New York is open for business, and, if the applicable Business Day relates
to any computation or payment to be made with respect to One-Month LIBOR or
One-Month Bank LIBOR, any day on which dealings in U.S. Dollar deposits are
transacted in the London interbank market.
"CASHFLOW" means all cashflow attributable to the Portfolio including,
without limitation, payments of principal, interest and dividends received,
proceeds from securities sales
5
<PAGE>
and any other monies internally generated by the Portfolio or received by the
Custodian for placement in the Custodial Account (including, without
limitation, any amounts paid to the Issuer pursuant to the Swap Agreement).
"CHANGE OF CONTROL" means ARM Financial Group, Inc., a Delaware
Corporation (the "Parent"), shall cease to own, directly or indirectly, all
of the outstanding shares of the voting stock of the Issuer, the Swap
Provider or the Portfolio Manager on a fully diluted basis.
"CUSTODIAL AGREEMENT" means the Standard Custody Agreement dated on or
about the date hereof among the Issuer and the Custodian, as supplemented by
the Control Agreement (as amended from time to time, the "Control Agreement")
of even date herewith among the Issuer, the Custodian and the Agent, as the
same may be amended, restated, supplemented or otherwise modified from time
to time.
"ELIGIBLE SECURITIES" shall have the meaning given to such term in the
Investment Management Agreement.
"LIBO RESERVE PERCENTAGE" means, for any period of time, the maximum
aggregate rate at which reserves (including all basic, marginal, supplemental
or emergency reserves) are required to be maintained during such period under
Regulation D issued by the Federal Reserve Board by member banks of the
Federal Reserve System against "Eurocurrency Liabilities" (as defined in
Regulation D), if such liabilities were outstanding.
"LIQUIDATION EVENT" means the occurrence of any Amortization Event
described in clauses (i), (v), (vi), (vii) or (viii) of the definition
thereof.
"LIQUIDITY AGREEMENT" means the Liquidity Agreement of even date
herewith among ISC, the Liquidity Banks and FNBC, as "Liquidity Agent"
thereunder, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
"LIQUIDITY BANKS" means the financial institutions from time to time
party to the Liquidity Agreement as "Liquidity Banks".
"ONE-MONTH LIBOR" means a per annum rate applicable for the period from
each Settlement Date to, but excluding, the next succeeding Settlement Date,
equal to, the one (1) month London Interbank Offered Rate for such time
period as shown on either (i) Bloomberg L.P.'s Financial Markets Commodities
News under the Ticker Symbol USOOO1M Index as of 11:00 a.m. London time on
the second Business Day preceding the applicable Settlement Date or (ii) the
display designated as "British Bankers Assoc. Interest Settlement Rates" on
the Telerate System ("Telerate"), Page 3750 or Page 3740 as of 11:00 a.m.
London time on the second Business Day preceding the applicable Settlement
Date, or such other page or pages as may replace such pages on Telerate for
the purpose of displaying such rate.
"ONE-MONTH BANK LIBOR" means a per annum rate applicable for any period
beginning on a date designated by the Agent during which the Liquidity Banks
are funding an
6
<PAGE>
interest in the Invested Amount through, but excluding, the next Settlement Date
(such period a "LIBOR Interest Period"), equal to the quotient of (x) the one
(1) month London Interbank Offered Rate for such LIBOR Interest Period as shown
on either (i) Bloomberg L.P.'s Financial Markets Commodities News under the
Ticker Symbol US0001M Index as of 11:00 a.m. London time on the second Business
Day preceding the first day of such LIBOR Interest Period or (ii) the display
designated as "British Bankers Assoc. Interest Settlement Rates" on the Telerate
System ("Telerate"), Page 3750 or Page 3740 as of 11:00 a.m. London Time on the
second Business Day preceding the first day of such LIBOR Interest Period, or
such other page or pages as may replace such pages on Telerate for the purpose
of displaying such rate divided by (y) a number equal to 1.00 MINUS the LIBO
Reserve Percentage for such LIBOR Interest Period, if applicable.
"PLEDGE AGREEMENT" means the Pledge and Security Agreement of even date
herewith made by the Issuer in favor of the Agent, as amended, restated,
supplemented or otherwise modified from time to time.
"PLEDGED COLLATERAL" shall have the meaning given to such term in the
Pledge Agreement.
"SCHEDULED LIQUIDITY TERMINATION DATE" means April 22, 1999, as such
date may be extended from time to time.
"SETTLEMENT DATE" means the 12th calendar day of each month, or, if such
day is not a Business Day, the next succeeding Business Day.
"SETTLEMENT PERIOD" means the period commencing the first day of each
calendar month and ending on and including the last day of such calendar
month, PROVIDED that the initial Settlement Period will commence on the
Closing Date and end on, and include, May 31, 1998.
"SWAP AGREEMENT" means the ISDA Master Agreement of even date herewith,
together with the accompanying Schedule, Exhibits and Confirmations delivered
pursuant thereto by and between the Issuer and Integrity Life Insurance
Company (in such capacity, the "Swap Provider") as amended, restated,
supplemented or otherwise modified from time to time.
"TRANSACTION DOCUMENTS" means this Agreement, the Certificate, the
Custodial Agreement, the Pledge Agreement, the Investment Management
Agreement, the Swap Agreement, the Liquidity Agreement, the Letter of Credit
Agreement, the FNBC Fee Letter, the Liquidity Fee Letter and each of the
other documents, agreements or instruments from time to time executed and
delivered by a Transaction-Related Party to the Agent or any
Certificateholder in connection with the transactions contemplated hereby.
6. CALCULATION OF CERTIFICATE YIELD. The Certificate Yield shall be
computed daily on the basis of the actual number of days elapsed over an assumed
year consisting of 360 days and shall be due and payable in arrears on each
Settlement Date. The Certificate Yield applicable to any Settlement Period
hereunder shall be determined in good-faith by the
7
<PAGE>
Agent as to such Settlement Period and promptly conveyed in writing to the
Issuer at least four Business Days prior to the applicable Settlement Date when
such amounts are required to be paid.
7. PAYMENT OF CERTIFICATE YIELD. While any Invested Amount is outstanding
under the Certificate, the Issuer shall make periodic payments of the
Certificate Yield to the Agent in arrears on each Settlement Date. The Issuer
shall pay, or shall cause the Portfolio Manager or the Custodian to pay, the
Certificate Yield to the Agent in accordance with the priority of payments set
forth in the Investment Management Agreement in immediately available funds by
wire transfer to the Agent pursuant to wire transfer instructions to be provided
to the Issuer by the Agent. The Issuer's obligation to make any specific
payments of Certificate Yield shall cease as to such payment upon the Issuer's
receipt of wire transfer validation from the Agent and the Agent shall be solely
responsible for ensuring that the proper parties receive the appropriate portion
of each payment of Certificate Yield made hereunder.
8. STATED MATURITY. Except as provided otherwise in Section 9, the
Certificate and all other amounts due hereunder will have an initial stated
maturity of three years from the date hereof (the "Maturity Date"), as such
Maturity Date may be extended from time to time in accordance with the terms
herewith.
9. EARLY REDEMPTION. The Certificate may be redeemed prior to its stated
maturity as follows:
(a) Following the occurrence of an Amortization Event, the Agent on
behalf of the Certificateholders may, by written notice to the Issuer, declare
the Amortization Period to begin, PROVIDED, HOWEVER, that in the case of any
event described in clause (viii) of the definition of "Amortization Event"
herein, then, automatically upon the occurrence of such event without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Issuer, anything contained herein or in the
Certificate to the contrary notwithstanding, the Invested Amount and any other
amounts payable hereunder shall be immediately due and payable and an
Amortization Event shall be deemed to have occurred automatically and the
Amortization Period shall begin. All Cashflow received during the Amortization
Period shall be paid to the Agent for the benefit of the Certificateholders on
each Settlement Date, or each Business Day, if the Agent so elects, to reduce
the Invested Amount in accordance with the payment priorities set forth in the
Investment Management Agreement until such Invested Amount and the other
obligations hereunder are reduced to zero. No Installment Purchases shall be
made during the Amortization Period.
(b) The Issuer may redeem part or all of the Certificate at any
time upon prior written notice to the Agent stating the portion of the Invested
Amount to be redeemed (the "Partial Amortization Notice") following the
occurrence of either (i) ISC's failure to remarket the Asset-Backed CP in whole
or in part to fund its interest in the Invested Amount, or (ii) upon not less
than 5 days, written notice to the Agent. Under such circumstances, the Issuer
will have up to one year from the date of the Agent's receipt of the Issuer's
Partial Amortization Notice to redeem that portion of the Invested Amount
selected (i.e., part or all of the Invested Amount of the Certificate).
8
<PAGE>
10. MAINTENANCE OF RESERVES AND DEPOSIT OF ASSETS. The Issuer shall
deposit the Sale Proceeds in the Custodial Account and shall, at all times that
any portion of the Certificate is outstanding unless otherwise provided in any
Transaction Document, deposit and maintain such Sales Proceeds in the Custodial
Account as collateral securing its obligations under the Certificate and the
Transaction Documents (unless otherwise applied in the payment of any applicable
third-party fees or expenses required or permitted under this Agreement or any
of the Transaction Documents including, without limitation, any payments
required or permitted under the Swap Agreement).
11. SECURITY INTEREST. The obligations of the Issuer to pay the
Certificate Yield, and to repay the Invested Amount and such other amounts
payable hereunder shall be secured by a security interest in the Portfolio
assets pursuant to the Pledge Agreement.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Issuer hereby makes the
representations, warranties and affirmative and negative covenants contained in
EXHIBIT C attached hereto and incorporated herein by reference thereto.
13. INDEMNIFICATIONS. The Issuer hereby agrees to indemnify and make
payments to the Agent and the Certificateholders to the extent set forth in
EXHIBIT D attached hereto and incorporated herein by reference thereto.
14. MISCELLANEOUS.
(a) ASSIGNMENT.
(i) The Issuer hereby agrees and consents to the complete or
partial assignment by ISC of all of its rights under, interest in, title to and
obligations under this Agreement to the Liquidity Banks pursuant to the
Liquidity Agreement or to any other person or entity, and upon such assignment,
ISC shall be released from its obligations so assigned. Further, the Issuer
hereby agrees that any assignee of ISC of this Agreement or all or any portion
of its rights under the Certificate held by ISC shall have all of the rights and
benefits under this Agreement as if the term "ISC" explicitly referred to such
party, and no such assignment shall in any way impair the rights and benefits of
ISC hereunder. The Issuer shall not have the right to assign its rights or
obligations under this Agreement. The Agent may assign its rights and
obligations under this Agreement and the other Transaction Documents as
permitted by the Certificateholders from time to time.
(ii) No Certificateholder, Letter of Credit Bank or other
person or entity may sell, transfer or otherwise dispose of (each, a "Sale") any
interest in the Certificate (including, without limitation, assignments made
under the Liquidity Agreement by Liquidity Banks and under the Letter of Credit
Agreement by Letter of Credit Banks, held by it (other than, in the case of a
ISC, any assignment to the Liquidity Banks or the Letter of Credit Banks)
pursuant to clause (i) and the related Transaction Document) unless:
9
<PAGE>
(x) such Sale is to a person or entity that such transferor
reasonably believes is a "Qualified Institutional Buyer" (as such term is
defined in Rule 144A ("Rule 144A") as promulgated under the Securities Act
of 1933, as amended (the "Securities Act")) that purchases for its own
account or for the account of another person or entity that is a Qualified
Institutional Buyer in a transaction that complies with Rule 144A, which
person or entity is aware that the proposed Sale is being made in reliance
on Rule 144A and to whom such Sale is being made pursuant to an available
exemption from the registration requirements of applicable state securities
laws and in each case in accordance with all applicable securities and
"Blue Sky" laws of the States of the United States of America, and, prior
to the proposed Sale, such transferor has delivered to the Issuer (1) an
investor letter executed by the transferee, substantially in the form of
EXHIBIT E-1 hereto and (2) a letter executed by such transferring
Certificateholder substantially in the form of EXHIBIT E-2 hereto
(collectively, the "Rule 144A Letters"), or
(y) the transferee to whom such Sale is being made is a
sophisticated institutional investor that is an "Accredited Investor" (as
such term is defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) in a transaction exempt from the registration requirements
of the Securities Act, and to whom such Sale is being made pursuant to an
available exemption from the registration requirements of applicable state
securities laws and in each case in accordance with all applicable
securities and "Blue Sky" laws of the States of the United States of
America, and, prior to the proposed Sale, such transferor has (x) delivered
to the Issuer and the Issuer an investor letter executed by the transferee,
substantially in the form of EXHIBIT F hereto (a "Non-Rule 144A Letter")
and (y) provided an opinion of counsel in form and substance satisfactory
to the Issuer, concerning such proposed Sale and confirming the
availability of such exemption in connection therewith.
The Certificate shall not be offered for sale, sold or delivered, directly or
indirectly, nor shall any circular, prospectus, form of application, or other
offering material or general advertisement relating to the Certificate be
distributed or published in or from any country or jurisdiction, except under
circumstances that will result in compliance with all applicable laws and
regulations of any such country or jurisdiction and the terms and restrictions
contained herein. Without limiting the foregoing in any manner, no
Certificateholder or Letter of Credit Bank or other person or entity acting on
behalf of such a Certificateholder or Letter of Credit Bank shall use any means
of general solicitation or distribution or general advertising in connection
with the Sale of any interest in the Certificate. The Certificate shall bear a
legend substantially as set forth in the form of the Certificate attached to
this Agreement as EXHIBIT A. Each Certificateholder and Letter of Credit Bank
will be deemed to have acknowledged and agreed that (x) the Certificate has not
been and will not be registered under the Securities Act and may not be sold,
transferred or otherwise disposed of except as permitted in this Section
14(a)(ii), and (y) such Certificateholder will notify any purchaser, pledgee or
other transferee of the Certificate, or interest therein, from such
Certificateholder of the transfer restrictions referred to in this Section
14(a)(ii).
10
<PAGE>
(b) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws applicable to
contracts made and to be performed entirely within the State of Illinois,
without regard to any conflict of law principles.
(c) NOTICE. All notices, statements or requests provided for
hereunder shall be deemed to have been duly given when delivered by hand to an
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:
(i) If to Issuer to:
312 Certificate Company
515 West Market Street, 8th Floor
Louisville, KY 40202
Attention: Robert L. Maddox, President
Facsimile: (502) 582-7903
(ii) If to ISC or the Agent to:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0597
Chicago, IL 60670-0597
Attention: Michael Krushena, Asset-Backed Finance
Facsimile: (312) 732-4487
or to such other persons or places as each party may from time to time designate
by written notice sent as aforesaid.
(e) ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents, together with such amendments as may from time to time be executed in
writing by the parties hereto or thereto, constitutes the entire agreement and
understanding between the parties in respect to the transactions contemplated
hereby and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(f) 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 any party under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable; (ii) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (iii) 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.
(g) SECTION HEADINGS. Section headings contained herein are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
11
<PAGE>
(h) 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.
(i) CONFIDENTIALITY.
(i) Each party shall maintain and shall cause each of its
employees and officers to maintain the confidentiality of this Agreement and the
other confidential proprietary information ("Confidential Information") with
respect to the other party hereto and their respective businesses obtained by it
or them in connection with the structuring, negotiating and execution of the
transactions contemplated herein, except that each party and its officers and
employees may disclose such information to the Issuer's external accountants and
attorneys and as required by any applicable law or order of any judicial or
administrative proceeding. In addition, each party 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).
(ii) In connection with the transactions contemplated by this
Agreement each of the undersigned hereby agrees that the Issuer is entitled to
publicize the transaction evidenced by this Agreement and to publish or release
to the media an announcement of the transactions contemplated hereby; PROVIDED,
HOWEVER, no such publicity material, in the form of an announcement, release or
other items, shall disclose the name of FNBC or ISC or the terms of the
transaction unless the Agent shall have consented in writing to the copy for any
such material.
(iii) Anything herein to the contrary notwithstanding, the
Issuer hereby consents to the disclosure of any Confidential Information with
respect to it (x) to the Agent, the Certificateholders and the Letter of Credit
Banks by each other, (y) by the Agent, the Certificateholders and the Letter of
Credit Banks to any prospective or actual assignee or participant of any of them
or (z) by the Agent to any rating agency, commercial paper dealer or provider of
a surety, guaranty or credit or liquidity enhancement to ISC or any entity
organized for the purpose of purchasing, or making loans secured by, financial
assets for which FNBC 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 Agent for the making
of such disclosures generally to persons of such type and agrees not make any
further disclosure of any such information. In addition, the Certificateholders
and the 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 this Agreement, the Transaction Documents or such other documents following
an Amortization Event.
12
<PAGE>
(j) BANKRUPTCY PETITION.
(i) The Issuer, the Agent and each Certificateholder 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 ISC, it will not
institute against, or join any other person or entity in instituting against,
ISC 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 Agent and each Certificateholder hereby covenants and
agrees that, prior to the date which is one year and one day after the payment
in full of the Issuer's obligations hereunder and under the Certificate and the
other Transaction Documents, 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.
(k) WAIVERS AND AMENDMENTS.
(i) No failure or delay on the part of any party hereto in
exercising any power, right or remedy under this Agreement or any other
Transaction Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or remedy preclude any other
further exercise thereof or the exercise of any other power, right or remedy.
The rights and remedies herein provided and provided in each of the other
Transaction Documents shall be cumulative and nonexclusive of any rights or
remedies provided by law. Any waiver of this Agreement shall be effective
only in the specific instance and for the specific purpose for which given.
(ii) No provision of this Agreement may be amended,
supplemented, modified or waived except in writing signed by ISC, the Issuer and
the Agent. The other Transaction Documents may only be amended, supplemented,
modified or waived by a signed writing executed by the parties thereto in
accordance with their respective terms.
(l) JURISDICTION. THE ISSUER HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS,
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE ISSUER AND THE AGENT PERTAINING TO THIS AGREEMENT OR ANY
OF THE OTHER TRANSACTION DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS,
PROVIDED, THAT THE ISSUER AND THE AGENT ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY,
CITY OF CHICAGO, ILLINOIS, AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE AGENT FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE
PLEDGED COLLATERAL OR ANY
13
<PAGE>
OTHER SECURITY FOR THE OBLIGATIONS HEREUNDER, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF THE AGENT. THE ISSUER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND THE ISSUER HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. THE ISSUER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE
THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE ISSUER AT THE ADDRESS SET FORTH IN
SECTION 15(D) AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
(m) WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.
(n) FEES AND EXPENSES. The Issuer shall pay to the Agent on demand
all reasonable costs and out-of-pocket expenses in connection with the
preparation, execution, and delivery of this Agreement and the other Transaction
Documents, the transactions contemplated hereby and thereby and the other
documents to be delivered hereunder and all costs of the Agent's auditors
auditing the books, records and procedures of the Issuer, and FNBC's reasonable
legal and other out-of-pocket costs of syndication associated with the Liquidity
Agreement incurred within 60 days of the Closing Date. The Issuer shall pay to
the Agent on demand any and all reasonable costs and expenses of the Agent and
the Certificateholders, if any, including reasonable attorneys' fees and
expenses in connection with the enforcement of this Agreement, the Transaction
Documents and the other documents delivered in connection therewith and in
connection with any restructuring or workout of this Agreement, the Transaction
Documents or such other documents, or the administration of this Agreement and
the other Transaction Documents following an Amortization Event. The Issuer
shall reimburse the Agent, for the benefit of ISC, on demand for all other costs
and expenses incurred by ISC or any shareholder of
14
<PAGE>
ISC ("Other Costs"), including, without limitation, the cost of auditing ISC's
books by certified public accountants, the cost of rating the Asset-Backed CP by
independent financial rating agencies, and the reasonable fees and out-of-pocket
expenses of legal counsel for ISC or any legal counsel for any shareholder of
ISC with respect to advising ISC or such shareholder as to matters relating to
ISC's operations. ISC shall allocate the liability for Other Costs among the
Issuer and other persons or entities with whom ISC has entered into agreements
to purchase interests in receivables or other asset-backed securities ("Other
Issuers"). If any Other Costs are attributable to the Issuer and not
attributable to any Other Issuer, the Issuer shall be solely liable for such
Other Costs. However, if Other Costs are attributable to Other Issuers and not
attributable to the Issuer, such other Issuers shall be solely liable for such
Other Costs. All allocations to be made pursuant to the foregoing provisions of
this Section 14(n) shall be made by ISC in its sole discretion and shall be
binding on the Issuer PROVIDED, HOWEVER, that the aggregate Other Costs payable
by the Issuer hereunder during any calendar year shall not exceed the product of
(x) 0.01% per annum, times (ii) the average daily outstanding Invested Amount
hereunder during such calendar year.
(o) TAX TREATMENT. The Issuer has entered into this Agreement, and
the Certificate has been (or will be) issued to and acquired by the Agent for
the benefit of the Certificateholders, with the intention that, for federal,
state, foreign and local income and franchise tax purposes, the Certificate will
be indebtedness of the Issuer secured by the Pledged Collateral. The Issuer, by
entering into this Agreement, and the Agent and each Certificateholder, by the
acceptance of its interest in Certificate, agree to treat the Certificate for
purposes of federal, state and local income and franchise taxes and for any
other tax imposed on or measured by income as indebtedness of the Issuer. In
accordance with the foregoing, the Issuer agrees that it will report its income
for such federal, state, foreign and local income or franchise taxes, or for
purposes of any other taxes on or measured by income, on the basis that it is
the owner of the Portfolio.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate by their respective officers duty authorized so to do as
of the date and year first above written.
312 CERTIFICATE COMPANY ("ISSUER")
By: /s/ Robert L. Maddox, III
---------------------------
Name: Robert L. Maddox, III
Title: President
INTERNATIONAL SECURITIZATION
CORPORATION ("ISC")
By: /s/ Eleanor C. Nadbielny
----------------------------
Name: Eleanor C. Nadbielny
Title: Authorized Signer
THE FIRST NATIONAL BANK OF CHICAGO
("AGENT")
By: /s/ Eleanor C. Nadbielny
----------------------------
Name: Eleanor C. Nadbielny
Title: Authorized Agent
Signature Page to Face Amount Agreement
<PAGE>
Exhibit A
FORM OF INSTALLMENT FACE AMOUNT CERTIFICATE
312 CERTIFICATE COMPANY
$500,000,000 INSTALLMENT FACE AMOUNT CERTIFICATE
APRIL 24, 1998
312 Certificate Company, a corporation duly organized and existing under
the laws of the State of Delaware (the "Issuer"), shall pay to The First
National Bank of Chicago, as agent (the "Agent") for International
Securitization Corporation ("ISC") and any subsequent entity which, in the
future purchases an interest in this installment face amount certificate (this
"Certificate") pursuant to the Liquidity Agreement (collectively, ISC and such
future potential purchasers are hereinafter referred to as the
"Certificateholders") the principal amount of $500,000,000, or, if less, the
aggregate unpaid principal amount of all installment purchase payments made by
the Certificateholders from time to time (the "Invested Amount"), and to pay
interest on the Invested Amount as more fully set forth in that certain Face
Amount Certificate Agreement dated as of April 24, 1998, among the Issuer, ISC
and the Agent (as amended, restated, supplemented or otherwise modified from
time to time, the "Face Amount Certificate Agreement").
This Certificate is issued pursuant to the Face Amount Certificate
Agreement. Reference is hereby made to the Face Amount Certificate Agreement for
a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Issuer, the Agent and the Certificateholders and
the terms upon which this Certificate is delivered. All terms used in this
Certificate which are not defined herein shall have the meanings assigned to
them in the Face Amount Certificate Agreement. The provisions of the Face Amount
Certificate Agreement are hereby incorporated by reference herein and shall be
binding on the Issuer, the Agent and the Certificateholders as if fully set
forth herein. As provided in the Face Amount Certificate Agreement, this
Certificate is secured by the Pledged Collateral. To the extent provided in the
Face Amount Certificate Agreement and the Pledge Agreement, the
Certificateholders (and the Agent on their behalf) shall be entitled to the
benefits of a security interest in the Pledged Collateral, for the benefit of
the Certificateholders.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE IS SUBJECT TO PREPAYMENT AND/OR
REDEMPTION PRIOR TO ITS STATED MATURITY AS SET FORTH IN THE FACE AMOUNT
CERTIFICATE AGREEMENT.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "'33 ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA (THE "BLUE SKY
LAWS"). THE HOLDER HEREOF, BY PURCHASING THIS INSTALLMENT FACE AMOUNT
CERTIFICATE OR ANY INTEREST HEREIN (THE "INTEREST"), REPRESENTS THAT IT IS AN
"ACCREDITED INVESTOR" AS THAT TERM IS DEFINED IN RULE 501(a)(1), (2),(3) OR (7)
UNDER THE '33 ACT AND AGREES THAT SUCH INTEREST WILL ONLY BE OFFERED, RESOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE '33 ACT,
THE APPLICABLE BLUE SKY LAWS AND THE RESTRICTIONS SET FORTH IN THE FACE AMOUNT
CERTIFICATE AGREEMENT. THIS FACE AMOUNT CERTIFICATE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REFERENCE TO CONFLICT OF LAWS
<PAGE>
PRINCIPLES, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed as of the date first above-written.
Dated: April 24, 1998 312 CERTIFICATE COMPANY
By:
-----------------------------
Name:
Title:
A-2
<PAGE>
Exhibit B
CONDITIONS PRECEDENT TO EACH INSTALLMENT PURCHASE
(a) Each Installment Purchase must be for at least $5,000,000 (and
integral multiples of $1,000,000 in excess thereof);
(b) Each Installment Purchase (other than the "Initial Purchase") must be
preceded by at least three Business Day's prior notice (written or telephonic)
from the Issuer to the Agent (to be received by the Agent no later than 12:00
Noon (Central Standard Time));
(c) Each Installment Purchase other than the Initial Purchase must be made
only on a Settlement Date;
(d) The Issuer shall have furnished to the Agent at the Closing opinions
of counsel for the Issuer, Integrity Life Insurance Company (the "Swap
Provider") and the Portfolio Manager satisfactory in form and substance to the
Agent and their counsel as to such matters as the Agent may reasonably require;
(e) Each of the following statements shall be true at the time of the
applicable Installment Purchase (including the Initial Purchase), and the Issuer
and the Agent shall have received a certificate, dated the date of the
Installment Purchase, of an officer of each of the Issuer and the Portfolio
Manager in which such officer shall state that, to his or her best knowledge:
(i) no Amortization Event, or event that with the lapse of time or
giving of notice would cause an Amortization Event to occur, has occurred
and is continuing;
(ii) all representations and warranties made by each of the Issuer
and the Portfolio Manager, as applicable, in each of the Transaction
Documents are true and correct as if repeated on the date of such
Installment Purchase with respect to the facts and circumstances then
existing;
(iii) each Transaction Document (including the Agreement to which
this Exhibit is attached) has been executed and delivered by the parties
thereto, is in full force and effect and constitutes the legal, valid and
binding obligation of each party thereto; and
(f) At Closing, the Agent shall have received executed UCC-1 financing
statements for filing with each of (i) the County Clerk of Jefferson County
(Louisville), Kentucky, (ii) the Secretary of the State of Ohio, and (iii) the
County Clerk of Franklin County (Columbus), Ohio; and
(g) The Agent shall have received each of the reports and such other
information required to be delivered to it on or prior to each Installment
Purchase from the Issuer and/or the Portfolio Manager, including, without
limitation, each "Weekly Report", "Settlement Report" and "Monthly Compliance
Report" under and as defined in the Investment Management Agreement.
<PAGE>
(h) The Issuer shall have received investor letters from each of ISC, the
Liquidity Banks party to the Liquidity Agreement on the Closing Date and the
Letter of Credit Banks party to the Letter of Credit Agreement on the Closing
Date pursuant to which each shall certify as to certain securities law issues in
form and substance satisfactory to the Issuer and the Agent and their respective
counsel.
B-2
<PAGE>
Exhibit C
REPRESENTATIONS, WARRANTIES AND COVENANTS
1. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer hereby represents
and warrants that:
(a) ORGANIZATION AND GOOD STANDING. The Issuer is a corporation
duly organized and validly existing under the laws of the State of Delaware and
in good standing under the laws of each jurisdiction where it does business and
has full power and authority to own its properties and conduct its business as
presently owned or conducted, to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is party.
(b) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and the Certificate by the Issuer, and the consummation by the
Issuer of the transactions provided for in this Agreement and the other
Transaction Documents, have been duly authorized by all necessary action on the
part of the Issuer and this Agreement and the other documents and agreements
executed in connection herewith and therewith have been duly executed and
delivered on behalf of the issuer.
(c) ENFORCEABILITY. Each of this Agreement, the Certificate and the
other documents and agreements executed in connection wherewith constitutes a
legal, valid and binding obligation of the Issuer enforceable against the Issuer
in accordance with its terms, except as may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally, now or hereafter in effect, and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
(d) NO CONFLICT. The Issuer's execution and delivery of this
Agreement and the other Transaction Documents to which it is party, performance
of the transactions contemplated by this Agreement, and fulfillment of the terms
hereof and thereof applicable to the Issuer, do not conflict with or violate in
any material respect any law or regulation applicable to the Issuer or 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
indenture, mortgage, deed of trust or other material contract, agreement or
instrument to which the Issuer is a party or by which it or its properties are
bound.
(e) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of the Issuer, threatened against the Issuer
before any governmental agency which asserts the invalidity of this Agreement,
the Certificate or the other documents and agreements executed in connection
herewith or which otherwise would have a material adverse effect on the Issuer's
financial condition or operations or on the Pledged Collateral or the
transactions contemplated by this Agreement.
(f) CONSENTS. No authorization, consent, license, order or approval
of, registration or declaration with any governmental agency or other person or
entity is required to
<PAGE>
be obtained, effected or given by the Issuer in connection with the execution
and delivery of this Agreement, the Certificate and the other documents and
agreements executed in connection herewith.
(g) INVESTMENT COMPANY. The Issuer is not required to be registered
as an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(h) TAXES. The Issuer has filed all tax returns (federal, state and
local) which it reasonably believes are required to be filed by it and has paid
or made adequate provision for the payment of all taxes, assessments and other
governmental charges due from the Issuer except to the extent that the Issuer is
contesting any such tax, assessment or other governmental charge in good faith
through appropriate proceedings and has adequately reserved against the
obligation to pay such amount in accordance and to the extent required by
generally accepted accounting principles.
(i) MATERIAL ADVERSE CHANGE. Since December 31, 1997, no event has
occurred 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 the Issuer, the Portfolio Manager or the Swap
Provider to perform its obligations under any Transaction Document, (iii) the
legality, validity or enforceability of the 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.
(j) OWNERSHIP. All of the outstanding capital stock of the Issuer,
the Portfolio Manager and the Swap Provider is owned, either directly or
indirectly, by the Parent.
(k) ACCURACY OF INFORMATION. All information heretofore furnished
by the Issuer or any Transaction-Related Party to the Agent or the
Certificateholders for purposes of or in connection with this Agreement, any of
the other Transaction Documents or any transaction contemplated hereby or
thereby is, and all such information hereafter furnished by the Issuer or any
Transaction-Related Party will be, true and accurate in every material respect,
on the date such information is stated or certified and does not and will not
contain any material misstatement of fact or omit to state a material fact or
any fact necessary to make the statements contained therein not misleading.
The representations and warranties set forth in the SECTION 11 shall
survive the issuance of the Certificate and any liability of the Issuer 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 Certificate and all other
obligations of the Issuer hereunder.
2. AFFIRMATIVE COVENANTS OF THE ISSUER. During any time any Invested
Amount is outstanding under the Agreement to which this Exhibit is attached, the
Issuer hereby covenants that:
(a) COMPLIANCE WITH LAW. The Issuer will comply in all material
respects with
C-2
<PAGE>
any law or regulation applicable to the Issuer, its business and properties and
the Pledged Collateral, where failure to so comply would have a material adverse
effect on the Pledged Collateral or the ability of the Issuer to perform in any
material respect its obligations hereunder.
(b) PRESERVATION OF EXISTENCE. The Issuer 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 corporation in
each jurisdiction where the failure to maintain such qualification would
materially and adversely affect the ability of the Issuer to perform its
obligations hereunder or under any other documents or agreements executed in
connection herewith in any material respect.
(c) PAYMENT OF TAXES, ETC. The Issuer will pay promptly when due all
taxes, assessments and governmental charges or levies imposed upon it or any
Pledged Collateral or in respect of income or profits therefrom, and any and all
claims of any kind, except that no such amount need be paid if (i) the charge or
levy is being contested in good faith and by appropriate proceedings, and (ii)
the obligation to pay such amount is adequately reserved against in accordance
with and to the extent required by generally accepted accounting principles.
(d) REPORTING REQUIREMENTS. The Issuer will:
(i) within three Business Days after of the occurrence of any
Amortization Event, notify the Agent of such occurrence;
(ii) within ten Business Days after any receipt thereof,
furnish to the Agent 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, furnish to the Agent 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, furnish to
the Agent, audited financial statements of the Parent which include the
Parent's consolidated Subsidiaries (including,
C-3
<PAGE>
without limitation, the Issuer and the Swap Provider) prepared in
accordance with generally accepted accounting principles by certified
public accountants of national standing reasonably satisfactory to the
Agent;
(v) within three Business Days after of the withdrawal or
reduction of the ratings of any debt obligations or claims paying ability
of any of the Parent, or any of its affiliates, including, without
limitation, the Issuer, the Portfolio Manager or the Swap Provider, notify
the Agent of such withdrawal or reduction; and
(vi) promptly, from time to time, furnish to the Agent such
other information, documents, records or reports respecting the Pledged
Collateral or the condition or operations, financial or otherwise, of the
Issuer as the Agent may from time to time reasonably request.
(e) COMPLIANCE WITH OTHER AGREEMENTS. The Issuer will at its expense
(i) timely perform and comply in all material respects with all provisions,
covenants and other promises required to be observed by it under each
Transaction Document and each document, instrument or agreement relating to
Pledged Collateral, (ii) use reasonable efforts to ensure that each Transaction
Document and each of the documents, instruments and agreements related to the
Portfolio are at all times enforceable pursuant (and subject) to their
respective terms and (iii) enforce its rights under each such Related Document
substantially in accordance with its respective terms.
(f) EQUITY SECURITIES. Upon obtaining any beneficial interest in an
equity security the Issuer shall promptly (and in no event more than 30 days
after its acquisition) sell, assign or otherwise transfer such equity security
and during the period prior to such sale, assignment or transfer, the Issuer
shall not exercise any of the rights arising from the ownership of such equity
security, including, without limitation, any voting rights with respect thereto.
(g) AUDITS. The Issuer will furnish to the Agent from time to time
such information with respect to it and the Portfolio as the Agent may
reasonably request. The Issuer shall, from time to time during regular
business hours as requested by the Agent upon reasonable notice, permit the
Agent, or its agents or representatives (and shall cause the Portfolio
Manager to permit the Agent or its agents or representatives) (i) to examine
and make copies of and abstracts from all books and records in the possession
or under the control of the Issuer or the Portfolio Manager relating to the
Portfolio, including, without limitation, the documents, instruments and
agreements related to the Portfolio, and (ii) to visit the offices and
properties of the Issuer or the Portfolio Manager for the purpose of
examining such materials described in clause (i) above, and to discuss
matters relating to the Issuer's or the Portfolio Manager's financial
condition or the Portfolio or the Issuer's performance hereunder, or the
Portfolio Manager's performance under any of the other Transaction Documents
with any of the officers or employees of the Issuer or the Portfolio Manager
having knowledge of such matters.
C-4
<PAGE>
3. NEGATIVE COVENANTS OF THE ISSUER. The Issuer hereby further covenants that
at any time any Invested Amount is outstanding under the Agreement to which this
Exhibit is attached:
(a) NO SALES, LIENS, ETC. Except for the security interest created
under the Pledge Agreement and as permitted from time to time under the various
Transaction Documents, the Issuer will not sell, pledge, assign or transfer any
Pledged Collateral to any other person or entity, or grant, create, incur,
assume or suffer to exist any lien on, any Pledged Collateral or any other
property or asset of the Issuer, whether now existing or hereafter created, or
any interest therein, and the Issuer shall defend the right, title and interest
of the Agent in and to the Pledged Collateral, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Issuer.
(b) ACTIVITIES OF THE ISSUER. The Issuer will not engage in, enter
into or be a party to any business, activity or transaction of any kind other
than the businesses, activities and transactions contemplated and authorized by
its Certificate of Incorporation or incidental to its ability to carry out its
obligations hereunder.
(c) INDEBTEDNESS. Except as expressly provided herein or in any
Transaction Document, the Issuer will not create, incur or assume any
indebtedness (other than operating expenses incurred in the performance of or
incidental to its obligations under this Agreement or any document or agreement
entered into in connection herewith) or sell or transfer any loans or securities
to a trust or other person or entity which issues securities in respect of any
such loans or securities.
(d) GUARANTEES. Except as provided for herein or in any Transaction
Document, the Issuer will not become or remain liable, directly or contingently,
in connection with any indebtedness or other liability of any other person or
entity, whether by guarantee, endorsement (other than endorsements of negotiable
instruments for deposit or collection in the ordinary course of business),
agreement to purchase or repurchase, agreement to supply or advance funds, or
otherwise.
(e) INVESTMENTS: SWAP AGREEMENT. The Issuer will not make or suffer
to exist any loans or advances to, or extend any credit to, or make any
investments (by way of transfer of property, contributions to capital, purchase
of stock or securities or evidences of indebtedness, acquisition of the business
or assets, or otherwise) in, any affiliate or any other person or entity except
for purchases and fundings of Eligible Securities and the Swap Agreement
pursuant to the terms hereof, and investments in "Permitted Investments" under
and in accordance with the terms of the Pledge Agreements.
(f) ORGANIZATION. The Issuer will not amend its Certificate of
Incorporation or By-Laws in any manner.
(g) MAINTENANCE OF SEPARATE EXISTENCE. The Issuer will not (i) fail
to do any thing necessary to maintain its existence as a corporation separate
and apart from the Parent and
C-5
<PAGE>
any other affiliate of the Parent or of the Issuer, including, without
limitation, conducting business correspondence in its own name, holding regular
meetings of, or obtaining regular written consents from, its shareholders and
its Board of Directors in each case where required, and maintaining appropriate
books and records; (ii) suffer any limitation on the authority of or its
officers to conduct their business and affairs in accordance with their
independent business judgment, or authorize or suffer any person or entity other
than its officers and, to the extent described in the Investment Management
Agreement, the Portfolio Manager to act on its behalf with respect to matters
(other than matters customarily delegated to others under powers of attorney)
for which a corporation's own directors and officers would customarily be
responsible; (iii) fail to (A) maintain, or cause to be maintained by an agent
of the Issuer under the Issuer's control, physical possession of all its books
and records, (B) maintain capitalization adequate for the conduct of its
business, (C) account for and manage its liabilities separately from those of
any other person or entity, including, without limitation, payment of all
payroll and other administrative expenses and taxes from its own assets, (D)
segregate and identify separately all of its assets from those of any other
person or entity, and (E) maintain any offices through which its business is
conducted separate from those of its affiliates (PROVIDED that, to the extent
the Issuer and the Portfolio Manager have offices in the same location, there
shall be a fair and appropriate allocation of overhead costs and expenses among
them, and each such entity shall bear its fair share of such expenses); or (iv)
commingle its funds with those of any of its affiliates or the Portfolio
Manager, or use its funds for other than the Issuer's uses.
(h) OWNERSHIP; MERGER. The Issuer will not (i) sell any of its equity
interest to any person or entity (other than its sole shareholder, ARM Face
Amount Certificate Group, Inc.) or enter into any transaction of merger or
consolidation, or convey or otherwise dispose of all or substantially all of its
assets (except as contemplated herein), (ii) terminate, liquidate or dissolve
itself (or suffer any termination, liquidation or dissolution) or (iii) acquire
or be acquired by any person or entity.
(i) ACQUISITION OF ELIGIBLE SECURITIES. The Issuer shall not acquire
any assets except in accordance with the terms of the Investment Management
Agreement.
(j) INVESTMENT GUIDELINES. Subject to compliance with any law or
regulation the Issuer shall not, and shall not permit the Portfolio Manager to,
modify or waive the terms and provisions of its Investment Guidelines in any
manner.
(k) USE OF PROCEEDS. The Issuer will not use proceeds of any Advance
to acquire any security in a transaction that is subject to Sections 13 and 14
of the Securities Exchange Act of 1934, as amended, or to purchase or carry
any margin security in violation of any applicable law or regulation.
(l) RETURN OF CAPITAL. The Issuer will not make any distributions to
its shareholder that would cause its paid in capital to be less than $250,000 at
any time.
C-6
<PAGE>
(m) ISSUANCE OF CERTIFICATES. The Issuer will not sell any equity or
debt certificates, instruments or other documents evidencing any equity interest
in, or debt obligations of the Issuer after the date of this Agreement.
C-7
<PAGE>
Exhibit D
INDEMNIFICATION OF THE AGENT AND THE CERTIFICATEHOLDERS BY THE ISSUER
(a) GENERAL INDEMNIFICATION. Without limiting any other rights
which the Agent (including, without limitations, its officers, directors,
employees and agents), any Certificateholder or Letter of Credit Bank (each, an
"Indemnified Party") may have hereunder or under applicable law, the Issuer
hereby agrees to indemnify each Indemnified Party from and against any and all
taxes, claims, suits, losses, liabilities and expenses (including, without
limitation, costs and expenses of litigation, and of investigation and
reasonable counsel fees, damages, judgments and amounts paid in settlement) (all
of the foregoing being collectively referred to as "Indemnified Amounts")
arising out of or resulting from this Agreement the activities of the Issuer in
connection herewith, the Issuer's use of proceeds from the issuance of the
Certificate and the interest conveyed under the Pledge Agreement in the Pledged
Collateral, EXCLUDING, HOWEVER, (a) Indemnified Amounts to the extent resulting
from the willful misconduct or gross negligence of such Indemnified Party, (b)
recourse for uncollectible Pledged Collateral (unless such Pledged Collateral is
uncollectible as a result of any breach by the Issuer) (c) indemnification for
lost profits or for consequential, special or punitive damages or (d) 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. Without limiting or being limited by the foregoing (other than clauses
(a), (b), (c) and (d)), the Issuer shall pay to each Indemnified Party any and
all amounts necessary to indemnify such Indemnified Party from and against any
and all Indemnified Amounts relating to or resulting from:
(i) reliance on any representation or warranty or statement
made or remade by the Issuer under or in connection with this Agreement or
any other Transaction Document, or in any certificate or any other
information or report delivered by the Issuer from time to time, containing
an untrue fact or a materially misleading omission;
(ii) any failure by the Issuer or the Portfolio Manager to
comply with this Agreement or any other Transaction Document, or the
failure by the Issuer to comply with any applicable law or regulation with
respect to any Pledged Collateral;
(iii) the failure to vest and maintain vested in the Issuer an
ownership interest in the Pledged Collateral or the failure to vest and
maintain vested in the Agent, a security interest in the Pledged
Collateral, which in each case, is free and clear of any other lien, to the
extent such security interest may be perfected by the filing of a financing
statement or possession, constitutes a first priority perfected ownership
or security interest, as the case may be;
(iv) the failure to have filed, or any delay in filing,
financing statements or other similar instruments or documents under the
UCC of any applicable jurisdiction or other applicable laws with respect to
any Pledged Collateral, whether at the time of a grant of a security
interest therein hereby or reinvestment of the proceeds thereof or at any
subsequent time;
<PAGE>
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy of any obligor of any Pledged Collateral or other
defense relating to such obligor's inability to pay) of any obligor of any
Pledged Collateral to the payment of any Pledged Collateral including a
defense based on such Pledged Collateral not being a legal, valid and
binding obligation of such obligor enforceable against it in accordance
with its terms;
(vi) any investigation, litigation or proceeding related to
this Agreement or any Transaction Documents or the use of proceeds from the
issuance of the Certificate, or in respect of the Pledged Collateral;
(vii) the failure of the Issuer or the Portfolio Manager to
perform any of its duties or obligations under or in connection with any
Pledged Collateral;
(viii) any failure by the Issuer to be duly qualified to do
business or be in good standing in any jurisdiction in which such
qualification or good standing is necessary for the enforcement of any
Pledged Collateral;
(ix) the failure of the Issuer to remit collections or
payments with respect to any Pledged Collateral as required under this
Agreement or any other Transaction Document or the commingling of such
collections or payments at any time with other funds prior to distribution
under the any Transaction Document;
(x) any lender liability or equitable subordination claim,
suit or action or any other similar claim or action (including any claim of
a lending obligation on the part of the Agent) arising out of or in
connection with the Pledged Collateral, or the use, possession, ownership
or operation by the Issuer or the Portfolio Manager or any affiliate
thereof of any of the Pledged Collateral that constitute real property or
any environmental liability claim allegedly arising out of or in connection
with any such real property;
(xi) any act or omission by the Issuer or the Portfolio
Manager impairing the security interest of the Agent or the
Certificateholders in the Pledged Collateral;
(xii) any failure of the Issuer to pay any tax or governmental
fee; or
(xiii) the failure of the Certificate to be treated as
indebtedness of the Issuer for federal, state, foreign and local income or
franchise tax purposes (it being agreed that the Indemnified Amounts shall
include such additional amounts as may be required to indemnify the
Indemnified Parties on an after-tax basis).
(b) BREAKAGE COSTS. The Issuer shall indemnify each Indemnified
Party against any loss (including loss of anticipated profits or income), cost
or expense incurred as a result of the Issuer's repayment of any Invested Amount
under the Certificate on any date which is not a Settlement Date.
D-2
<PAGE>
(c) COSTS; EXPENSES AND INDEMNITIES. The Issuer shall indemnify
each of ISC and the Agent against all costs, expenses and indemnities (including
reasonable attorneys' fees) incurred by ISC or the Agent under the terms of the
Liquidity Agreement or the Letter of Credit Agreement, EXCLUDING, HOWEVER, any
such costs, expenses or indemnities to the extent resulting from the willful
misconduct or gross negligence of ISC or the Agent.
(d) INCREASED COSTS AND REDUCED RETURN. If after the date hereof,
any Certificateholder or any insurance company, bank or other financial
institution providing liquidity, credit enhancement or back-up purchase support
or facilities to ISC, including, without limitation, the Letter of Credit Banks
(each a "Funding Source"), shall be charged any fee, expense or increased cost
on account of the adoption of any applicable law, rule or regulation (including
any applicable law, rule or regulation regarding capital adequacy) or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency (a "Regulatory Change"): (i) which subjects
any Funding Source to any charge or withholding on or with respect to this
Agreement or any agreement or instrument executed by such Funding Source for the
benefit of ISC (a "Funding Agreement") or a Funding Source's obligations under a
Funding Agreement, or on or with respect to the Certificate, or changes the
basis of taxation of payments to any Funding Source of any amounts payable under
any Funding Agreement (except for changes in the rate of tax on the overall net
income of a Funding Source) or (ii) which imposes, modifies or deems applicable
any reserve, assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account of a Funding
Source, or credit extended by a Funding Source pursuant to a Funding Agreement
or (iii) which imposes any other condition the result of which is to increase
the cost to a Funding Source of performing its obligations under a Funding
Agreement, or to reduce the rate of return on a Funding Source's capital as a
consequence of its obligations under a Funding Agreement, or to reduce the
amount of any sum received or receivable by a Funding Source under a Funding
Agreement or to require any payment calculated by reference to the amount of
interests or loans held or interest received by it, then, upon demand by the
Agent, the Issuer shall pay to the Agent, for the benefit of the relevant
Funding Source, such amounts charged to such Funding Source or compensate such
Funding Source for such reduction.
Payment of any sum pursuant to this section (d) shall be made by the Issuer
to the Agent, for the benefit of the relevant Funding Source, in accordance with
the priority of payments set forth in the Investment Management Agreement, in
immediately available funds by wire transfer pursuant to wire transfer
instructions to be provided by the Agent, not later than ten (10) days after any
such demand is made. A certificate of any Funding Source, signed by an
authorized officer claiming compensation under this Section (d) and setting
forth the additional amount to be paid for its benefit and explaining the manner
in which such amount was determined shall be conclusive evidence of the amount
to be paid, absent manifest error. Demand for payment of any amount pursuant to
this Section (d) shall be made within 30 days after the end of the applicable
Settlement Period during which the same shall have been incurred by (or, in the
case of a Funding Agreement other than this Agreement, 30 days after demand
shall have been made under such
D-3
<PAGE>
Funding Agreement against) ISC; PROVIDED that, in the case of any claim arising
by reason of a requirement that a Funding Source's capital be increased, demand
by such Funding Source under this Section (d) therefor shall not be made for any
portion of any period prior to 45 days before the date of such demand.
D-4
<PAGE>
Exhibit E-1
FORM OF RULE 144A TRANSFEREE LETTER
[Date]
312 Certificate Company
515 West Market Street, 4th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Re: $500,000,000 Installment Face Amount Certificate
------------------------------------------------
Ladies and Gentlemen:
This letter (the "Investor Letter") is delivered by the undersigned
(the "Purchaser") pursuant to Section 14(a)(ii) of that certain Face Amount
Certificate Agreement of even date herewith (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Face Amount
Certificate Agreement"), among 312 Certificate Company, a Delaware corporation
(the "Issuer"), International Securitization Corporation, a Delaware corporation
("ISC"), and The First National Bank of Chicago, as the "Agent" thereunder (in
such capacity, the "Agent"). Capitalized terms used herein without definition
shall have the meanings set forth in the Face Amount Certificate Agreement. The
Purchaser, in connection with its proposed [insert nature of assignment/purchase
of interest in the Certificate], hereby represents to, and agrees with, the
Issuer as follows:
(a) The Purchaser has received all relevant information as it shall
have deemed necessary or desirable in order to make its investment decision.
(b) The Purchaser, and all other persons or entities for whose account
the Purchaser shall be acquiring an interest in the Certificate, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Certificate and is able
to bear the economic risk of such investment.
(c) The Purchaser understands that the offer and sale of interests in
the Certificate have not been and will not be registered under the Securities
Act, and has not and will not be registered or qualified under any applicable
"Blue Sky" law, and that the offering and sale of such interests have has not
been reviewed by, passed on or submitted to any federal or state agency or
commission, securities exchange or other regulatory body.
(d) The Purchaser is a "Qualified Institutional Buyer." The Purchaser
is aware that the sale to it is being made in reliance on Rule 144A. The
Purchaser is acquiring its interest in the Certificate for its own account or
for one or more other accounts (each of which is a Qualified Institutional
Buyer) as to each of which the Purchaser has sole investment discretion, and
agrees that its interest in the Certificate may be resold, pledged or
transferred only (i) in a transaction that complies with Rule 144A, to a person
or entity reasonably believed to be a
<PAGE>
Qualified Institutional Buyer that purchases for its own account or for one or
more other accounts of Qualified Institutional Buyers as to each of which the
Purchaser has sole investment discretion and to whom notice has been given that
the resale, pledge or transfer is being made in reliance on Rule 144A, or (ii)
to a sophisticated institutional investor that is an Accredited Investor
pursuant to an applicable exemption from the registration requirements of the
Securities Act and in each case in accordance with all applicable securities and
"Blue-Sky" laws of the States of the United States of America.
(e) The Purchaser further acknowledges and agrees that, on any proposed
resale of its interest in the Certificate, it may be required to furnish to the
Issuer such certifications, legal opinions and other information that any such
person or entity may reasonably require to confirm that the Sale thereof
complies with the foregoing restrictions.
(f) The Purchaser makes the representation contained in the following
sentence, and agrees that interests in the Certificate may be transferred to a
person or entity only if the transferee makes the representation and warranty
and the covenant set forth in paragraph (g) below. The Purchaser (or transferee,
as applicable) is not acquiring its interests in the Certificate with the assets
of any employee benefit plan which is subject to Title I of EISA or any "plan"
which is subject to Section 4975 of the Internal Revenue Code (each such
employee benefit plan and plan being referred to herein as a "Benefit Plan").
(g) The Purchaser (and transferee) covenants that it will not dispose of
any interest in the Certificate to any person or entity unless such person or
entity shall make the representations, warranties and covenants in paragraph (f)
above.
(h) You are entitled to rely on this letter and are irrevocably authorized
to produce this letter or a copy hereof to any interested person or entity in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[PURCHASER]
By:
----------------------------------
Name:
Title:
E-1-2
<PAGE>
Exhibit E-2
FORM OF RULE 144A TRANSFEROR LETTER
[Date]
312 Certificate Company
515 West Market Street, 4th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Re: $500,000,000 Installment Face Amount Certificate
------------------------------------------------
Ladies and Gentlemen:
This letter (the "Investor Letter") is delivered by the undersigned
(the "Seller") pursuant to Section 14(a)(ii) of that certain Face Amount
Certificate Agreement of even date herewith (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Face Amount
Certificate Agreement"), among 312 Certificate Company, a Delaware corporation
(the "Issuer"), International Securitization Corporation, a Delaware corporation
("ISC"), and The First National Bank of Chicago, as the "Agent" thereunder (in
such capacity, the "Agent"). Capitalized terms used herein without definition
shall have the meanings set forth in the Face Amount Certificate Agreement. The
Purchaser, in connection with its proposed [insert nature of assignment/purchase
of interest in the Certificate], hereby represents to, and agrees with, the
Issuer as follows:
(a) Neither the Seller nor anyone acting on its behalf has offered,
transferred, pledged, sold or otherwise disposed of any interest in the
Certificate, or solicited any offer to buy or accept a transfer, pledge or other
disposition of the Certificate, or otherwise approached or negotiated with
respect to the Certificate, any interest in the Certificate with, any person or
entity in any manner, or made any general solicitation by means of general
advertising or in any other manner, or taken any other action, which would
constitute a distribution of interests in the Certificate under the Securities
Act and the Seller has not offered interests in the Certificate to any person or
entity other than [insert name of buyer] or another person or entity (as
applicable) which the Seller reasonably believes is a "qualified institutional
buyer" as defined in Rule 144A under the Securities Act purchasing for its own
account or the account of another "qualified institutional buyer".
<PAGE>
(b) It has notified [insert name of buyer] that (i) the proposed
sale is made in reliance on an exemption from the registration requirements of
the Securities Act and (ii) on any proposed resale of interests in the
Certificate, the Purchaser may be required to furnish to the Issuer such
certifications, legal opinions and other information that any such person or
entity may reasonably require to confirm that the sale thereof complies with the
terms of the Face Amount Certificate Agreement.
Very truly yours,
[SELLER]
By:
----------------------
Name:
Title:
E-2-2
<PAGE>
Exhibit F
FORM OF NON-RULE 144A LETTER
[Date]
312 Certificate Company
515 West Market Street, 4th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Re: $500,000,000 Installment Face Amount Certificate
------------------------------------------------
Ladies and Gentlemen:
This letter (the "Investor Letter") is delivered by the undersigned
(the "Purchaser") pursuant to Section 14(a)(ii) of that certain Face Amount
Certificate Agreement of even date herewith (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Face Amount
Certificate Agreement"), among 312 Certificate Company, a Delaware corporation
(the "Issuer"), International Securitization Corporation, a Delaware corporation
("ISC"), and The First National Bank of Chicago, as the "Agent" thereunder (in
such capacity, the "Agent"). Capitalized terms used herein without definition
shall have the meanings set forth in the Face Amount Certificate Agreement. The
Purchaser, in connection with its proposed [insert nature of assignment/purchase
of interest in the Certificate], hereby represents to, and agrees with, the
Issuer as follows:
(a) The Purchaser has received all relevant information as it shall
have deemed necessary or desirable in order to make its investment decision.
(b) The Purchaser, and all other person or entities for whose account
the Purchaser shall be acquiring an interest in the Certificate has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Certificate and is able
to bear the economic risk of such investment.
(c) The Purchaser (as well as any such other person or entity for
whose account the Purchaser may be acquiring interests in the Certificate) is a
sophisticated institutional investor that is an Accredited Investor. The
Purchaser understands that the offer and sale of such interests have not been
and will not be registered under the Securities Act, and has not and will not be
registered or qualified under any applicable "Blue Sky" law, and that the
offering and sale of such interests has not been reviewed by, passed on or
submitted to any federal or state agency or commission, securities exchange or
other regulatory body.
<PAGE>
(d) The Purchaser is acquiring its interest in the Certificate without
a view to any distribution, resale or other transfer thereof other than as
contemplated in the following sentence. The Purchaser will not distribute,
resell or otherwise transfer (a "Sale") any interest in any of the Certificate
except (i) to a limited number of sophisticated institutional investors that are
Accredited Investors in a transaction exempt from the registration requirement
of the Securities Act and which proposed transferee shall have, prior to such
Sale, executed and delivered to the Issuer a certificate in the form hereof, or
(ii) in a transaction that complies with Rule 144A, to a person or entity
reasonably believed to be a Qualified Institutional Buyer that purchases for its
own account or for one or more other accounts of Qualified Institutional Buyers
as to each of which such Purchaser has sole investment discretion and to whom
notice has been given that the resale, pledge or transfer is being made in
reliance on Rule 144A and in each case in accordance with all applicable
securities and "Blue-Sky" laws of the States of the United States of America.
(e) The Purchaser further acknowledges and agrees that, on any
proposed resale of any interests in the Certificate, it may be required to
furnish to the Issuer such certifications, legal opinions and other information
that any such person or entity may reasonably require to confirm that the Sale
thereof complies with the foregoing restrictions.
(f) The Purchaser makes the representation contained in the following
sentence, and agrees that interests in the Certificate may be transferred to a
person or entity only if the transferee makes the same representation and
warranty and makes the covenant set forth in paragraph (g) below. The Purchaser
(or transferee, as applicable) is not acquiring its interest in the Certificate
with the assets of any employee benefit plan which is subject to Title I of
ERISA or any "plan" which is subject to Section 4975 of the Internal Revenue
Code (each such employee benefit plan and plan being referred to herein as a
"Benefit Plan").
(g) The Purchaser (and transferee) covenants that it will not dispose
of the Certificate to be purchased by it or any interest therein to any person
or entity unless such person or entity shall make representations, warranties
and covenants in paragraph (f) above.
(h) You are entitled to rely on this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested person or
entity in any administrative or legal proceeding or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[PURCHASER]
By:
-----------------------------
Name:
Title:
F-2
<PAGE>
EXECUTION COPY
LIQUIDITY AGREEMENT
(ISC)
THIS LIQUIDITY AGREEMENT (ISC) is entered into as of the 24th day of
April, 1998, by and among INTERNATIONAL SECURITIZATION CORPORATION, a Delaware
corporation (together with its successors and assigns, "ISC"), each of the
LIQUIDITY BANKS (hereinafter defined), and THE FIRST NATIONAL BANK OF CHICAGO
("FNBC"), individually and as Liquidity Agent, with respect to that certain Face
Amount Certificate Agreement dated as of April 24, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Face Amount
Certificate Agreement") among 312 Certificate Company (the "Company"), ISC and
the Liquidity Banks (ISC and the Liquidity Banks collectively, the
"Certificateholders").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 INCORPORATION OF DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings attributed to such terms in the
Face Amount Certificate Agreement or the Investment Management Agreement.
1.2. CERTAIN OTHER DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings:
"Aggregate Commitment" means, at any time, the sum of the Commitments
then in effect.
"Agreement" means this Liquidity Agreement (ISC), as amended, modified
or restated from time to time in accordance with the terms hereof.
"Article" means a numbered article of this Agreement unless otherwise
specified.
"Assigned Percentage" means the percentage interest in the ISC
Interest transferred to the Liquidity Banks hereunder, in the aggregate.
"Available L/C Amount" means the amount available to be drawn under
the Letter of Credit.
<PAGE>
"Certificate" means the Face Amount Certificate in the maximum
principal amount of $500,000,000 issued by the Company pursuant to the Face
Amount Certificate Agreement.
"Certificate Balance" means, with respect to any Liquidity Bank, at
any time of determination thereof, an amount equal to (a) such Liquidity
Bank's Pro Rata Share of the Assigned Percentage times (b) the unpaid
principal balance of the Certificate as of such date.
"Commitment" means, with respect to any Liquidity Bank, the amount set
forth on Annex 1 hereto opposite such Liquidity Bank's name, or in its Transfer
Supplement, as the same may be reduced from time to time in accordance with
Section 2.5 or Section 5.5(c), and, in the case of FNBC, increased in accordance
with Section 2.2(c).
"Commitment Expiry Date" means the earliest to occur of (i) the
date on which all amounts due and owing to the Certificateholders under the
Face Amount Certificate Agreement have been indefeasibly paid in full, (ii)
the date on which the Aggregate Commitment has been reduced to zero pursuant
to Section 2.5 of this Agreement, and (iii) the Fixed Expiry Date.
"Fair Market Value" has the meaning given to such term in the
Investment Management Agreement.
"Federal Funds Effective Rate" means, for any day, an interest rate
per annum equal to (a) the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published for such day (or, if such day is
not a Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or (b) if such rate is not so published for any day
which is a Business Day, the average of the quotations at approximately 10:00
a.m. (Chicago time) on such day on such transactions received by the Liquidity
Agent from three federal funds brokers of recognized standing selected by the
Liquidity Agent in its sole discretion.
"Fixed Expiry Date" means April 22, 1999, as such date may be extended
from time to time.
"FNBC" means The First National Bank of Chicago, in its individual
capacity, and its successors.
"FNBC Roles" is defined in Section 4.10.
"Investment Management Agreement" means the Investment Management
Agreement of even date herewith among the Company, Integrity Capital Advisors,
Inc., as the
-2-
<PAGE>
Portfolio Manager and FNBC as the Agent, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"Investor Purchase Option" means an irrevocable written notice given
to ISC by the Required Liquidity Banks, delivered following the occurrence of
the Investor Purchase Trigger, committing the Liquidity Banks to purchase the
ISC Interest, which notice shall designate (a) the applicable Purchase Date and
(b) the Purchase Price (including a calculation of the Purchase Price acceptable
to ISC).
"Investor Purchase Trigger" means the occurrence of a Swap Event.
"ISC" is defined in the preamble to this Agreement.
"ISC Insolvency Event" means the occurrence of any one or more of the
following: (a) ISC shall have voluntarily commenced any proceeding or filed any
petition under any bankruptcy, insolvency or similar law seeking the
dissolution, liquidation or reorganization of ISC, or (b) involuntary
proceedings or an involuntary petition shall have been commenced or filed
against ISC by any Person under any bankruptcy, insolvency or similar law
seeking the dissolution, liquidation or reorganization of ISC and an order of
relief shall have been entered or such proceeding or petition shall not have
been dismissed within sixty (60) days.
"ISC Interest" means ISC's rights to the repayment of the Invested
Amount and to payment of Earned Yield thereon, and its other rights and
interests evidenced by the Face Amount Certificate Agreement, together with its
related rights and interests under the Transaction Documents.
"Letter of Credit" means that certain standby letter of credit dated
April 24, 1998 issued by the Letter of Credit Banks in favor of ISC.
"Letter of Credit Agent" means FNBC in its capacity as agent for the
Letter of Credit Banks pursuant to the Letter of Credit and related documents.
"Letter of Credit Banks" means the collective reference to each
financial institution party to the Letter of Credit.
"Letter of Credit Reimbursement Agreement" means that certain
reimbursement agreement among the Company, the Letter of Credit Agent and the
Letter of Credit Banks with respect to the Letter of Credit,
"L/C Draw Amount" means, on any date of determination, with respect to
the ISC Interest transferred to the Liquidity Banks hereunder pursuant to
Section 2.1(a), an amount equal to the lesser of (A) the amount available to be
drawn on the Letter of Credit and
-3-
<PAGE>
(B) the positive difference (if any) of (i) an amount equal to the product of
the Assigned Percentage as of such date TIMES the sum of (a) the unpaid
principal balance of the Certificate as of such date, (b) all accrued and
unpaid Earned Yield as of such date and (c) all accrued and unpaid fees and
other amounts due under the Face Amount Certificate Agreement as of such date
minus (ii) an amount equal to the product of the Assigned Percentage as of
such date TIMES the Fair Market Value of all Securities and Short-Term
Investments owned by the Company on such date PLUS any free cash balance on
deposit in the Custodial Account on such date PLUS the accrued interest or
discount with respect to such Securities and Short-Term Investments on such
date.
"L/C Draw Percentage" means, on any date of determination, a fraction
(converted to a percentage) with the L/C Draw Amount paid to the Liquidity Agent
pursuant to Section 2.1(c) as the numerator and the aggregate Purchase Price
amounts paid hereunder by the Liquidity Banks as the denominator.
"L/C Insolvency Event" means the occurrence of any one or more of the
following with respect to any letter of Credit Bank: (a) such Letter of Credit
Bank shall have an order for relief entered with respect to it under the Federal
bankruptcy laws as now or hereafter in effect, (b) such Letter of Credit Bank
shall have voluntarily commenced any proceeding or filed any petition under any
bankruptcy, insolvency or similar law of the United States, any state of the
United States or any applicable foreign jurisdiction in which such Letter of
Credit Bank is organized seeking the dissolution, liquidation or reorganization
of such Letter of Credit Bank, or (c) involuntary proceedings or an involuntary
petition shall have been commenced or filed against such Letter of Credit Bank
under any bankruptcy, receivership, insolvency, liquidation or similar law of
the United States, any state of the United States or any applicable foreign
jurisdiction in which such Letter of Credit Bank is organized seeking the
dissolution, liquidation or reorganization of, or the appointment of a receiver
for, such Letter of Credit Bank, and such proceeding shall not have been
dismissed for sixty (60) days, or (d) such Letter of Credit Bank has failed to
make any payment when due under the relevant Letter of Credit after giving
effect to any applicable grace period; PROVIDED that, solely with respect to
this subsection (d), this shall not include any failure to make a payment on the
basis that all conditions to and defenses against such payment, if any, have not
been duly satisfied or waived, and with respect to which the obligations of such
Letter of Credit Bank to make such payment is being contested in good faith by
appropriate proceedings, which shall not be limited to legal proceedings.
"Liquidity Agent" means The First National Bank of Chicago in its
capacity as Liquidity Agent for the Liquidity Banks pursuant to Article IV and
not in its individual capacity as a Liquidity Bank.
"Liquidity Banks" means the Persons listed on Annex 1 hereto
(including, without limitation, FNBC), and the Persons which from time to time
may become a party hereto in accordance with Section 5.5(c).
-4-
<PAGE>
"Participant" is defined in Section 5.5(b).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Pro Rata Share" means, on any date of determination, (i) with respect
to any Liquidity Bank, the ratio (expressed as a percentage) of such Liquidity
Bank's Commitment to the Aggregate Commitment at such time and (ii) with respect
to ISC, the ratio (expressed as a percentage) of the outstanding principal
balance of the Certificate allocable to ISC, as its interest appears on the
books and records of the Agent, to the aggregate outstanding principal balance
of the Certificate on such date.
"Purchase" means an assignment by ISC to a Liquidity Bank of such
Liquidity Bank's Pro Rata Share of the ISC Interest pursuant to Section 2.1.
"Purchase Date" means the date specified by ISC in a Sale Notice as
being the effective date of ISC's assignment to the Liquidity Banks of the
Assigned Percentage of the ISC Interest specified therein.
"Purchase Price" means, at any Purchase Date, the Assigned Percentage
of an amount equal to the sum of (i) the unpaid principal balance of the
Certificate and (ii) all accrued and unpaid interest, fees and other amounts
whether then or thereafter payable to ISC with respect to the Certificate.
"Required Liquidity Banks" means Liquidity Banks having Pro Rata
Shares in the aggregate at least equal to 66-2/3% or, if the Commitments have
been terminated, having at least 66-2/3% of the outstanding Assigned
Percentages.
"Sale Notice" means an irrevocable written notice given by an
authorized signer or authorized officer of ISC (or on behalf of ISC by FNBC in
its capacity as ISC's administrative agent) to the Liquidity Agent committing to
sell, assign and transfer to the Liquidity Banks the Assigned Percentage of the
ISC Interest to be assigned, which notice shall state (a) the applicable
Purchase Date, (b) the outstanding principal balance of the Certificate, (c) the
Assigned Percentage, (d) the Purchase Price (including a calculation of the
Purchase Price), (e) ISC's Pro Rata Share prior to giving effect to the
contemplated sale, assignment and transfer, (f) ISC's Pro Rata Share, if any,
after giving effect to such sale, assignment and transfer and (g) that no ISC
Insolvency Event has occurred and is continuing. Any Sale Notice given by ISC
upon the exercise of the Investor Purchase Option shall be made in conformity
with the terms of the Investor Purchase Option.
"Section" means a numbered section of this Agreement unless otherwise
specified.
-5-
<PAGE>
"SWAP EVENT" means the occurrence of any one or more of the following:
(a) the Swap Provider shall have voluntarily commenced any proceeding or filed
any petition under any bankruptcy, insolvency or similar law seeking the
dissolution, liquidation or reorganization of the Swap Provider, (b) involuntary
proceedings or an involuntary petition shall have been commenced or filed
against the Swap Provider by any person or entity under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or reorganization
of the Swap Provider or an order of relief shall have been entered or such
proceeding or petition shall not have been dismissed within sixty (60) days, or
(c) the Swap Provider (i) shall fail to make any payment or deposit when due
under the Swap Agreement or (ii) shall fail to perform or shall breach any
covenant or any other agreement under the Swap Agreement and such failure to
perform or breach is not cured within five Business Days, such period to begin
at the time at which the Swap Provider knew, or reasonably should have known, of
such breach or failure to perform.
"Transfer Supplement" is defined in Section 5.5(c).
ARTICLE II
COMMITMENT TO PURCHASE
2.1. PURCHASE BY LIQUIDITY AGENT FOR THE BENEFIT OF THE LIQUIDITY BANKS;
L/C DRAWING.
(a) TRANSFERS BY ISC. Prior to the Commitment Expiry Date, ISC,
(i) in its sole discretion, may elect to give (or to cause FNBC as its
administrative agent to give), and (ii) shall give upon the exercise of the
Investor Purchase Option by the Required Liquidity Banks, a Sale Notice to
the Liquidity Agent, which Sale Notice shall constitute an irrevocable offer
to sell the ISC Interest at the Purchase Price indicated therein. Each Sale
Notice shall be deemed to be a representation and warranty by ISC that no ISC
Insolvency Event shall have occurred and be continuing. Each Liquidity Bank
hereby agrees to purchase from ISC such Liquidity Bank's Pro Rata Share of
the Assigned Percentage of the ISC Interest for a purchase price equal to
such Liquidity Bank's Pro Rata Share of the Purchase Price on the Purchase
Date (which date, subject to Section 2.1(b) below, may be the same as the
date of the Sale Notice). Notwithstanding anything to the contrary set forth
in this Agreement, no Liquidity Bank shall have any obligation to purchase
the ISC Interest if, on such Purchase Date, any ISC Insolvency Event or L/C
Insolvency Event shall have occurred and be continuing. The Liquidity Agent
shall promptly advise each Liquidity Bank (by fax or by telephone call
promptly confirmed in writing by fax) of the receipt and content of the Sale
Notice and shall promptly advise ISC of each Liquidity Bank's Pro Rata Share
of the Purchase Price thereunder. The Purchase Price shall be deposited in
immediately available funds into ISC's clearing account no. BNF
7521-7683/FMSD (Reference: 312 Certificate Company/ARM/ISC) at FNBC's
principal office at One First National Plaza, Chicago, Illinois 60670, ABA #
071000013.
-6-
<PAGE>
(b) TIMING OF SALE NOTICE AND PURCHASE DATE. If, at or prior to 12:00
noon (Chicago time) on any Business Day, ISC delivers a Sale Notice to the
Liquidity Agent specifying that the Purchase Date shall be the same date as the
date of such Sale Notice, ISC may require the Purchase Price to be paid in
immediately available funds to ISC's account at the principal office of the
Liquidity Agent no later than 2:00 p.m. (Chicago time) on the date of the Sale
Notice. Notwithstanding the fact that the Purchase Date may occur on a date
which is later than the date on which the Sale Notice is delivered to the
Liquidity Agent, the several obligations of each Liquidity Bank to accept such
transfer and to make payment of the amounts required to be paid by it pursuant
to Section 2.2 shall arise immediately upon receipt by the Liquidity Agent of
the Sale Notice. Regardless of when the Sale Notice is received, any Liquidity
Bank may designate any one or more of its domestic or foreign branches, offices
or affiliates through which it will fund its Pro Rata Share of the Purchase
Price for a Purchase, and the term "Liquidity Bank" shall include any such
branch, office or affiliate for such purpose.
(c) L/C DRAW AMOUNT AND LETTER OF CREDIT DRAWING. On the Purchase
Date, the Liquidity Agent shall calculate the L/C Draw Amount, if any,
relating to the ISC Interest transferred to the Liquidity Banks on the
Purchase Date, and shall notify each Liquidity Bank of the amount, if any, of
such L/C Draw Amount. The Liquidity Agent shall, within two Business Days
following its determination of a positive L/C Draw Amount under the
circumstance described above, make a demand for payment under the Letter of
Credit in an amount equal to the L/C Draw Amount for the ratable benefit of
each Liquidity Bank. The Liquidity Agent shall pay to ISC, for payment under
the Letter of Credit Reimbursement Agreement, the L/C Draw Percentage of any
Earned Yield received by the Liquidity Agent with respect to the ISC Interest
transferred to any Liquidity Bank until such time as the assignment described
in the succeeding sentence is made by the Liquidity Banks. In consideration
of the obligations of ISC in respect of the issuance of the Letter of Credit
to the Liquidity Agent for the ratable benefit of each Liquidity Bank,
effective only at such time as a Liquidity Bank receives payment in full of
all Purchase Price payments made by such Liquidity Bank together with accrued
and unpaid Earned Yield with respect to such Purchase Price payments and any
other amounts due to such Liquidity Bank hereunder, such Liquidity Bank shall
assign all of its right, title and interest in the ISC Interest to the Letter
of Credit Banks.
2.2. SEVERAL COMMITMENTS OF THE LIQUIDITY BANKS.
(a) FUNDING UPON RECEIPT OF THE SALE NOTICE. Promptly upon being
advised of the Liquidity Agent's receipt of a Sale Notice, each Liquidity Bank
hereby absolutely and unconditionally severally commits to ISC and the Liquidity
Agent to provide the Liquidity Agent, on the Purchase Date at the principal
office of the Liquidity Agent in Chicago for delivery to ISC, with immediately
available funds in an amount equal to such Liquidity Bank's Pro Rata Share of
the Purchase Price, whereupon such Liquidity Bank's interest in the Certificate
shall be equal to its Pro Rata Share of the Assigned Percentage of the
outstanding
-7-
<PAGE>
balance of the ISC Interest. The Liquidity Banks' several obligations under this
Section 2.2(a) to provide the Liquidity Agent with funds shall terminate on the
Commitment Expiry Date. Notwithstanding anything contained in this Section
2.2(a) or elsewhere in this Agreement to the contrary, except as expressly
provided in Section 2.2(c), no Liquidity Bank shall be obligated to provide the
Liquidity Agent with aggregate funds in connection with a Purchase in an amount
that would exceed such Liquidity Bank's unused Commitment then in effect, and
the failure of any Liquidity Bank to make its Pro Rata Share of the Purchase
Price available to the Liquidity Agent shall not relieve any other Liquidity
Bank of its obligations hereunder.
(b) DEFAULTING LIQUIDITY BANKS. If one or more Liquidity Banks (each,
a "Defaulting Liquidity Bank" and each Liquidity Bank other than the Defaulting
Liquidity Bank being referred to as a "Non-Defaulting Liquidity Bank") fails to
make its Pro Rata Share of the Purchase Price available to the Liquidity Agent
pursuant to Section 2.1(a) (the aggregate amount not so made available to the
Liquidity Agent being herein called the "ISC Purchase Price Deficit"), then upon
notice from the Liquidity Agent, each Non-Defaulting Liquidity Bank shall
promptly pay to the Liquidity Agent, in immediately available funds, at an
account designated by the Liquidity Agent, an amount equal to the lesser of (x)
such Non-Defaulting Liquidity Bank's proportionate share (based upon the
relative Commitments of the Non-Defaulting Liquidity Banks) of the ISC Purchase
Price Deficit and (y) its unused Commitment. If the Liquidity Agent has not
received the full amount of the ISC Purchase Price Deficit pursuant to the
immediately preceding sentence, upon notice from the Liquidity Agent, each
Non-Defaulting Liquidity Bank shall pay to the Liquidity Agent its proportionate
share (based upon the relative Commitments of the Non-Defaulting Liquidity
Banks) of such deficiency up to the amount of each such Non-Defaulting Liquidity
Bank's unused Commitment, until no such deficiency exists. A Defaulting
Liquidity Bank shall forthwith upon demand pay to the Non-Defaulting Liquidity
Banks all amounts paid by each Non-Defaulting Liquidity Bank on behalf of such
Defaulting Liquidity Bank, together with interest thereon, for each day from the
date such payment was made by a Non-Defaulting Liquidity Bank until the date
such Non-Defaulting Liquidity Bank has been paid such amounts in full, at a rate
per annum equal to the sum of the Federal Funds Effective Rate plus 2%. In
addition, without prejudice to any other rights that ISC may have under
applicable law, each Defaulting Liquidity Bank shall pay to ISC forthwith upon
demand, the difference between the Defaulting Liquidity Bank's unpaid Pro Rata
Share of the Purchase Price and the amount paid with respect thereto by the
Non-Defaulting Liquidity Banks, together with interest thereon, for each day
from the date of the Liquidity Agent's request for such Defaulting Liquidity
Bank's Pro Rata Share of the Purchase Price pursuant to Section 2.1(b) until
the date the requisite amount is paid to ISC in full, at a rate per annum equal
to the sum of the Federal Funds Effective Rate plus 2%.
(c) ADJUSTMENT OF FNBC'S COMMITMENT. In the event that after giving
prospective effect to the Purchase to be made in connection with Section
2.1(b), any Liquidity Bank's Pro Rata Share of the Purchase Price would
exceed its unused Commitment then in effect (whether due to the existence of
accrued and unpaid interest, or otherwise), then the Commitment of FNBC shall
be increased in the amount necessary to eliminate such excess and the
Aggregate
-8-
<PAGE>
Commitment and respective Pro Rata Shares of the Liquidity Banks shall be
adjusted to reflect such increase in FNBC's Commitment.
2.3. NONRECOURSE NATURE OF TRANSACTIONS. Each of the Liquidity Agent and
the Liquidity Banks hereby agrees that all Purchases shall be without recourse
of any kind to ISC, the Agent or the Liquidity Agent except as expressly
provided in Sections 4.3 and 4.7 with respect to the Liquidity Agent.
2.4. SHARING OF PAYMENTS; INDEMNITY.
(a) SHARING OF PAYMENTS. From and after the time of a Purchase
hereunder, all other payments (except as hereinafter provided), whether received
on account of Cashflow, counterclaim, cross claim, exercise of any right of
banker's lien or setoff, or otherwise which are allocated to the Certificate,
shall be shared ratably amongst the Certificateholders pursuant to the terms of
the Agency Agreement, dated as of even date herewith, between ISC AND FNBC, as
agent and as a liquidity bank (the "Agency Agreement"). Notwithstanding the
foregoing, each Certificateholder agrees that if the Commitment of FNBC shall be
increased as provided in Section 2.2(c), all payments that would otherwise be
shared ratably amongst the Certificateholders shall be applied to FNBC to reduce
any amounts extended by FNBC hereunder as a result of the aforementioned
increase in its Commitment until such time as the amounts owed to each Liquidity
Bank reflect the Pro Rata Shares of the Liquidity Banks that existed immediately
prior to such increase (it being agreed that FNBC's Pro Rata Share shall be
reduced to reflect any such payment).
(b) REQUESTS FOR INDEMNITY UNDER THE FACE AMOUNT CERTIFICATE
AGREEMENT. The Liquidity Agent shall, at the written request of any Liquidity
Bank, make demand of the Agent for payment of any amounts from time to time
claimed by such Liquidity Bank pursuant to Section 13 of the Face Amount
Certificate Agreement, and the Liquidity Agent shall, upon its receipt of
such amounts, distribute them to each such Liquidity Bank ratably in
accordance with their respective Pro Rata Shares.
(c) PAYMENTS CONDITIONAL UPON RECEIPT FROM THE COMPANY, AGENT,
SWAP PROVIDER, CUSTODIAN OR PORTFOLIO MANAGER. Anything in this Agreement to
the contrary notwithstanding, the Liquidity Agent shall have no obligation to
make any payments to the Liquidity Banks unless and until it has received
such amounts from the Company, the Agent, the Swap Provider, the Custodian or
the Portfolio Manager pursuant to the Face Amount Certificate Agreement or
the other Transaction Documents.
2.5. REDUCTION OF COMMITMENTS. The Aggregate Commitment shall be
automatically reduced, ratably amongst the Liquidity Banks, by the amount of
any permanent reduction of the ISC Interest pursuant to the Face Amount
Certificate Agreement (including, without limitation, an early redemption
under Section 9(b) thereof). The Liquidity Agent shall notify the Liquidity
Banks of the occurrence of any such reduction specified in the immediately
-9-
<PAGE>
preceding sentence promptly after the Liquidity Agent (individually or in its
capacity as Agent or Liquidity Agent) becomes aware of the same. In addition to
the foregoing, the Commitment of each Liquidity Bank and the Aggregate
Commitment shall be reduced to zero on the Commitment Expiry Date.
2.6. OPINION DELIVERY. If requested by ISC or the Liquidity Agent
each Liquidity Bank agrees to deliver a legal opinion in substantially the form
of Exhibit B hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. ISC DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. By executing and
delivering any Sale Notice pursuant to Section 2.1(a), (a) ISC makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Face
Amount Certificate Agreement or any other Transaction Document or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Face Amount Certificate Agreement, any other Transaction Document or any other
instrument or document furnished pursuant thereto or in connection therewith,
and (b) ISC makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Company, the Swap Provider or the
Portfolio Manager or the performance or observance by the Company, the Swap
Provider or the Portfolio Manager of any of their respective obligations under
the Face Amount Certificate Agreement or any other Transaction Document or any
other instrument or document furnished pursuant thereto or in connection
therewith.
3.2. REPRESENTATIONS OF THE LIQUIDITY BANKS. Each of the Liquidity Banks
(a) confirms that it has received copies of the Face Amount Certificate
Agreement and the other Transaction Documents (other than the FNBC Fee Letter
referred to therein); (b) represents and warrants to the Liquidity Agent and ISC
that it has, independently and without reliance upon the Liquidity Agent, ISC or
any other Liquidity Bank or any of their respective officers, directors,
employees, agents, attorneys-in-fact or affiliates, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, prospects, financial and
other conditions and creditworthiness of the Company, the Portfolio Manager, the
Swap Provider and the Custodian and made its own decision to enter into this
Agreement; (c) represents that it will, independently and without reliance upon
the Liquidity Agent, ISC or any other Liquidity Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement or the Face Amount Certificate Agreement, and to
make such investigation as it deems necessary to inform itself as to the
business, operations, property, prospects, financial and other condition and
creditworthiness of the Company, the Portfolio Manager, the Swap
-10-
<PAGE>
Provider and the Custodian and the quality and character of the Portfolio; (d)
appoints and authorizes the Liquidity Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Liquidity Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; (e) appoints as its agent the Agent under the Face Amount
Certificate Agreement to enforce its respective rights and interests thereunder;
(f) appoints and authorizes the Agent under the Face Amount Certificate
Agreement to take such action as agent on its behalf and to exercise such powers
under the Face Amount Certificate Agreement as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(g) represents and warrants that it is an "Accredited Investor" under and as
defined in the Face Amount Certificate Agreement; (h) represents and warrants
that it is a corporation or a banking association duly organized and validly
existing under the laws of its jurisdiction of incorporation or organization and
has all corporate power to perform its obligations hereunder; (i) represents and
warrants that no authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by it of this Agreement, which has
not otherwise been obtained; (j) represents and warrants that the execution,
delivery and performance of this Agreement are within its corporate powers, have
been duly authorized by all necessary corporate action, do not contravene or
violate (i) its certificate or articles of incorporation or association or
by-laws, (ii) any law, rule or regulation applicable to it, (iii) any
restrictions under any agreement, contract or instrument to which it is a party
or any of its property is bound, or (iv) any order, writ, judgement, award,
injunction or decree binding on or affecting it or its property, and do not
result in the creation or imposition of any adverse claim on its assets, which
contravention or violation in any of the foregoing cases could have a material
adverse effect on its financial condition or its ability to perform its
obligations hereunder; (k) represents and warrants that this Agreement
constitutes its legal, valid and binding obligations enforceable against it in
accordance with their terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to limiting creditors' rights generally and by equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law); and (l) represents and warrants that it has duly authorized, executed and
delivered this Agreement.
ARTICLE IV
LIQUIDITY AGENT
4.1 APPOINTMENT. Each Liquidity Bank hereby irrevocably designates and
appoints FNBC as Liquidity Agent hereunder, and authorizes the Liquidity Agent
to take such action on its behalf under the provisions of this Agreement and to
exercise such powers and perform such duties as are expressly delegated to the
Liquidity Agent by the terms of this Agreement, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Liquidity Agent shall not have any
-11-
<PAGE>
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Liquidity Bank or ISC, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities on the part of
the Liquidity Agent shall be read into this Agreement or otherwise exist against
the Liquidity Agent. The provisions of this Article IV are solely for the
benefit of the Liquidity Agent and the Liquidity Banks, and neither ISC nor the
Company shall have any rights as a third-party beneficiary or otherwise under
any of the provisions hereof. In performing its functions and duties hereunder,
the Liquidity Agent shall act solely as the agent of the Liquidity Banks and
does not assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for ISC, the Company or any of their
respective successors and assigns.
4.2. DELEGATION OF DUTIES. The Liquidity Agent may execute any of its
duties under this Agreement by or through its subsidiaries, affiliates, agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Liquidity Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.
4.3. EXCULPATORY PROVISIONS. Neither the Liquidity Agent nor any of its
directors, officers, agents or employees shall be (a) liable for any action
lawfully taken or omitted to be taken by it or them or any Person described in
Section 4.2 under or in connection with this Agreement or the Face Amount
Certificate Agreement (except for its, their or such Person's own gross
negligence or willful misconduct), or (b) responsible in any manner to any of
the Liquidity Banks for any recitals, statements, representations or warranties
contained in the Face Amount Certificate Agreement or in any certificate,
report, statement or other document referred to or provided for in, or received
under or in connection with, the Face Amount Certificate Agreement or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
the Face Amount Certificate Agreement, this Agreement or any other Transaction
Documents furnished in connection therewith or herewith, or for any failure of
ISC to perform its obligations under the Face Amount Certificate Agreement or
for the satisfaction of any condition specified in the Face Amount Certificate
Agreement. The Liquidity Agent shall not be under any obligation to any
Liquidity Bank to ascertain or to inquire as to the observance or performance of
any of the agreements or covenants contained in, or conditions of, the Face
Amount Certificate Agreement, or to inspect the properties, books or records of
the Company.
4.4. RELIANCE BY LIQUIDITY AGENT. The Liquidity Agent shall in all cases be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to each of
the Liquidity Banks), independent accountants and other experts selected by the
Liquidity Agent. The Liquidity Agent shall in all cases be fully justified in
failing or refusing to take any action
-12-
<PAGE>
under this Agreement, the Face Amount Certificate Agreement or any other
Transaction Documents furnished in connection herewith or therewith unless it
shall first receive such advice or concurrence of the Required Liquidity Banks
or all of the Liquidity Banks, as applicable, as it deems appropriate or it
shall first be indemnified to its satisfaction by the Liquidity Banks against
any and all liability, cost and expense which may be incurred by it by reason of
taking or continuing to take any such action. The Liquidity Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement, the Face Amount Certificate Agreement, or any other Transaction
Documents furnished in connection herewith or therewith in accordance with a
request of the Required Liquidity Banks or all of the Liquidity Banks, as
applicable, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Liquidity Banks.
4.5. NOTICE OF LIQUIDATION EVENTS; VOTING ON WAIVERS AND AMENDMENTS. The
Liquidity Agent shall not be deemed to have knowledge or notice of the
occurrence of any Amortization Event or Liquidation Event, unless the Liquidity
Agent has received notice from the Agent, any Liquidity Bank or ISC referring to
the Face Amount Certificate Agreement, stating that an Amortization Event or a
Liquidation Event has occurred thereunder and describing such event. In the
event that the Liquidity Agent receives such a notice, the Liquidity Agent shall
promptly give notice thereof to each Liquidity Bank. Subject to the provisions
of Section 5.1(b), to the extent the Liquidity Agent is entitled to consent to
or withhold its consent of any waiver or amendment of the Face Amount
Certificate Agreement pursuant to Section 16(k) thereof, the Liquidity Agent
shall (a) give prompt notice to the Liquidity Banks of any such waiver or
amendment of which it is aware, and (b) take such action with respect to such
waiver, amendment or Liquidation Event as shall be directed by the Required
Liquidity Banks; provided, however, that unless and until the Liquidity Agent
shall have received such directions, the Liquidity Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Liquidation Event or potential or unmatured Liquidation Event as the
Liquidity Agent shall deem advisable and in the best interests of the Liquidity
Banks.
4.6. NON-RELIANCE ON LIQUIDITY AGENT AND OTHER LIQUIDITY BANKS. Each
Liquidity Bank expressly acknowledges that neither the Liquidity Agent, nor any
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
has made any representations or warranties to it and that no act by the
Liquidity Agent hereafter taken, including, without limitation, any review of
the affairs of ISC, shall be deemed to constitute any representation or warranty
by the Liquidity Agent. The Liquidity Agent shall not have any duty or
responsibility to provide any Liquidity Bank with any credit or other
information concerning the business, operations, property, prospects, financial
and other condition or creditworthiness of ISC which may come into the
possession of the Liquidity Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates.
4.7. INDEMNIFICATION. The Liquidity Banks agree to indemnify the Liquidity
Agent and its officers, directors, employees, representatives and agents (to the
extent not reimbursed
-13-
<PAGE>
by the Company and without limiting the obligation of the Company to do so),
ratably according to their Pro Rata Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for the
Liquidity Agent or such Person in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
the Liquidity Agent or such Person shall be designated a party thereto) that may
at any time be imposed on, incurred by or asserted against the Liquidity Agent
or such Person as a result of, or arising out of, or in any way related to or by
reason of, any of the transactions contemplated hereunder or under this
Agreement or the execution, delivery or performance of this Agreement, the Face
Amount Certificate Agreement, or any other Transaction Documents furnished in
connection herewith or therewith (but excluding any such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the gross negligence or willful
misconduct of the Liquidity Agent or such Person).
4.8. LIQUIDITY AGENT IN ITS INDIVIDUAL CAPACITY. The Liquidity Agent and
its affiliates may make loans to, accept deposits from and generally engage in
any kind of business with the Company, ISC or any affiliate of the Company as
though the Liquidity Agent were not the Liquidity Agent hereunder. With respect
to the acquisition of its Pro Rata Share of the Assigned Percentage of the ISC
Interest pursuant to this Agreement, FNBC shall have the same rights and powers
under this Agreement as any Liquidity Bank and may exercise the same as though
it were not the Liquidity Agent, and the terms "Liquidity Bank" and "Liquidity
Banks" shall include FNBC in its individual capacity.
4.9. SUCCESSOR LIQUIDITY AGENT. The Liquidity Agent may, upon five (5)
days' notice to ISC and the Liquidity Banks, and the Liquidity Agent will, upon
the direction of Liquidity Banks having 66-2/3% of the Pro Rata Shares
(calculated without regard to the Pro Rata Share of FNBC or any affiliate of
FNBC) resign as Liquidity Agent, provided, in either case, that a Liquidity Bank
agrees to become the successor Liquidity Agent hereunder in accordance with the
next sentence. If the Liquidity Agent shall resign as Liquidity Agent under this
Agreement, then the Required Liquidity Banks during such 5-day period shall
appoint from among the Liquidity Banks a successor Liquidity Agent, whereupon
such successor Liquidity Agent shall succeed to the rights, powers and duties of
the Liquidity Agent and the term "Liquidity Agent" shall mean such successor
Liquidity Agent, effective upon its appointment, and the former Liquidity
Agent's rights, powers and duties as Liquidity Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement. After the retiring Liquidity Agent's
resignation hereunder as Liquidity Agent, the provisions of this Article IV
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Liquidity Agent under this Agreement.
4.10. FNBC CONFLICT WAIVER. FNBC acts as administrative agent for ISC,
issuing and paying agent for ISC's commercial paper, provides other backup
facilities for ISC, and
-14-
<PAGE>
may provide other services or facilities to ISC from time to time (the "FNBC
Roles"). Without limiting the generality of Section 4.8, each Liquidity Bank
hereby acknowledges and consents to any and all FNBC Roles, waives any
objections it may have to any actual or potential conflict of interest caused by
FNBC's acting as the Liquidity Agent or as a Liquidity Bank hereunder and acting
as or maintaining any of the FNBC Roles, and agrees that in connection with any
FNBC Role, FNBC may take, or refrain from taking, any action which it in its
discretion deems appropriate. The Liquidity Banks are hereby notified that ISC
may delegate responsibility for signing and/or sending Sale Notices to FNBC as
ISC's administrative agent.
ARTICLE V
MISCELLANEOUS
5.1. WAIVERS; AMENDMENTS; ETC.
(a) NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part
of the Liquidity Agent or any Liquidity Bank in exercising any power, right or
remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude any other
further exercise thereof or the exercise of any other power, right or remedy.
The rights and remedies herein provided shall be cumulative and nonexclusive of
any rights or remedies provided by law. Any waiver of this Agreement shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) LIMITATIONS ON CONSENTS BY THE LIQUIDITY AGENT TO WAIVERS AND
AMENDMENTS. ISC shall not consent to any amendment, supplement, waiver or
modification of the Face Amount Certificate Agreement to which it is entitled to
consent pursuant to Section 14 thereof without the prior written consent of the
Required Liquidity Banks, PROVIDED, HOWEVER, that no such modification or waiver
shall, without the consent of each affected Certificateholder, (i) extend the
Certificate's final maturity date or the date of any payment or deposit of any
amounts by the Issuer, the Portfolio Manager or the Swap Provider, (ii) reduce
the rate or extend the time of payment of Earned Yield (or any component
thereof), (iii) reduce any fee payable to the Liquidity Agent for the benefit of
the Certificateholders, (iv) change the amount of the outstanding Invested
Amounts of any Certificateholder, a Liquidity Bank's Pro Rata Share or a
Liquidity Bank's Commitment, (v) amend, modify or waive any provision of the
definition of "Required Liquidity Banks" or this Section 5.1(b), (vi) consent
to or permit the assignment or transfer by the Issuer or the Swap Provider of
any of their respective rights and obligations under this Agreement or the Swap
Agreement, or (vii) amend or modify any defined term (or any term used directly
or indirectly in such defined term) used in clauses (i) through (vi) above in a
manner which would circumvent the intention of the restrictions set forth in
such clauses.
-15-
<PAGE>
(c) WAIVERS AND AMENDMENTS MUST BE IN WRITING. This Agreement may not
be amended, supplemented, modified, or waived except in accordance with the
provisions of this Section 5.1 or Section 5.5(c). The Liquidity Agent and ISC
may, from time to time, with the consent of the Required Liquidity Banks, enter
into written amendments, supplements, modifications or waivers for the purpose
of adding, deleting, changing or waiving any provisions to this Agreement;
provided, however, that no such amendment, supplement, modification or waiver
shall, without the written consent of ISC, the Liquidity Agent and all of the
Liquidity Banks: (i) extend the Commitment Expiry Date, (ii) reduce any fee
payable pursuant to Section 2.4. (iii) except pursuant to Section 5.5(c), change
the amount of or percentage interest represented by any Liquidity Bank's Pro
Rata Share or alter any Liquidity Bank's Commitment hereunder, (iv) amend,
modify or waive any provision of the definition of "Required Liquidity Banks",
Section 5.1(b) above or this Section 5.1(c), or (v) amend or modify any
defined term used in the foregoing clauses (i) through (iv) in a manner which
would circumvent the intention of the restrictions set forth in such clauses.
Notwithstanding the foregoing, without the consent of the Liquidity Banks, the
Liquidity Agent and ISC may amend this Agreement solely to add additional
Persons as Liquidity Banks. Any such amendment, supplement, modification or
waiver shall apply to each of the Liquidity Banks equally and shall be binding
upon ISC, the Liquidity Banks and the Liquidity Agent. In the case of any
waiver, ISC, the Liquidity Banks and the Liquidity Agent shall be restored to
their former positions and rights hereunder.
(d) INTEGRATION. This Agreement, the Face Amount Certificate
Agreement and the other Transaction Documents contain a final and complete
integration of all prior expressions by the parties hereto with respect to the
subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof, superseding all prior
oral or written understandings.
5.2. NOTICES. Except as otherwise expressly provided herein, all
communications and notices provided for hereunder shall be in writing and shall
be (a) hand-delivered by messenger, (b) sent by reputable overnight or second
business day courier, or (c) sent by facsimile, telecopy or similar electronic
facsimile transmission directed to the applicable address or facsimile number,
as the case may be, set forth on the signature page hereto (as amended from time
to time) or at such other address or facsimile number as any party may hereafter
specify in writing to the Liquidity Agent for the purpose of receiving notices.
Each such notice or other communication shall be effective only upon receipt
thereof.
5.3. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall
be governed by and construed in accordance with the internal law, and not the
law of conflicts, of the State of Illinois.
5.4. SEVERABILITY; COUNTERPARTS. This Agreement 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 when taken together shall
-16-
<PAGE>
constitute one and the same agreement. Any provisions of this Agreement which
are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
5.5. SUCCESSORS AND ASSIGNS; PARTICIPATIONS; ASSIGNMENTS.
(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns. No
Liquidity Bank may participate, assign or sell any portion of its rights
hereunder except as required by operation of law, in connection with the merger,
consolidation or dissolution of any Liquidity Bank or as provided in this
Section 5.5.
(b) PARTICIPATIONS. Any Liquidity Bank may, with the consent of the
Liquidity Agent and in the ordinary course of its business and in accordance
with applicable law, at any time sell to one or more Persons (each a
"Participant") participating interests in its rights and obligations hereunder
and under the Face Amount Certificate Agreement; PROVIDED, HOWEVER, that each
Participant shall purchase an identical percentage in such selling Liquidity
Bank's Commitment, unused Commitment and Certificate Balance. Notwithstanding
any such sale by a Liquidity Bank of participating interests to a Participant,
such Liquidity Bank's rights and obligations under this Agreement and the Face
Amount Certificate Agreement shall remain unchanged, such Liquidity Bank shall
remain solely responsible for the performance thereof, and ISC and the Liquidity
Agent shall continue to deal solely and directly with such Liquidity Bank in
connection with such Liquidity Bank's rights and obligations under this
Agreement and the Face Amount Certificate Agreement. Each Liquidity Bank agrees
that any agreement between such Liquidity Bank and any such Participant in
respect of such participating interest shall not restrict such Liquidity Bank's
right to agree to any amendment, supplement, waiver or modification to the
Agreement, except for any amendment, supplement, waiver or modification
requiring the consent of all of the Liquidity Banks pursuant to Section 5.1(b)
or Section 5.1(c) or any agreement to extend the Fixed Expiry Date.
(c) ASSIGNMENTS TO PURCHASERS. (i) Any Liquidity Bank may at any time
and from time to time, upon the prior written consent of ISC, the Liquidity
Agent and FNBC, assign to one or more Accredited Investors or other Persons
("Purchasers") all or any part of its rights and obligations under this
Agreement and the Face Amount Certificate Agreement pursuant to a supplement to
this Agreement, substantially in the form of EXHIBIT A hereto (a "Transfer
Supplement"), executed by the Purchaser, such selling Liquidity Bank and, as
applicable, the Liquidity Agent; and provided however that (A) each Purchaser
shall purchase an identical percentage in such selling Liquidity Bank's
Commitment and Certificate Balance, (B) any such assignment cannot be for an
amount less than the lesser of (1) $10,000,000 and (2) such selling Liquidity
Bank's Commitment or Certificate Balance (calculated at the time of such
assignment), (C) each Purchaser must be able to make the representations and
warranties set
-17-
<PAGE>
forth in the Investor Letter referred to in Section 14(a)(ii) of the Face Amount
Certificate Agreement; (D) each Purchaser must be a financial institution
incorporated in an OECD Country and (E) if requested by ISC or by the Liquidity
Agent, each Purchaser shall deliver to the Liquidity Agent and ISC an opinion of
such Purchaser's counsel in substantially the form of Exhibit B hereto. Such
assignment shall also be subject to the other limitations set forth in the Face
Amount Certificate Agreement.
(ii) Each of the Liquidity Banks agrees that in the event that it
shall cease to have short-term debt ratings of at least A-1 by S&P and at least
P-1 by Moody's Investors Service, Inc. ("Moody's"), or, if such Liquidity Bank
does not have short-term debt which is rated by S&P's and Moody's, in the event
that the parent corporation of such Liquidity Bank has rated short-term debt,
such parent corporation ceases to have short-term debt ratings of at least A-1
by S&P and at least P-1 by Moody's (an "Affected Liquidity Bank"), such Affected
Liquidity Bank shall be obliged, at the request of ISC and the Liquidity Agent,
to assign all of its rights and obligations hereunder to (x) one or more other
Liquidity Banks selected by ISC and the Liquidity Agent, or (y) another
financial institution nominated by the Liquidity Agent and agreed to by ISC and
FNBC, and willing to participate in this facility through the Commitment Expiry
Date in the place of such Affected Liquidity Bank; provided that (i) the
Affected Liquidity Bank receives payment in full, pursuant to a Transfer
Supplement, of an amount equal to the Affected Liquidity Bank's Certificate
Balance and the accrued but unpaid (whether or not then due) Earned Yield and
accruing but unpaid fees and other costs and expenses payable in respect of such
Affected Liquidity Bank's Certificate Balance and (ii) such nominated financial
institution, if not an existing Liquidity Bank, satisfies all the requirements
of this Agreement and, if requested by ISC or the Liquidity Agent, provides the
Liquidity Agent with an opinion of counsel in substantially the form of Exhibit
B hereto.
(iii) Upon (A) execution of a Transfer Supplement, (B) delivery
of an executed copy thereof to ISC, the Liquidity Agent and the Agent and, if
requested by ISC or by the Liquidity Agent, delivery to the Liquidity Agent and
ISC of an opinion of such Purchaser's counsel in substantially the form of
EXHIBIT B hereto, and (C) payment, if applicable, by the Purchaser to such
selling Liquidity Bank of an amount equal to the purchase price agreed between
such selling Liquidity Bank and the Purchaser, such selling Liquidity Bank shall
be released from its obligations hereunder and under the Face Amount Certificate
Agreement to the extent of such assignment and the Purchaser shall for all
purposes be a Liquidity Bank party to this Agreement and, if and when
applicable, a Certificateholder under the Face Amount Certificate Agreement and
shall have all the rights and obligations of a Liquidity Bank under this
Agreement and, if and when applicable, a Certificateholder under the Face Amount
Certificate Agreement to the same extent as if it were an original party hereto
or thereto, and no further consent or action by ISC, the Company, the Liquidity
Banks or the Liquidity Agent shall be required. The amount of the assigned
portion of the selling Liquidity Bank's Certificate Balance allocable to the
Purchaser shall be equal to the Transferred Percentage (as defined in the
Transfer Supplement) of such selling Liquidity Bank's Certificate Balance which
is transferred thereunder regardless of the purchase price paid therefor. Such
Transfer
-18-
<PAGE>
Supplement shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of the Purchaser as a Liquidity
Bank and the resulting adjustment of the selling Liquidity Bank's Commitment
arising from the purchase by the Purchaser of all or a portion of the selling
Liquidity Bank's rights, obligations, and interest hereunder and under the Face
Amount Certificate Agreement.
5.6. EFFECTIVENESS OF THIS AGREEMENT. This Agreement, and the
obligations of the Liquidity Agent and the Liquidity Banks hereunder, shall
become effective when the Liquidity Agent has received counterparts hereof, duly
executed by the Liquidity Agent, ISC and each of the Liquidity Banks.
5.7. BANKRUPTCY PETITION AGAINST ISC. The Liquidity Agent and each
Liquidity Bank hereby covenant and agree that, prior to the date which is one
year and one day after the payment in full of all outstanding senior
indebtedness of ISC, such party will not institute against, or join any other
Person in instituting against, ISC 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.
5.8. INSOLVENCY PROCEEDINGS. Notwithstanding anything in this
Agreement to the contrary, each Liquidity Bank agrees that if at any time after
the Commitment Expiry Date, ISC is required to return, pursuant to a bankruptcy
or insolvency proceeding involving the Company, any payments received by ISC
from the Company prior to the Commitment Expiry Date, such Liquidity Bank shall
on demand pay to ISC its Pro Rata Share of such disgorged amounts and such
Liquidity Bank shall thereafter be entitled to receive from ISC its Pro Rata
Share of all amounts thereafter received by ISC in respect of such disgorged
amounts pursuant to such bankruptcy or insolvency proceeding.
5.9. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE LIQUIDITY AGENT, THE LIQUIDITY BANKS AND ISC EACH IRREVOCABLY WAIVES
ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT, THE FACE AMOUNT CERTIFICATE AGREEMENT
OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers or signatories as of
the date hereof.
INTERNATIONAL SECURITIZATION
CORPORATION
By:/s/ Eleanor C. Nadbielny
------------------------
Authorized Signer
c/o The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attn: Asset-Backed Securities Division
Fax: (312) 732-4487
THE FIRST NATIONAL BANK OF CHICAGO,
Individually as a Liquidity Bank and as
Liquidity Agent
By:/s/ Eleanor C. Nadbielny
------------------------
Title: Authorized Agent
One First National Plaza
Chicago, Illinois 60670
Attn: Asset-Backed Securities Division
Fax: (312) 732-4487
<PAGE>
Exhibit A
TRANSFER SUPPLEMENT
THIS TRANSFER SUPPLEMENT is entered into as of the ____ day of ______,____
by and between _______________("Seller") and ________________("Purchaser").
PRELIMINARY STATEMENTS
A. This Transfer Supplement is being executed and delivered in accordance
with Section 5.5(c) of that certain Liquidity Agreement (ISC) dated as of April
24, 1998 (as amended, modified or restated from time to time, the "Agreement")
by and among International Securitization Corporation, the Liquidity Banks party
thereto and The First National Bank of Chicago, as Liquidity Agent. Capitalized
terms used herein and not otherwise defined herein are used with the meanings
set forth, or incorporated by reference, in the Agreement or the "Face Amount
Certificate Agreement" (as such term is defined in the Agreement).
B. The Seller is a Liquidity Bank party to the Agreement, and the Purchaser
wishes to become a Liquidity Bank thereunder.
C. The Seller is selling and assigning to the Purchaser an undivided _____%
(the "Transferred Percentage") interest in all of Seller's rights and
obligations under the Face Amount Certificate Agreement and the Agreement,
including, without limitation, the Seller's Commitment and (if applicable) the
Seller's Certificate Balance as set forth herein.
The parties hereto hereby agree as follows:
1. The transfer effected by this Transfer Supplement shall become
effective (the "Transfer Effective Date") two (2) Business Days (or such other
date selected by the Liquidity Agent in its sole discretion) following the date
on which a transfer effective notice substantially in the form of Schedule II to
this Transfer Supplement ("Transfer Effective Notice") is delivered by the
Liquidity Agent to ISC, the Seller and the Purchaser. From and after the
Transfer Effective Date, the Purchaser shall be a Liquidity Bank party to the
Agreement for all purposes thereof as if the Purchaser were an original party
thereto and the Purchaser agrees to be bound by all of the terms and provisions
contained therein.
2. If there is no outstanding principal balance on the Certificate, on
the Transfer Effective Date, Seller shall be deemed to have hereby transferred
and assigned to the Purchaser, without recourse, representation or warranty
(except as provided in paragraph 6 below), and the Purchaser shall be deemed to
have hereby irrevocably taken, received and assumed from the Seller, the
Transferred Percentage of the Seller's Commitment and all rights
A-1
<PAGE>
and obligations associated therewith under the terms of the Agreement,
including, without limitation, the Transferred Percentage of the Seller's future
funding obligations under Section 2.2(a) of the Agreement.
3. If there is an outstanding principal balance on the Certificate, at
or before 12:00 noon, local time of the Seller, on the Transfer Effective Date,
the Purchaser shall pay to the Seller, in immediately available funds, an amount
equal to the sum of (i) the Transferred Percentage of an amount equal to the
Seller's Certificate Balance (such amount, being hereinafter referred to as the
"Purchaser's Certificate Balance"); (ii) all accrued but unpaid (whether or not
then due) interest attributable to the Purchaser's Certificate Balance; and
(iii) accruing but unpaid fees and other costs and expenses payable in respect
of the Purchaser's Certificate Balance for the period commencing upon each date
such unpaid amounts commence accruing, to and including the Transfer Effective
Date (the "Purchaser's Acquisition Cost"). Whereupon, the Seller shall be deemed
to have transferred and assigned to the Purchaser, without recourse,
representation or warranty (except as provided in paragraph 6 below), and the
Purchaser shall be deemed to have hereby irrevocably taken, received and assumed
from the Seller, the Transferred Percentage of the Seller's Commitment and
Certificate Balance and all related rights and obligations under the Agreement
and the Face Amount Certificate Agreement, including, without limitation, the
Transferred Percentage of the Seller's future funding obligations under Section
2.2(a) of the Agreement.
4. Concurrently with the execution and delivery hereof, the Seller
will provide to the Purchaser copies of all documents requested by the Purchaser
which were delivered to such Seller pursuant to the Agreement.
5. Each of the parties to this Transfer Supplement agrees that at any
time and from time to time upon the written request of any other party, it will
execute and deliver such further documents and do such further acts and things
as such other party may reasonably request in order to effect the purposes of
this Transfer Supplement.
6. By executing and delivering this Transfer Supplement, the Seller
and the Purchaser confirm to and agree with each other, the Liquidity Agent and
the Liquidity Banks as follows: (a) other than the representation and warranty
that it has not created any adverse claim upon any interest being transferred
hereunder, the Seller makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made by any other Person in or in connection with the Agreement, the Face Amount
Certificate Agreement or any other Transaction Document, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Agreement, the Face Amount Certificate Agreement, any other Transaction Document
or any other instrument or document furnished pursuant thereto or the
perfection, priority, condition, value or sufficiency of any collateral; (b) the
Seller makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Company, the Portfolio Manager, the
Swap Provider any surety or any guarantor or the performance or observance by
the Company, the
A-2
<PAGE>
Portfolio Manager, or the Swap Provider of any of their respective obligations
under the Face Amount Certificate Agreement or any other Transaction Document or
any other instrument or document furnished pursuant thereto or in connection
therewith; (c) the Purchaser confirms that it has received a copy of the
Agreement, the Agency Agreement, the Face Amount Certificate Agreement and the
other Transaction Documents (other than the FNBC Fee Letter referred to
therein), together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Transfer Supplement; (d) the Purchaser will, independently and without reliance
upon the Liquidity Agent, the Agent, ISC, the Company or any other Liquidity
Bank or Certificateholder and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Agreement and the Face Amount Certificate
Agreement; (e) the Purchaser appoints and authorizes the Liquidity Agent to take
such action as agent on its behalf and to exercise such powers under the
Agreement as are delegated to the Liquidity Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; (f) the Purchaser
appoints as its agent the Agent under the Face Amount Certificate Agreement and
the Agency Agreement to enforce its respective rights and interests thereunder;
(g) the Purchaser appoints and authorizes the Agent under the Face Amount
Certificate Agreement and the Agency Agreement to take such action as agent on
its behalf and to exercise such powers under the Face Amount Certificate
Agreement and the Agency Agreement as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; (h)
the Purchaser has executed and delivered to the Liquidity Agent the Investor
Letter referred to in Section 14(a)(ii) of the Face Amount Certificate
Agreement; (i) the Purchaser was not formed for the purpose of acquiring the
interest being acquired hereunder; and (j) the Purchaser agrees that it will
perform in accordance with their terms all of the obligations which, by the
terms of the Agreement and the Face Amount Certificate Agreement are required
to be performed by it as a Liquidity Bank or, when applicable, as a
Certificateholder.
7. Each party hereto represents and warrants to and agrees with the
Liquidity Agent that it is aware of and will comply with the provisions of the
Agreement, including, without limitation, Sections 2.2, 5.5(c) and 5.7 thereof.
8. Schedule I hereto sets forth the revised Commitment of the Seller
and the Commitment of the Purchaser, as well as administrative information with
respect to the Purchaser.
9. THIS TRANSFER SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS.
A-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Transfer Supplement
to be executed by their respective duly authorized officers of the date hereof.
[SELLER]
By:______________________
Title:______________________
[PURCHASER]
By:______________________
Title:______________________
A-4
<PAGE>
SCHEDULE I TO TRANSFER SUPPLEMENT
LIST OF LENDING OFFICES, ADDRESSES
FOR NOTICES AND COMMITMENT AMOUNTS
DATE: ___________,____
TRANSFERRED PERCENTAGE: _______%
@@
Pro
Commitment Commitment Outstanding Rata
Seller [existing] [revised] Certificate Balance Share
- ------ ----------- ---------- ------------------- -----
Pro
Commitment Outstanding Rata
Purchaser [initial] Certificate Balance Share
- --------- ---------- ------------------- -----
ADDRESS FOR NOTICES:
____________________
____________________
____________________
Attention:
Phone No.:
Facsimile No.:
A-5
<PAGE>
SCHEDULE II TO TRANSFER SUPPLEMENT
TRANSFER EFFECTIVE NOTICE
TO: _________________________, Seller
_________________________
_________________________
_________________________
TO: _________________________, Purchaser
_________________________
_________________________
_________________________
The undersigned, as Liquidity Agent under the Liquidity Agreement
(ISC) dated as of April 24, 1998 (as amended, modified or supplemented from time
to time) by and among International Securitization Corporation, the Liquidity
Banks party thereto and The First National Bank of Chicago, as Liquidity Agent,
hereby acknowledges receipt of executed counterparts of a completed Transfer
Supplement dated as of ____________, ____ between _____________, as Seller,
and_______________, as Purchaser. Capitalized terms defined in such Transfer
Supplement are used herein as therein defined.
1. Pursuant to such Transfer Supplement, you are advised that the
Transfer Effective Date will be ________________, _________.
2. ISC, the Liquidity Agent and FNBC each hereby consents to the
Transfer Supplement as required by Section 5.5(c) of the Agreement.
[ 3. Pursuant to such Transfer Supplement, the Purchaser is required to
pay $____________ to the Seller at or before 12:00 noon (local time of the
Seller) on the Transfer Effective Date in immediately available funds.]
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Liquidity Agent
By:_________________________
Title:______________________
INTERNATIONAL SECURITIZATION
CORPORATION
By:_________________________
Authorized Signatory
A-6
<PAGE>
Exhibit B
FORM OF OPINION
International Securitization Corporation
c/o The First National Bank of Chicago
Asset-Backed Markets Division
Suite 0596
One First National Plaza
Chicago, Illinois 60670-0596
The First National Bank of Chicago,
as Liquidity Agent
One First National Plaza
Chicago, Illinois 60670
Re: Transfer Supplement dated as of _________ with ***[Name of Bank]***
Ladies and Gentlemen:
We have acted as counsel for the ***[Name of Bank]*** (the "Bank") in
connection with [(i)] the Liquidity Agreement (ISC) dated as of April 24, 1998
(the "Agreement"; terms defined therein and not otherwise defined in this letter
shall have the respective meanings ascribed therein), among International
Securitization Corporation ("ISC"), the First National Bank of Chicago, as
Liquidity Agent and the Liquidity Banks party thereto and [(ii) the Transfer
Supplement (the "Transfer Supplement") dated as of ___________ ______, ______
between ***[Name of Seller]*** as "Seller" (as defined therein) and
***[Name of Bank]*** as "Purchaser" (as defined therein), consented to by ISC,
the Liquidity Agent and FNBC.](1)
Subject to the qualifications and limitations stated herein, we hereby
advise you that, in our opinion:
Each of the Agreement [and the Transfer Supplement] has been duly
authorized by all necessary corporate action, has been duly executed and
delivered by the Bank and, assuming due authorization, execution and
delivery by each of the other parties thereto, constitutes a legal, valid
and binding obligation of the Bank, enforceable against the Bank in
accordance with its terms.
- --------------------
(1) Bracketed language should be deleted for opinions delivered by Liquidity
Banks party to the Certificate Purchase Agreement.
B-1
<PAGE>
Our opinion set forth above is subject to the qualifications that the
enforceability of the Bank's obligations under the Agreement [and the Transfer
Supplement] may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights generally or
by general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
This opinion may be relied upon by Moody's Investors Service, Inc. and
by Standard & Poors Ratings Group to the same extent as if named as an addressee
hereof.
Respectfully submitted,
B-2
<PAGE>
ANNEX I
COMMITMENTS
<TABLE>
<S> <C>
The First National Bank of Chicago $500,000,000
</TABLE>
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
AMONG
INTERNATIONAL SECURITIZATION CORPORATION
THE FIRST NATIONAL BANK OF CHICAGO
AS THE LETTER OF CREDIT AGENT
AND
THE SEVERAL LETTER OF CREDIT BANKS PARTIES HERETO
DATED AS OF APRIL 24, 1998
- --------------------------------------------------------------------------------
<PAGE>
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
This Letter of Credit Reimbursement Agreement, dated as of April 24,
1998 (this "Agreement"), is among INTERNATIONAL SECURITIZATION CORPORATION, a
Delaware corporation (the "Company"), The First National Bank of Chicago, as
letter of credit agent (the "Letter of Credit Agent"), and the Letter of Credit
Banks (defined below).
PRELIMINARY STATEMENTS:
1. The Company has entered into that certain Face Amount Certificate
Agreement of even date herewith among 312 Certificate Company (the "Issuer"),
the Company, and the First National Bank of Chicago ("FNBC") as Agent (as the
same may be amended, restated, supplemented or otherwise modified from time to
time, the "Face Amount Certificate Agreement") pursuant to which the Issuer has
issued a $500,000,000 Installment Face Amount Certificate (as the same may be
amended, restated, substituted or replaced, the "Certificate") to the Agent for
the benefit of the "Certificateholders" thereunder.
2. The Company has also entered into that certain Liquidity Agreement
of even date herewith among the Company, the "Liquidity Banks" party thereto and
FNBC, as the Liquidity Agent, (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Liquidity Agreement"
and together with the Face Amount Certificate Agreement, the "Certificate
Agreements") pursuant to which the Liquidity Banks have agreed to purchase from
the Company its interest in the Certificate on the terms and conditions set
forth therein.
3. It is a condition precedent to the effectiveness of the Certificate
Agreements that the Company cause a letter of credit to be issued for the
benefit of the Liquidity Banks and the Company has requested the Letter of
Credit Banks to issue the Letter of Credit in the form specified in this
Agreement.
4. The Letter of Credit Banks are willing to issue the Letter of
Credit subject to the terms and conditions set forth herein.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used herein and not otherwise defined herein shall
have the meanings given to such terms in the Certificate Agreements, or the
other Transaction Documents as applicable. As used in this Agreement:
<PAGE>
"AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with,
another Person or a subsidiary of such other Person. A Person shall be deemed
to control another Person if the controlling Person owns 10% or more of any
class of voting securities of the controlled Person or possesses, directly or
indirectly, the power to direct or cause the direction of the management or
policies of the controlled Person, whether through ownership of stock, by
contract or otherwise.
"AGREEMENT" shall mean this Letter of Credit Reimbursement
Agreement, as it may be amended, supplemented or otherwise modified and in
effect from time to time.
"ARTICLE" shall mean an article of this Agreement, unless another
document is specifically referenced.
"AVAILABLE COMMITMENT" shall mean $50,000,000.
"DEFAULT" shall mean an event described in Article VI.
"DEMAND FOR PAYMENT" shall mean a demand for payment under the
Letter of Credit in the form of Annex A to the Letter of Credit.
"EFFECTIVE DATE" shall mean April 24, 1998.
"LETTER OF CREDIT" shall have the meaning assigned to such term in
Section 2.1 hereof.
"LETTER OF CREDIT AGENT" shall mean The First National Bank of
Chicago, in its capacity as agent for the Letter of Credit Banks pursuant to
Article VII, and not in its individual capacity as a Letter of Credit Bank, and
any successor agent appointed pursuant to Article VII.
"LETTER OF CREDIT AMOUNT" shall have the meaning set forth in the
Letter of Credit as the amount available to be drawn thereunder.
"LETTER OF CREDIT BANKS" shall mean the Persons, other than the
Company, listed on the signature pages of this Agreement and their respective
successors and assigns.
"LETTER OF CREDIT COMMITMENT" shall mean, when used with reference
to a Letter of Credit Bank at the time any determination thereof is to be
made, the amount of such Letter of Credit Bank's letter of credit commitment
as set forth opposite its name under the heading "Letter of Credit
Commitment" on Schedule A hereto.
"LETTER OF CREDIT DISBURSEMENT" shall mean a disbursement made
pursuant to the Letter of Credit by each Letter of Credit Bank.
"LETTER OF CREDIT EXPIRATION DATE" shall mean July 21, 1999.
2
<PAGE>
"LETTER OF CREDIT FACILITY FEE" shall have the meaning assigned to
such term in Section 2.3 hereof.
"LIQUIDITY AGENT" shall mean The First National Bank of Chicago, a
national banking association.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"OBLIGATIONS" shall mean all unpaid principal of and accrued and
unpaid interest on the Letter of Credit Disbursements, all accrued and unpaid
fees and all reimbursements, indemnities and other obligations of the Company to
the Letter of Credit Banks or to any Letter of Credit Bank, the Letter of Credit
Agent or any indemnified party hereunder.
"PERCENTAGE LIABILITY" shall mean when used with reference to any
Letter of Credit Bank its percentage liability as set forth in Schedule A
attached hereto.
"REQUIRED LETTER OF CREDIT BANKS" shall mean the Letter of Credit
Banks in the aggregate having at least 66 2/3% of the Available Commitment or,
if the Available Commitment has been terminated, Letter of Credit Banks in the
aggregate holding at least 66 2/3% of the aggregate unpaid principal amount of
the outstanding advances under the Letter of Credit.
"S&P" shall mean Standard & Poor's Ratings Services.
"SECTION" shall mean a numbered section of this Agreement, unless
another document is specifically referenced.
"WRITTEN" OR "IN WRITING" shall mean any form of written
communication or a communication by means of telex, telecopier device,
telegraph or cable.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
ISSUANCE OF LETTER OF CREDIT;
REIMBURSEMENT OBLIGATION
Section 2.1 ISSUANCE OF LETTER OF CREDIT. The Letter of Credit Banks
hereby severally agree, on the terms and subject to the conditions hereinafter
set forth, to issue to the Liquidity Agent the irrevocable letter of credit (the
"Letter of Credit") in substantially the form of Exhibit A hereto. The Letter
of Credit shall be dated its date of issuance in an initial stated amount equal
to the Letter of Credit Amount.
3
<PAGE>
Section 2.2 DEMANDS UNDER THE LETTER OF CREDIT. If, by 5:00 p.m.
(Chicago time) on any Business Day, the Letter of Credit Agent shall have
received an irrevocable Demand for Payment from the Liquidity Agent, the
Letter of Credit Agent shall immediately notify each Letter of Credit Bank of
such Demand for Payment. If a Demand for Payment under the Letter of Credit
conforms to the terms and conditions of the Letter of Credit, each Letter of
Credit Bank shall make payment of its Percentage Liability of such Demand for
Payment, in immediately available funds in accordance with the terms of the
Letter of Credit.
Section 2.3 FEES. The Company agrees to cause the Issuer to enter
into that certain letter agreement, dated the date hereof, between the Issuer
and the Letter of Credit Agent pursuant to which the Issuer shall pay to the
Letter of Credit Agent, for the benefit of the Letter of Credit Banks, for
the period commencing on the date hereof and continuing through to the Letter
of Credit Expiration Date, certain fees (collectively, the "Letter of Credit
Facility Fee").
Section 2.4 REIMBURSEMENT OBLIGATION. (a) The Company hereby agrees
to cause each Liquidity Bank to assign to the Letter of Credit Banks its
rights to payment of (i) the outstanding principal amount of the Certificate,
(ii) Earned Yield and (iii) all fees and other amounts due and payable by the
Issuer under the Face Amount Certificate Agreement upon the payment in full
of all Purchase Price payments made by such Liquidity Bank together with
accrued and unpaid Earned Yield with respect to such Purchase Price payments
and any other amounts due to each such Liquidity Bank thereunder (the
"Assignment"). Furthermore, the Company agrees to pay to the Letter of Credit
Banks the monthly interest paid to the Company pursuant to the penultimate
sentence in Section 2.1(c) of the Liquidity Agreement. Other than its
obligation to cause the Assignment, the Company shall have no other
reimbursement obligation to the Letter of Credit Banks.
(b) All payments to be made to the Letter of Credit Banks hereunder
(including amounts owing with respect to the fees pursuant to Section 2.3
hereof) shall be made to the Letter of Credit Agent for the benefit of the
Letter of Credit Banks at its address specified in Section 8.16 hereof (or at
such other address as the Letter of Credit Agent may have specified for such
purpose in a written notice to the Company) in immediately available funds. All
payments made by the Company hereunder shall be made not later than 3:00 P.M.
(Chicago time) on the date due, and funds received after that hour shall be
deemed to have been received by the Letter of Credit Agent on the next
succeeding Business Day.
Section 2.5 LIABILITY OF LETTER OF CREDIT BANKS. No Letter of
Credit Bank nor any of their respective officers or directors shall be liable
or responsible for: (a) the use which may be made of the Letter of Credit or
any acts or omissions of the Company, the Liquidity Agent and any transferee
in connection therewith; (b) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should prove
to be in any or all respects invalid, insufficient, fraudulent or forged; (c)
payment by a Letter of Credit Bank against presentation of documents which do
not comply with the terms of a Letter of Credit, including failure of any
documents to bear any reference or adequate reference to a Letter of Credit;
PROVIDED that such failure shall not have constituted gross negligence or
willful misconduct on the part of such Letter
4
<PAGE>
of Credit Bank; or (d) any other circumstances whatsoever not within the control
of a Letter of Credit Bank or its officers, directors, employees or agents in
making or failing to make payment under a Letter of Credit. In furtherance and
not in limitation of the foregoing, the Letter of Credit Banks may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary;
provided that the Letter of Credit Banks shall not be excused from their willful
misconduct or gross negligence in determining whether documents presented under
the Letter of Credit comply with the terms of the Letter of Credit.
ARTICLE III
CONDITION PRECEDENT TO CLOSING
Section 3.1 OPINIONS. If the Company or the Letter of Credit Agent has
so requested, on or prior to the date of this Agreement, the Company and the
Letter of Credit Agent shall have received from each Letter of Credit Bank an
opinion of counsel with respect to enforceability of this Agreement, the Letter
of Credit and such other matters as the Company and the Letter of Credit Agent
shall reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Letter of Credit Banks to enter into this
Agreement, the Company hereby makes the following representations and warranties
to the Letter of Credit Banks.
Section 4.1 CORPORATE EXISTENCE. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to conduct its business in
each jurisdiction in which conducted, except where the failure to so qualify
would not have a material adverse effect on the Company or its business
prospects or property. The Company has obtained all necessary qualifications,
licenses, permits, charters, registrations and approvals (together, "Approvals")
necessary for the conduct of its business as currently conducted and as
contemplated by this Agreement, in each jurisdiction in which the failure to
obtain such Approvals would render this Agreement unenforceable in any material
respect or would have a material adverse effect on the Company or its business
prospects or property.
Section 4.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATION.
This Agreement has been executed and delivered by the Company, and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws relating to or limiting creditors' rights generally and by general
equitable principles.
5
<PAGE>
Section 4.3 NO LEGAL BAR. The execution, delivery and performance by
the Company of this Agreement will not violate any material provision of any
existing law or regulation applicable to the Company or of any material order,
judgment, award or decree of any court, arbitrator or governmental authority
applicable to the Company or the certificate of incorporation or by-laws of the
Company or any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which the Company is a party or by which the
Company or any of its assets may be bound, and will not, except as otherwise
provided or permitted herein, result in, or require, the creation or imposition
of any lien on any of its property, assets or revenues pursuant to the
provisions of any such mortgage, indenture, lease, contract or other
agreement, instrument or undertaking.
ARTICLE V
COVENANTS
Until (i) the Letter of Credit Commitment shall have terminated, (ii)
the outstanding balance of all Letter of Credit Disbursements, obligations and
all accrued interest thereon shall have been paid in full and (iii) all fees due
hereunder shall have been paid in full, the Company agrees that:
Section 5.1 FINANCIAL REPORTING. The Company will maintain a system of
accounting established and administered in accordance with generally accepted
accounting principles, and furnish to the Letter of Credit Banks:
(a) Within 120 days after the close of each of its fiscal years, an
audit report certified by independent certified public accountants prepared in
accordance with generally accepted accounting principles, including a statement
of financial position as of the end of such period, the related statement of
income and statement of changes in stockholders' equity, and a statement of cash
flows;
(b) Promptly upon its receipt thereof, the weekly and monthly reports
prepared by the Portfolio Manager with respect to the Portfolio.
Section 5.2 CERTAIN AFFIRMATIVE COVENANTS. The Company will (a) take
all actions necessary to ensure that all taxes and other governmental claims in
respect of the Company's operations and assets are promptly paid, (b) take all
such action as may be necessary and appropriate to preserve, protect and enforce
its rights under the Face Amount Certificate Agreement, and (c) comply in all
material respects with the obligations it assumes under the Face Amount
Certificate Agreement.
6
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute a Default:
(a) Failure by the Company to cause the Assignment.
(b) Any representation or warranty or statement made by the Company
in this Agreement shall prove to have been incorrect when made in any material
respect.
(c) Failure by the Company to observe or perform any material covenant
or agreement contained herein and not constituting a Default under any other
clause of this Article VI and the continuance of such failure for 30 days after
the Company shall have become aware of such failure to observe or perform such
covenant or agreement.
(d) Either (i) the Company shall become insolvent or generally fail to
pay, or admit in writing its inability to pay, its debts as they become due, or
shall voluntarily commence any proceeding or file any petition under any
bankruptcy, insolvency or similar law or seeking dissolution or reorganization
or the appointment of a receiver, trustee, custodian or liquidator for itself or
a substantial portion of its property, assets or business or to effect a plan or
other arrangement with its creditors, or shall file any answer admitting the
jurisdiction of the court and the material allegations of an involuntary
petition filed against it in any bankruptcy, insolvency or similar proceeding,
or shall be adjudicated bankrupt, or shall make a general assignment for the
benefit of creditors, or shall consent to, or acquiesce in the appointment of, a
receiver, trustee, custodian or liquidator for itself or a substantial portion
of its property, assets or business or (ii) corporate action shall be taken by
the Company for the purpose of effectuating any of the foregoing.
(e) Involuntary proceedings or an involuntary petition shall be
commenced or filed against the Company under any bankruptcy, insolvency or
similar law or seeking the dissolution or reorganization of the Company or the
appointment of a receiver, trustee, custodian or liquidator for the Company of a
substantial part of the property, assets or business of the Company, or any
writ, order, judgment, warrant of attachment, execution or similar process shall
be issued or levied against a substantial part of the property, assets or
business of the Company.
Section 6.2 UPON OCCURRENCE OF A DEFAULT. Upon the occurrence and
prior to the cure of a Default, unless the Letter of Credit Agent shall have
given the Company written notice to the contrary, the Company shall not agree to
extend the Fixed Expiry Date.
7
<PAGE>
ARTICLE VII
THE LETTER OF CREDIT AGENT
Section 7.1 APPOINTMENT. The First National Bank of Chicago is hereby
appointed Letter of Credit Agent hereunder, and each of the Letter of Credit
Banks irrevocably authorizes the Letter of Credit Agent to act as the Letter of
Credit Agent of such Letter of Credit Bank. The Letter of Credit Agent agrees to
act as such upon the express conditions contained in this Article VII. The
Letter of Credit Agent shall not have a fiduciary relationship in respect of any
Letter of Credit Bank by reason of this Agreement.
Section 7.2 POWERS. The Letter of Credit Agent shall have and may
exercise such powers hereunder as are specifically delegated to it by the terms
thereof, together with such powers as are reasonably incidental thereto. The
Letter of Credit Agent shall have no implied duties to the Letter of Credit
Banks, or any obligation to the Letter of Credit Banks to take any action
thereunder except any action specifically provided hereunder to be taken by the
Letter of Credit Agent.
Section 7.3 GENERAL IMMUNITY. None of the Letter of Credit Agent
nor any of its directors, officers, agents or employees shall be liable to
the Company, the Letter of Credit Banks or any Letter of Credit Bank for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith except for its or their own gross negligence or willful misconduct.
Section 7.4 NO RESPONSIBILITY FOR LETTER OF CREDIT DISBURSEMENTS,
RECITALS, ETC. None of the Letter of Credit Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into, or verify (i) any statement, warranty or representation
made in connection herewith; (ii) the performance or observance of any of the
covenants or agreements of any party hereto; (iii) the satisfaction of the
condition specified in Article III, except receipt of items required to be
delivered to the Letter of Credit Agent; or (iv) the validity, effectiveness or
genuineness of any document or any instrument or writing furnished in connection
herewith.
Section 7.5 ACTION ON INSTRUCTION OF LETTER OF CREDIT BANK. The Letter
of Credit Agent shall in all cases be fully protected as to any liability to any
Letter of Credit Bank in acting, or in refraining from acting, hereunder in
accordance with written instructions signed by the Required Letter of Credit
Banks, and such instructions and any action taken or failure to act pursuant
thereto shall be binding on all of the Letter of Credit Banks.
Section 7.6 RIGHTS AS A LETTER OF CREDIT BANK. With respect to the
Letter of Credit, the Letter of Credit Agent shall have the same rights and
powers hereunder as any Letter of Credit Bank and may exercise the same as
though it were not the Letter of Credit Agent and the term "Letter of Credit
Bank" or "Letter of Credit Banks" shall, unless the context otherwise indicates,
include the Letter of Credit Agent in its individual capacity.
8
<PAGE>
Section 7.7 SUCCESSOR LETTER OF CREDIT AGENT. The Letter of Credit
Agent may resign at any time by giving written notice thereof to the Letter of
Credit Banks, the Company and the Liquidity Agent, and the Letter of Credit
Agent may be removed at any time with or without cause by written notice
received by the Letter of Credit Agent from the Required Letter of Credit Banks.
Upon any such resignation or removal, the Required Letter of Credit Banks shall
have the right to appoint, on behalf of the Company and the Letter of Credit
Banks, a successor Letter of Credit Agent. If no successor Letter of Credit
Agent shall have been so appointed by the Required Letter of Credit Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Letter of Credit Agent's giving notice of resignation, then the retiring Letter
of Credit Agent shall appoint, on behalf of the Company and the Letter of Credit
Banks, a successor Letter of Credit Agent. Such successor Letter of Credit Agent
shall be a commercial bank having capital and retained earnings of at least
$250,000,000. Upon the acceptance of any appointment as Letter of Credit Agent
hereunder by a successor Letter of Credit Agent, such successor Letter of Credit
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Letter of Credit Agent, and the retiring
Letter of Credit Agent shall be discharged from its duties and obligations
hereunder. After any retiring Letter of Credit Agent's resignation hereunder as
Letter of Credit Agent, the provisions of this Article VII shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Letter of Credit Agent hereunder.
Section 7.8 NON-RELIANCE ON LETTER OF CREDIT AGENT. Each Letter of
Credit Bank expressly acknowledges that neither the Letter of Credit Agent, nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it, and that no act by
the Letter of Credit Agent hereafter taken (including, without limitation, any
review of the affairs of the Company or the Issuer) shall be deemed to
constitute any representation or warranty by the Letter of Credit Agent. Each
Letter of Credit Bank hereby represents and warrants to the Letter of Credit
Agent that it has and will, independently and without reliance upon the Letter
of Credit Agent, the Company or any other Letter of Credit Bank, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Issuer,
and that it has made its own independent decision to enter into this Agreement
and all other documents related thereto.
Section 7.9 OBLIGATIONS SEVERAL. The obligations of the Letter of
Credit Banks hereunder and under the Letter of Credit are several, and neither
the Letter of Credit Agent nor any Letter of Credit Bank shall be responsible
for the obligation of any other Letter of Credit Bank hereunder or under the
Letter of Credit, nor will the failure of any Letter of Credit Bank to perform
any of its obligations hereunder or under the Letter of Credit relieve the
Letter of Credit Agent or any other Letter of Credit Bank from the performance
of its obligations hereunder or under the Letter of Credit. Nothing contained in
this Agreement, and no action taken by the Letter of Credit Banks or the Letter
of Credit Agent pursuant hereto or in connection with the Certificate Agreements
shall be deemed to constitute the Letter of Credit Banks a partnership,
association, joint venture or other entity.
9
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind, and the
benefits hereof shall inure to, the Company, the Letter of Credit Agent and the
Letter of Credit Banks and their respective successors and assigns; PROVIDED,
that the Company may not transfer or assign any or all of its rights and
obligations hereunder without the prior written consent of the Letter of Credit
Agent; PROVIDED, FURTHER, that no Letter of Credit Bank shall assign any of its
rights hereunder to any Person unless such Letter of Credit Bank shall have
obtained the prior written consent of the Company. Notwithstanding the
foregoing, a Letter of Credit Bank may sell participations in not more than 80%
in the aggregate of its rights under this Agreement or under the Letter of
Credit to another bank or other entity, in which event the participant shall not
have any direct rights under this Agreement or under the Letter of Credit (the
participant's rights against the Letter of Credit Bank which sold such
participation to such participant), the participant shall not be given any right
to vote with respect to matters related hereto except as set forth in items (a),
(b) and (c) of Section 8.6, and all amounts payable by the Company hereunder
shall be determined as if such Letter of Credit Bank had not sold such
participation.
Section 8.2 DESCRIPTIVE HEADINGS. The descriptive headings of the
various provisions of this Agreement are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 8.3 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable,
or invalid without affecting the remaining provisions in that jurisdiction or
the operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of this Agreement are declared
to be severable.
Section 8.4 BANKRUPTCY PETITION AGAINST THE COMPANY. Each Letter of
Credit Bank and the Letter of Credit Agent 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 Company, it will not institute against,
or join any other Person in instituting against, the Company any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceeding under the laws of any jurisdiction.
Section 8.5 LIMITED RECOURSE. Notwithstanding anything to the contrary
contained in this Agreement, the obligations of the Company under this Agreement
are solely the corporate obligations of the Company and shall be payable by the
Company solely from funds received from the Issuer by the Company in respect of
such obligations. In addition, no amount owing by the Company hereunder, other
than Letter of Credit Disbursements and interest thereon, shall constitute a
claim (as defined in Section 101 of Title 11 of the United States Bankruptcy
Code) against the Company except solely to the extent of funds received by the
Company, unless the Company has received such
10
<PAGE>
amounts pursuant to the Face Amount Certificate Agreement, and such amounts are
not necessary to pay outstanding Asset-Backed CP or Letter of Credit
Disbursements or interest thereon. No recourse shall be had for the payment of
any amount owing hereunder or for the payment of any fee hereunder or any other
obligation of, or claim against, the Company arising out of or based upon this
Agreement, against any stockholder, employee, officer, agent, director or
incorporator of the Company or against the administrative agent of any
stockholder, employee, officer, director, incorporator or Affiliate thereof;
PROVIDED, HOWEVER, that the foregoing shall not relieve any such person or
entity from any liability they might otherwise have as a result of fraudulent
actions or omissions taken by them.
Section 8.6 AMENDMENTS. Subject to the provisions of this Article
VIII, the Required Letter of Credit Banks (or the Letter of Credit Agent with
the consent in writing of the Required Letter of Credit Banks), and the Company
may enter into agreements supplemental hereto for the purpose of adding or
modifying any provisions hereto or changing in any manner the rights of the
Letter of Credit Banks or the Company hereunder or waiving any Default
hereunder; PROVIDED, HOWEVER, that no such supplemental agreement shall, without
the consent of each Letter of Credit Bank affected thereby:
(a) Alter the Company's obligation to cause the Assignment pursuant
to Section 2.4 hereof;
(b) Reduce the percentage specified in the definition of Required
Letter of Credit Banks; and
(c) Amend this Section 8.6.
No amendment of any provision of this Agreement relating to the Letter of Credit
Agent shall be effective without the written consent of the Letter of Credit
Agent.
Section 8.7 PRESERVATION OF RIGHTS. No delay or omission of the Letter
of Credit Banks or the Letter of Credit Agent to exercise any right under this
Agreement shall impair such right or be construed to be a waiver of any default
or an acquiescence therein, and the making of a Letter of Credit Disbursement
notwithstanding the existence of a Default shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of this Agreement whatsoever shall be valid unless in writing signed
by the Letter of Credit Agent or as required pursuant to Section 8.6, and then
only to the extent in such writing specifically set forth. All remedies
contained hereunder or by law afforded shall be cumulative and all shall be
available to the Letter of Credit Agent and the Letter of Credit Banks until the
Letter of Credit Disbursements have been paid in full.
11
<PAGE>
Section 8.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the Company contained in this Agreement shall
survive the issuance of the Letter of Credit and the making of the Letter of
Credit Disbursements herein contemplated.
Section 8.9 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding among the Company, the Letter of Credit Agent, and
the Letter of Credit Banks and supersedes all prior agreements and
understandings among the Company, the Letter of Credit Agent, and the Letter of
Credit Banks relating to the subject matter thereof.
Section 8.10 SEVERAL OBLIGATIONS; ADDITIONAL COVENANT OF THE LETTER
OF CREDIT BANKS. Subject to Section 2.1 hereof, the respective obligations of
the Letter of Credit Banks hereunder are several and not joint and no Letter
of Credit Bank shall be the partner or agent of any other (except to the
extent to which the Letter of Credit Agent is authorized to act as such). The
failure of any Letter of Credit Bank to perform any of its obligations
hereunder shall not relieve any other Letter of Credit Bank from any of its
obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any person other than the parties to this Agreement
and their respective successors and assigns.
Section 8.11 NUMBER OF DOCUMENTS. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Letter of Credit
Agent with sufficient counterparts so that the Letter of Credit Agent may
furnish one to each of the Letter of Credit Banks.
Section 8.12 NONLIABILITY OF LETTER OF CREDIT BANKS. The relationship
between the Company and the Letter of Credit Banks, and the Company and the
Letter of Credit Agent shall be solely that of account party and letter of
credit provider. Neither the Letter of Credit Agent nor any Letter of Credit
Bank shall have any fiduciary responsibilities to the Company. Neither the
Letter of Credit Agent nor any Letter of Credit Bank undertakes any
responsibility to the Company to review or inform the Company of any matter in
connection with any phase of the Company's business or operations.
Section 8.13 AFFECTED LETTER OF CREDIT BANK. Each of the Letter of
Credit Banks hereby agrees that in the event it shall cease to have a short-term
debt rating of "A-1" or better and "P-1" or better by S&P and Moody's,
respectively (each, an "Affected Letter of Credit Bank"), such Affected Letter
of Credit Bank shall be obligated hereunder, at the request of the Company or
the Letter of Credit Agent, to assign all of its rights and obligations
hereunder to (i) another Letter of Credit Bank or (ii) another financial
institution nominated by the Letter of Credit Agent and acceptable to the
Company, which financial institution shall be willing to participate in this
Agreement through the Letter of Credit Expiration Date in the place of, and with
the rights, duties and obligations of, such Affected Letter of Credit Bank,
PROVIDED that the Affected Letter of Credit Bank receives payment in full,
pursuant to an assignment agreement, of an amount equal to all amounts due and
owing to such Letter of Credit Bank hereunder as of the effective date of such
assignment.
12
<PAGE>
Section 8.14 CHOICE OF LAW. This Agreement shall be construed in accordance
with the laws of the State of Illinois.
Section 8.15 CONSENT TO JURISDICTION. The Company hereby irrevocably
submits to the non-exclusive jurisdiction of any United States federal or
Illinois state court sitting in the city of Chicago in any action or proceeding
arising out of or relating to this Agreement, and the Company hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such court and irrevocably waives any objection it may now or
hereafter have as to the venue of any such suit, action or proceeding brought in
such a court or that such court is an inconvenient forum. Nothing herein shall
limit the right of the Letter of Credit Agent or any Letter of Credit Bank to
bring proceedings against the Company in the courts of any other jurisdiction.
Any judicial proceeding by the Company against the Letter of Credit Agent or any
Letter of Credit Bank or any Affiliate of the Letter of Credit Agent or any
Letter of Credit Bank involving, directly or indirectly, any matter in any way
arising out of, related to, or connected with any Transaction Document shall be
brought only in a court in the city of Chicago.
Section 8.16 GIVING NOTICE. All notices and other communications
provided to any party hereto under this Agreement shall be in writing or by
telex or by facsimile and addressed or delivered to such party at its address
set forth below its signature hereto or at such other address as may be
designated by such party in a notice to the other parties. Any notice, if mailed
and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
Section 8.17 CHANGE OF ADDRESS. The Company, the Letter of Credit
Agent and any Letter of Credit Bank may each change the address for service of
notice upon it by a notice in writing to the other parties hereto.
Section 8.18 CONFIDENTIALITY. The Letter of Credit Agent and each
Letter of Credit Bank agree not to, and agree to cause each of its officers,
directors, employees, accountants and legal counsel not to, disclose any
non-public information furnished to it pursuant to this Agreement or with
respect to the Certificate Agreements, including, without limitation, all
information about the Company and its business and operations and the contents
of all other reports regarding the Portfolio; PROVIDED, HOWEVER, that the
Letter of Credit Agent and each Letter of Credit Bank may disclose any such
non-public information to its accountants and legal counsel and as required
by any law, judicial or regulatory order.
Section 8.19 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart. This Agreement shall be effective when it has been
executed by the Company, the Letter of Credit Agent and the Letter of Credit
Banks and each party has notified the Letter of Credit Agent by telex or
telephone, that it has taken such action.
13
<PAGE>
Section 8.20 WAIVER OF SETOFF. Each Letter of Credit Bank and the
Letter of Credit Agent hereby waive any right of set-off to which they may
become entitled against the Company or their assets under this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the Company, the Letter of Credit Banks and the
Letter of Credit Agent have executed this Agreement as of the date first above
written.
INTERNATIONAL SECURITIZATION THE FIRST NATIONAL BANK
CORPORATION, as the Company OF CHICAGO, as the Letter of
Credit Agent
By: /s/ Eleanor C. Nadbielny By: /s/ Eleanor C. Nadbielny
-------------------------- ---------------------------
Name: Eleanor C. Nadbielny Name: Eleanor C. Nadbielny
Title: Authorized Signer Title: Authorized Agent
c/o The First National Bank of Chicago One First National Plaza
One First National Plaza, 21st Floor Chicago, Illinois 60670
Chicago, Illinois 60670 Attn: Asset-Backed Securities
Attn: Asset-Backed Securities Division Division
Telecopy: (312) 732-4487 Telecopy: (312) 732-4487
THE FIRST NATIONAL BANK
OF CHICAGO, as a Letter of Credit Bank
By: /s/ Eleanor C. Nadbielny
--------------------------
Name: Eleanor C. Nadbielny
Title: Authorized Agent
One First National Plaza
Chicago, Illinois 60670
Attention: Asset-Backed Securities Division
Telecopy: (312) 732-4487
S-1
<PAGE>
EXHIBIT A
FORM OF
IRREVOCABLE LETTER OF CREDIT
April 24, 1998
Letter of Credit No. _____________________________
TO: The First National Bank of Chicago, as Liquidity Agent
Attention: __________________________________
Ladies and Gentlemen:
At the request and on the instructions of our customer, International
Securitization Corporation (the "Company"),__________________[LOC#] and
____________[LOC#] (herein referred to as the "Banks") hereby establish in your
favor, pursuant to that certain Letter or Credit Reimbursement Agreement, dated
as of April 24, 1998 (the "Letter of Credit Reimbursement Agreement") among the
Company, [______], as Letter of Credit Agent and the other Banks, this
irrevocable Letter of Credit in the amount of $50,000,000 (the "Letter of
Credit Amount") effective immediately and expiring at the close of business at
the Chicago office of the Letter of Credit Agent on July 21, 1999 (the "Stated
Termination Date") unless earlier terminated as set forth herein. This Letter of
Credit is issued to the Liquidity Agent as contemplated by that certain
Liquidity Agreement dated as of April 24, 1998, among the Company, the Liquidity
Banks party thereto from time to time and The First National Bank of Chicago, as
Liquidity Agent (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "Liquidity Agreement").
With respect to the Letter of Credit Amount, the following amounts may
be drawn on the Banks as specified:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
<PAGE>
Funds under this Letter of Credit shall be made available by a single drawing (a
"Letter of Credit Disbursement") and upon honoring such drawing, this Letter of
Credit and the Banks' liability hereunder shall terminate.
Anything in this Letter of Credit to the contrary notwithstanding, the
obligations of the Banks hereunder shall be several and not on a joint basis,
and no Bank shall be liable for the failure of any other Bank to perform its
obligations hereunder. Subject to the foregoing limitation, the several
obligation of each of the Banks as to each drawing hereunder shall be equal to
each Bank's percentage liability (the "Percentage Liability") set forth below
directly opposite its name.
Bank Percentage Liability
---- --------------------
%
%
We hereby irrevocably authorize you to draw on us by presentation
solely to the Letter of Credit Agent in accordance with the terms and conditions
hereunder set forth, by your demand for payment in the form of Annex A hereto (a
"Demand for Payment") on your letterhead with all blanks appropriately filled in
and signed by your authorized officer, in an amount not exceed the Letter of
Credit Amount, when added to all prior Letter of Credit Disbursements.
Subject to the foregoing and further provisions of this Letter of
Credit, funds under this Letter of Credit are available to you against your
presentation of a Demand for Payment which shall be made by hand delivery or
telecopy at the office of the Letter of Credit Agent located at 300 S.
Riverside, 7th Floor, Suite 0812, Chicago, Illinois 60606, Telecopier Number
(312) 954-0203, Attention: Letter of Credit Department, or at such other time
and place which may be designated by the Letter of Credit Agent by written
notice delivered to you.
Each Bank hereby engages with you severally and not jointly, that
to the extent of its several liability as provided herein, each Demand for
Payment made under and in compliance with the terms of this Letter of Credit
will be duly honored by each Bank to the extent of such Bank's Percentage
Liability of the Letter of Credit Amount upon delivery or transmission of
such Demand for Payment as specified at the Letter of Credit Agent's office
on or before the expiration or termination date hereof. If a drawing is made
hereunder at or prior to 5:00 p.m., Chicago time, on a business day, and
provided that such drawing and the documents presented in connection
therewith conform to the terms and conditions hereof, payment shall be made
of the amount specified in immediately available funds, no later than 1:00
p.m., Chicago time, on the third business day (the "Payment Date") following
such presentation in the Demand for Payment; PROVIDED, HOWEVER, that the
Payment Date shall be no later than the Stated Termination Date
2
<PAGE>
Payment under this Letter of Credit shall be made by each of the Banks by wire
transfer of immediately available funds, to The First National Bank of Chicago,
A.B.A. No. 071000013, Ref: 00324674. Such account may be changed only by
presentation to the Letter of Credit Agent of a letter specifying a different
account with the Liquidity Agent and executed by the Liquidity Agent. As used in
this Letter of Credit "business day" shall mean any day on which banks generally
located in Chicago, Illinois and in the jurisdiction in which the principal
office of the Liquidity Agent is located are not required or authorized by law
to remain closed. Each Bank shall honor its obligations hereunder by transfer of
its own funds. Unless we are in default with respect to our obligations under
this Letter of Credit, you shall surrender this Letter of Credit to us promptly
following our request therefor after the Stated Termination Date.
Only the Liquidity Agent may make a Demand for Payment under this
Letter of Credit. Upon payment as provided herein of the amount specified in the
Demand for Payment hereunder in an aggregate amount equal to the Letter of
Credit Amount, we shall be fully discharged of our obligation under this Letter
of Credit. The aggregate Letter of Credit Disbursements made hereunder shall not
exceed the Letter of Credit Amount.
This Letter of Credit shall be governed by and shall be deeded a
contract under and shall be construed in accordance with the laws of the State
of Illinois, including, without limitation, Article 5 of the Uniform Commercial
Code as in effect in the State of Illinois, without regard to principles of
conflicts of laws. Unless otherwise specified herein, communications with
respect to this Letter of Credit shall be in writing on your letterhead and
shall be directed to the Letter of Credit Agent at 300 S. Riverside, 7th Floor,
Chicago, Illinois 60606, Telecopier Number (312) 954-0203, Attention: Letter of
Credit Department, specifically referring thereon to this Letter of Credit by
number. Any communication to the Letter of Credit Agent which is made by
telecopier as permitted hereby shall be confirmed by same day mail in writing
delivered to the Letter of Credit Agent at the address of the Letter of Credit
Agent set forth herein, provided that failure to provide such written
confirmation shall not affect the validity of such notice by telecopier.
You may transfer your rights under this Letter of Credit in their
entirety (but not in part) to any transferee who has succeeded to you as
Liquidity Agent under the Liquidity Agreement and such transferred rights may be
successively transferred. Transfer of your rights under this Letter of Credit to
any such transferee shall be effected upon the presentation to the Letter of
Credit Agent of this Letter of Credit accompanied by a transfer letter in the
form attached hereto as Annex B. This Letter of Credit sets forth in full our
undertaking, and such undertaking shall not in any way be modified, amended,
amplified or limited by reference to any document, instrument or agreement
referred to herein (including, without limitation, the Liquidity Agreement),
except only the Certificates and Letters referred to herein; and no such
reference shall be deemed to incorporate herein by reference any document,
instrument or agreement.
3
<PAGE>
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Liquidity Agreement), except only the
certificates and letters referred to herein; and no such reference shall be
deemed to incorporate herein by reference any document, instrument or agreement.
Very truly yours,
-------------------------
By:
------------------------------
Name:
Title:
-------------------------
By:
------------------------------
Name:
Title:
4
<PAGE>
ANNEX A TO
LETTER OF CREDIT
FORM OF DEMAND FOR PAYMENT
_________________, ______
[Letter of Credit Agent]
[Address],
Re: Letter of Credit No. __________________
The undersigned, a duly authorized officer of The First National Bank
of Chicago, as Liquidity Agent under the Liquidity Agreement, hereby certifies
to [Letter of Credit Agent] (the "LETTER OF CREDIT AGENT"), with reference to
Irrevocable Letter of Credit No. _________________ (the "LETTER OF CREDIT";
capitalized terms control herein are used as defined or otherwise referenced in
the Letter of Credit) issued by the Letter of Credit Banks and _____________ in
favor of the Liquidity Agent that:
(a) The aggregate amount demanded hereby is $_____________.
(b) The amount demanded hereby is the L/C Draw Amount under the
Liquidity Agreement and has been calculated in accordance with the terms and
conditions thereof.
(c) The stated Fixed Expiry Date is ___________, ______, which is not
before the date of presentation of this Demand for Payment.
(d) The amount hereby demanded does not exceed the Letter of Credit
Amount.
(e) The specific portion of the aggregate amount demanded hereunder
and required to be paid by each Bank is as follows:
<TABLE>
<CAPTION>
Bank Percentage Liability Amount
---- -------------------- ------
<S> <C> <C>
% $
</TABLE>
THE FIRST NATIONAL BANK OF
CHICAGO, as Liquidity Agent
By:
-----------------------------
Title:
<PAGE>
ANNEX B TO
LETTER OF CREDIT
FORM OF TRANSFER LETTER
[Letterhead of Liquidity Agent]
[Date]
The First National Bank of Chicago
Chicago, Illinois 60670
Attention: Letter of Credit Department
Re: Transfer of Irrevocable Letter of Credit No. _________, Dated ______,_____
Ladies and Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably
transfers to:
_________________________________________
(Name of Transferee)
_________________________________________
(Address)
as successor Liquidity Agent under the Liquidity Agreement (as defined in the
above-referenced Letter of Credit) all rights of the undersigned beneficiary to
draw under the above-referenced Letter of Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in such
Letter of Credit are transferred to the transferee and the transferee shall have
the sole rights as beneficiary thereof, including sole rights relating to any
amendments, whether increases or extensions, or other amendments and whether now
existing or hereafter made. All amendments are to be advised directly to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
The original Letter of Credit (and any amendments thereto) is returned
herewith, and we ask you to endorse the transfer on the reference thereof, and
forward it directly to the transferee with your customary notice of transfer.
Very truly yours,
------------------------------
as Liquidity Agent
By:
---------------------------
<PAGE>
[LETTERHEAD]
IRREVOCABLE LETTER OF CREDIT
DATE: APRIL 24, 1998
LETTER OF CREDIT NO. 00324674
TO: THE FIRST NATIONAL BANK OF CHICAGO, AS LIQUIDITY AGENT
ATTENTION: MIKE KRUSHENA
LADIES AND GENTLEMEN:
AT THE REQUEST AND ON THE INSTRUCTIONS OF OUR CUSTOMER, INTERNATIONAL
SECURITIZATION CORPORATION (THE "COMPANY"), THE FIRST NATIONAL BANK OF
CHICAGO (HEREIN REFERRED TO AS THE "BANK") HEREBY ESTABLISHES IN YOUR FAVOR,
PURSUANT TO THAT CERTAIN LETTER OF CREDIT REIMBURSEMENT AGREEMENT, DATED AS
OF APRIL 24, 1998, (THE "LETTER OF CREDIT REIMBURSEMENT AGREEMENT") BETWEEN
INTERNATIONAL SECURITIZATION CORPORATION ("ISC") AND THE BANK, THIS
IRREVOCABLE LETTER OF CREDIT IN THE AMOUNT OF U.S. DOLLARS 50,000,000.00
(FIFTY MILLION AND NO/100 U.S. DOLLARS) (THE "LETTER OF CREDIT AMOUNT")
EFFECTIVE IMMEDIATELY AND EXPIRING AT THE CLOSE OF BUSINESS AT THE CHICAGO
OFFICE OF THE BANK ON JULY 21, 1999, WHICH DATE MAY EXTEND (BY AMENDMENT TO
THIS LETTER OF CREDIT IN A FORM APPROVED BY THE COMPANY AND THE BANK) FOR ONE
OR MORE ADDITIONAL PERIODS OF 364 DAYS FROM TIME TO TIME UPON THE REQUEST OF
THE COMPANY AND AT THE DIRECTION OF THE BANK (AS SO EXTENDED, THE LETTER OF
CREDIT EXPIRATION DATE"). THIS LETTER OF CREDIT IS ISSUED TO THE LIQUIDITY
AGENT, AS CONTEMPLATED BY THAT CERTAIN LIQUIDITY AGREEMENT DATED AS OF APRIL
24, 1998, AMONG THE LIQUIDITY AGENT, THE LIQUIDITY BANKS PARTIES THERETO AND
ISC (AS THE SAME MAY BE AMENDED OR MODIFIED, THE "LIQUIDITY AGREEMENT").
FUNDS UNDER THIS LETTER OF CREDIT SHALL BE MADE AVAILABLE BY A SINGLE DRAWING
ONLY AND UPON HONORING SUCH DRAWING THIS LETTER OF CREDIT AND THE BANK'S
LIABILITY HEREUNDER SHALL TERMINATE.
WE HEREBY IRREVOCABLY AUTHORIZE YOU TO DRAW ON US BY PRESENTATION SOLELY TO
US IN ACCORDANCE WITH THE TERMS AND CONDITIONS HEREUNDER SET FORTH, BY YOUR
DEMAND FOR PAYMENT IN THE FORM OF ANNEX A HERETO (A "DEMAND FOR PAYMENT") ON
YOUR LETTERHEAD WITH ALL BLANKS APPROPRIATELY FILLED IN AND SIGNED BY YOUR
AUTHORIZED OFFICER, AN AMOUNT NOT TO EXCEED THE LETTER OF CREDIT AMOUNT.
SUBJECT TO THE FOREGOING AND FURTHER PROVISIONS OF THIS LETTER OF CREDIT,
FUNDS UNDER THIS LETTER OF CREDIT ARE AVAILABLE TO YOU AGAINST YOUR
PRESENTATION OF A DEMAND FOR PAYMENT WHICH SHALL BE MADE BY HAND DELIVERY OR
TELECOPY AT OUR OFFICE LOCATED AT 300 S. RIVERSIDE, 7TH FLOOR, CHICAGO, IL.
60606 SUITE 0812. TELECOPIER NUMBER 312-954-0203, ATTN: LETTER OF CREDIT
DEPARTMENT, OR AT SUCH OTHER TIME AND PLACE WHICH MAY BE DESIGNATED BY US BY
WRITTEN NOTICE DELIVERED TO YOU.
THE BANK HEREBY ENGAGES WITH YOU THAT TO THE EXTENT OF ITS LIABILITY AS
PROVIDED HEREIN, THE SINGLE DEMAND FOR PAYMENT MADE UNDER AND IN COMPLIANCE
WITH THE TERMS OF THIS LETTER OF CREDIT WILL BE DULY HONORED BY THE BANK TO
THE EXTENT OF THE LETTER OF CREDIT AMOUNT UPON DELIVERY
(CONTINUED) PAGE 1
<PAGE>
[LETTERHEAD]
OUR REF NO. 00324674 DATE: APRIL 24, 1998
OR TRANSMISSION OF THE DEMAND FOR PAYMENT AS SPECIFIED AT OUR OFFICE ON OR
BEFORE THE EXPIRATION OR TERMINATION DATE HEREOF. IF A DRAWING IS MADE
HEREUNDER AT OR PRIOR TO 5.00 P.M., CHICAGO TIME, ON A BUSINESS DAY, AND
PROVIDED THAT SUCH DRAWING AND THE DOCUMENTS PRESENTED IN CONNECTION
THEREWITH CONFORM TO THE TERMS AND CONDITIONS HEREOF, PAYMENT SHALL BE MADE
OF THE AMOUNT SPECIFIED IN IMMEDIATELY AVAILABLE FUNDS, NO LATER THAN
1:00 P.M., CHICAGO TIME, ON THE THIRD BUSINESS DAY (THE "PAYMENT DATE")
FOLLOWING SUCH PRESENTATION IN THE DEMAND FOR PAYMENT; PROVIDED, HOWEVER,
THAT THE PAYMENT DATE SHALL BE NO LATER THAN THE STATED TERMINATION DATE.
PAYMENT UNDER THIS LETTER OF CREDIT SHALL BE MADE BY THE BANK BY WIRE
TRANSFER OF IMMEDIATELY AVAILABLE FUNDS, TO THE FIRST NATIONAL BANK OF
CHICAGO, A.B.A. NO. 071000013 REF: 00324674. SUCH ACCOUNT MAY BE CHANGED ONLY
BY PRESENTATION TO US OF A LETTER SPECIFYING A DIFFERENT ACCOUNT WITH THE
LIQUIDITY AGENT AND EXECUTED BY THE LIQUIDITY AGENT. AS USED IN THIS LETTER
OF CREDIT "BUSINESS DAY" SHALL MEAN ANY DAY ON WHICH BANKS GENERALLY LOCATED
IN CHICAGO, ILLINOIS AND IN THE JURISDICTION IN WHICH THE PRINCIPAL OFFICE OF
THE LIQUIDITY AGENT IS LOCATED ARE NOT REQUIRED OR AUTHORIZED BY LAW TO
REMAIN CLOSED. THE BANK SHALL HONOR ITS OBLIGATIONS HEREUNDER BY TRANSFER OF
ITS OWN FUNDS. UNLESS WE ARE IN DEFAULT WITH RESPECT TO OUR OBLIGATIONS UNDER
THIS LETTER OF CREDIT, YOU SHALL SURRENDER THIS LETTER OF CREDIT TO US
PROMPTLY FOLLOWING OUR REQUEST THEREFORE AFTER THE STATED TERMINATION DATE.
ONLY THE LIQUIDITY AGENT MAY MAKE A DEMAND FOR PAYMENT UNDER THIS LETTER OF
CREDIT. UPON PAYMENT AS PROVIDED HEREIN OF THE AMOUNT SPECIFIED IN A DEMAND
FOR PAYMENT HEREUNDER, WE SHALL BE FULLY DISCHARGED OF OUR OBLIGATION UNDER
THIS LETTER OF CREDIT.
DEMAND FOR PAYMENT HEREUNDER SHALL NOT EXCEED THE LETTER OF CREDIT AMOUNT.
THIS LETTER OF CREDIT SHALL BE GOVERNED BY AND SHALL BE DEEMED A CONTRACT
UNDER AND BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS,
INCLUDING, WITHOUT LIMITATION, ARTICLE 5 OF THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS. UNLESS OTHERWISE SPECIFIED HEREIN, COMMUNICATIONS WITH RESPECT TO
THIS LETTER OF CREDIT SHALL BE IN WRITING ON YOUR LETTERHEAD AND SHALL BE
DIRECTED TO US AT 300 S. RIVERSIDE, 7TH FLOOR, CHICAGO, IL. 60606, TELECOPIER
NUMBER: 312-954-0203, ATTENTION LETTER OF CREDIT DEPARTMENT, SPECIFICALLY
REFERRING THEREON TO THIS LETTER OF CREDIT BY NUMBER. ANY COMMUNICATION TO
THAT IS MADE BY TELECOPIER AS PERMITTED HEREBY SHALL BE CONFIRMED BY SAME DAY
MAIL IN WRITING DELIVERED TO US AT OUR ADDRESS AS SET FORTH HEREIN, PROVIDED
THAT FAILURE TO PROVIDE SUCH WRITTEN CONFIRMATION SHALL NOT AFFECT THE
VALIDITY OF SUCH NOTICE BY TELECOPIER.
YOU MAY TRANSFER YOUR RIGHTS UNDER THIS LETTER OF CREDIT IN THEIR ENTIRETY
(BUT NOT IN PART) TO ANY TRANSFEREE WHO HAS SUCCEEDED TO YOU AS LIQUIDITY
AGENT UNDER THE LIQUIDITY AGREEMENT AND SUCH TRANSFERRED RIGHTS MAY BE
SUCCESSIVELY TRANSFERRED. TRANSFER OF YOUR RIGHTS UNDER THIS LETTER OF CREDIT
TO ANY SUCH TRANSFEREE SHALL BE EFFECTED UPON THE
(CONTINUED) PAGE 2
<PAGE>
[LETTERHEAD]
OUR REF NO. 00324674 DATE: APRIL 24, 1998
PRESENTATION TO THE BANK OF THIS LETTER OF CREDIT ACCOMPANIED BY A TRANSFER
LETTER IN THE FORM ATTACHED HERETO AS ANNEX B.
THIS LETTER OF CREDIT SETS FORTH IN FULL OUR UNDERTAKING, AND SUCH
UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED, AMPLIFIED OR LIMITED
BY REFERENCE TO ANY DOCUMENT, INSTRUMENT OR AGREEMENT REFERRED TO HEREIN
(INCLUDING, WITHOUT LIMITATION, THE LIQUIDITY AGREEMENT), EXCEPT ONLY THE
CERTIFICATES AND LETTERS REFERRED TO HEREIN; AND NO SUCH REFERENCE SHALL BE
DEEMED TO INCORPORATE HEREIN BY REFERENCE ANY DOCUMENT, INSTRUMENT OR
AGREEMENT.
VERY TRULY YOURS,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /s/ Nicolas Pizzonia Jr. #7566
-------------------------------
NAME: NICOLAS PIZZONIA JR.
TITLE: OPERATIONS OFFICER
BY: /s/ W. Mark Klatt #6536
-------------------------------
NAME: W. MARK KLATT
TITLE: OPERATIONS OFFICER
(CONTINUED) PAGE 3
<PAGE>
[LETTERHEAD]
OUR REF NO. 00324674 DATE: APRIL 24, 1998
ANNEX A
TO
LETTER OF CREDIT NO. 00324674
THE FIRST NATIONAL BANK OF CHICAGO
500 S. RIVERSIDE, 7TH FLOOR
SUITE 0812
CHICAGO, IL. 60606
[DATE]
RE: LETTER OF CREDIT NO. 00324674
THE UNDERSIGNED, A DULY AUTHORIZED OFFICER OF THE FIRST NATIONAL BANK OF
CHICAGO, AS LIQUIDITY AGENT HEREBY CERTIFIES TO THE FIRST NATIONAL BANK OF
CHICAGO, (THE "LETTER OF CREDIT BANK"), WITH REFERENCE TO IRREVOCABLE LETTER
OF CREDIT NO. 00324674 (THE "LETTER OF CREDIT"), ISSUED BY THE LETTER OF
CREDIT BANK IN FAVOR OF THE LIQUIDITY AGENT; CAPITALIZED TERMS CONTAINED
HEREIN ARE USED AS DEFINED OR OTHERWISE REFERENCED IN THE LETTER OF CREDIT
THAT:
A. THE AGGREGATE AMOUNT DEMANDED HEREBY IS $_____________________.
B. THE LETTER OF CREDIT EXPIRATION DATE IS ___________________, _____,
WHICH IS NOT BEFORE THE DATE OF PRESENTATION OF THIS DEMAND FOR PAYMENT.
C. THE AMOUNT HEREBY DEMANDED DOES NOT EXCEED THE LETTER OF CREDIT AMOUNT.
D. UPON HONORING OF THE DEMAND FOR PAYMENT MADE HEREBY, THE LETTER OF CREDIT
SHALL AUTOMATICALLY TERMINATE AND NO FURTHER AMOUNTS MAY BE DRAWN THEREUNDER.
THE FIRST NATIONAL BANK OF CHICAGO,
BY: ____________________________
AUTHORIZED SIGNATORY
(CONTINUED) PAGE 4
<PAGE>
[LETTERHEAD]
OUR REF NO. 00324674 DATE: APRIL 24, 1998
ANNEX B TO
THE FIRST NATIONAL BANK OF CHICAGO
(LOC. NO. 00324674)
[LETTERHEAD OF LIQUIDITY AGENTS]
[DATE]
FIRST NATIONAL BANK OF CHICAGO
300 S. RIVERSIDE, 7TH FLOOR
SUITE, 0812
CHICAGO, ILLINOIS 60606
ATTENTION: LETTER OF CREDIT DEPARTMENT
RE: TRANSFER OF IRREVOCABLE LETTER OF CREDIT NO. 00324674
DATED APRIL 24, 1998
LADIES AND GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS
TO:
____________________
(NAME OF TRANSFEREE)
____________________
(ADDRESS)
AS SUCCESSOR FUNDING AGENT UNDER THE LIQUIDITY AGREEMENT (AS DEFINED IN THE
ABOVE-REFERENCED LETTER OF CREDIT) ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY
TO DRAW UNDER THE ABOVE-REFERENCED LETTER OF CREDIT IN ITS ENTIRETY.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF
CREDIT ARE TRANSFERRED TO THE TRANSFEREE AND THE TRANSFEREE SHALL HAVE THE
SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY
AMENDMENTS, WHETHER INCREASES OR EXTENSIONS, OR OTHER AMENDMENTS AND WHETHER
NOW EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECTLY TO
THE TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE
UNDERSIGNED BENEFICIARY.
THE ORIGINAL LETTER OF CREDIT (AND ANY AMENDMENTS THERETO) IS RETURNED
HEREWITH, AND WE ASK YOU TO ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND
FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
VERY TRULY YOURS,
THE FIRST NATIONAL BANK OF CHICAGO,
AS LIQUIDITY AGENT
BY:____________________________
AUTHORIZED SIGNER
PAGE 5
<PAGE>
312 CERTIFICATE COMPANY
$500,000,000 INSTALLMENT FACE AMOUNT CERTIFICATE
APRIL 24, 1998
312 Certificate Company, a corporation duly organized and existing under
the laws of the State of Delaware (the "Issuer"), shall pay to The First
National Bank of Chicago, as agent (the "Agent") for International
Securitization Corporation ("ISC") and any subsequent entity which, in the
future purchases an interest in this installment face amount certificate
(this "Certificate") pursuant to the Liquidity Agreement (collectively, ISC
and such future potential purchasers are hereinafter referred to as the
"Certificateholders") the principal amount of $500,000,000, or, if less, the
aggregate unpaid principal amount of all installment purchase payments made
by the Certificateholders from time to time (the "Invested Amount"), and to
pay interest on the Invested Amount as more fully set forth in that certain
Face Amount Certificate Agreement dated as of April 23, 1998, among the
Issuer, ISC and the Agent (as amended, restated, supplemented or otherwise
modified from time to time, the "Face Amount Certificate Agreement").
This Certificate is issued pursuant to the Face Amount Certificate
Agreement. Reference is hereby made to the Face Amount Certificate Agreement
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Issuer, the Agent and the Certificateholders and
the terms upon which this Certificate is delivered. All terms used in this
Certificate which are not defined herein shall have the meanings assigned to
them in the Face Amount Certificate Agreement. The provisions of the Face
Amount Certificate Agreement are hereby incorporated by reference herein and
shall be binding on the Issuer, the Agent and the Certificateholders as if
fully set forth herein. As provided in the Face Amount Certificate Agreement,
this Certificate is secured by the Pledged Collateral. To the extent provided
in the Face Amount Certificate Agreement and the Pledge Agreement, the
Certificateholders (and the Agent on their behalf) shall be entitled to the
benefits of a security interest in the Pledged Collateral, for the benefit of
the Certificateholders.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE IS SUBJECT TO PREPAYMENT AND/OR
REDEMPTION PRIOR TO ITS STATED MATURITY AS SET FORTH IN THE FACE AMOUNT
CERTIFICATE AGREEMENT.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "'33 ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA (THE
"BLUE SKY LAWS"). THE HOLDER HEREOF, BY PURCHASING THIS INSTALLMENT FACE
AMOUNT CERTIFICATE OR ANY INTEREST HEREIN (THE "INTEREST"), REPRESENTS THAT
IT IS AN "ACCREDITED INVESTOR" AS THAT TERM IS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE '33 ACT AND AGREES THAT SUCH INTEREST WILL ONLY BE
OFFERED, RESOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN COMPLIANCE
WITH THE '33 ACT, THE APPLICABLE BLUE SKY LAWS AND THE RESTRICTIONS SET FORTH
IN THE FACE AMOUNT CERTIFICATE AGREEMENT. THIS FACE AMOUNT CERTIFICATE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ILLINOIS, WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed as of the date first above-written.
Dated: April 24, 1998 312 CERTIFICATE COMPANY
By: /s/ Robert L. Maddox, III
---------------------------
Name: Robert L. Maddox, III
Title: President
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
This INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated as of
the 24th day of April, 1998, is made by and 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).
Capitalized terms used herein which are not otherwise defined herein shall have
the meanings assigned to such terms in the Face Amount Certificate Agreement (as
such term is defined below).
WHEREAS,
A. Pursuant to the Face Amount Certificate Agreement of even date
herewith (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "Face Amount Certificate Agreement"), among the
Issuer, International Securitization Corporation, a Delaware corporation
("ISC"), and the Agent, the Agent has acquired a $500,000,000 Installment Face
Amount Certificate of even date herewith (as amended, substituted or replaced
from time to time, the "Face Amount Certificate") issued by the Issuer in favor
of the Agent for the benefit of ISC and certain financial institutions
("Liquidity Banks") from time to time party to that certain Liquidity Agreement
dated as of even date herewith, among The First National Bank of Chicago, as the
"Liquidity Agent" thereunder, ISC and such Liquidity Banks (ISC and such
Liquidity Banks being referred to herein collectively as the
"Certificateholders").
B. The proceeds of the sale of the Face Amount Certificate will be
deposited in an account (the "Custodial Account") held with an independent,
third-party custodian mutually agreed upon by the parties hereto 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
a set of investment guidelines attached hereto as EXHIBIT A (the "Investment
Guidelines") and agreed upon between the Issuer and the Certificateholders.
C. The Issuer desires to appoint the Portfolio Manager to manage the
securities and other investments now or hereafter owned by the Issuer including,
without limitation, those held in the Custodial Account (the "Portfolio"), and
has directed the Custodian to respond to the investment instructions of the
Portfolio Manager. The Portfolio Manager desires to serve as investment manager
with respect to the Portfolio, and the Certificateholders desire to ensure that
the Portfolio is managed pursuant to the investment guidelines agreed upon
between the Issuer and the Certificateholders.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Issuer, the Portfolio Manager
and the Agent do hereby agree as follows:
<PAGE>
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"DEFAULTED SECURITY" means a Security: (i) as to which the Obligor
thereof has taken any action, or suffered any event to occur, of the type
constituting an Insolvency Event, or (ii) as to which any other event has
occurred and is continuing which has caused, the acceleration of the maturity of
all or a portion of the principal of such Security, or which otherwise entitles,
or with the giving of notice or the passage of time or both could entitle, the
holder or holders of such Security to take actions for the enforcement of such
Security or any collateral or security therefor.
"ELIGIBLE SECURITY" means a Security:
(i) which is payable only in the United States (except for Eurodollar
Perpetual Floating Rate Securities), and is denominated only in U.S.
Dollars;
(ii) with respect to which (x) no Obligor thereunder is an Obligor on
a Defaulted Security; (y) no Obligor thereunder is an affiliate of the
Parent or any Transaction-Related Party; and (z) each Obligor thereunder is
incorporated or organized under the laws of the United States or any state
thereof or under the laws of an Organization for Economic Cooperation and
Development country;
(iii) which is scheduled to be paid in full on or prior to the 30th
anniversary of its issuance or is a Eurodollar Perpetual Floating Rate
Security rated NAIC 1 by the National Association of Insurance
Commissioners whose base level index resets at least semiannually;
(iv) which is rated by any of Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or the National Association of Insurance
Commissioners;
(v) with respect to which any payments of interest made to the Issuer
thereon are not subject to any taxes, levies, imposts, deductions, charges
or withholdings imposed by any governmental authority of any jurisdiction
(other than taxes imposed on or measured by the net income or overall gross
receipts, capital and franchise taxes attributable to the Issuer);
(vi) which is not a Security (a) with respect to which any related
Obligor is primarily engaged in the building, real estate, land development
or real estate investment trust industries, or except as otherwise
permitted in the Investment Guidelines, (b) which is principally secured by
a lien upon real estate, and either (x) does not provide for recourse to
the general assets of the related Obligor for the repayment of such
Security, or (y) such real estate constitutes all or substantially all of
the assets of the related Obligor;
-2-
<PAGE>
(vii) which, at the time of the Issuer's acquisition of such Security,
is not being redeemed pursuant to its terms;
(viii) which is not by its terms convertible into or exchangeable for,
or secured by, any capital stock, equity security or interest in the equity
of a entity, or any warrant, option, right or other agreement pursuant to
which any such capital stock, equity security or interest can be acquired,
whether or not actually evidenced by a security;
(ix) as to which, at the time of the Issuer's acquisition of such
Security, the Issuer will have good and marketable title to such Security,
free and clear from liens except as created under the Pledge Agreement, and
which has been the subject of the grant under the Pledge Agreement of a
first priority perfected "security interest" (within the meaning of the
Uniform Commercial Code of the jurisdiction the law of which governs the
perfection of the security interest in such Security created by the Pledge
Agreement) therein (and in the proceeds thereof);
(x) which is not a Defaulted Security;
(xi) which will at all times be the bona fide, legal and assignable
payment obligation of the Obligor of such Security, and with respect to
which each instrument, document or agreement evidencing such Security will
at all times be the bona fide, legal and assignable obligation of the
Obligor (including any guarantor of the primary Obligor) of such Security,
in each case enforceable against such Obligor in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws 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);
(xii) which complies in all material respects with all material
requirements of the Investment Guidelines;
(xiii) which is either an "instrument", a "certificated security" or a
"security entitlement" (in each case within the meaning of Sections 9-105,
9-106 and/or 9-115 of the Uniform Commercial Code; and if an instrument or
a certificated security, only one original thereof exists, which has been
or will be delivered to the Custodian pursuant to the Pledge Agreement;
(xiv) which is not subject to any enforceable provision prohibiting
the transfer, sale or assignment to, or by, the Issuer of such payment
obligation;
(xv) as to which the Agent has not notified the Portfolio Manager that
the Agent has determined that such Security is not acceptable in its
reasonable judgment as an Eligible Security;
-3-
<PAGE>
(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 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 or other leveraged/speculative
derivative.
"EURODOLLAR PERPETUAL FLOATING RATE SECURITY" means a security which
pays interest and principal in U.S. Dollars held in banks outside the U.S. and
which either has no stated maturity or a maturity date so distant in the future
such that it effectively pays interest indefinitely and with respect to which
the coupon payments reset periodically typically as specified by a short-term
interest index plus a spread.
"FAIR MARKET VALUE" means, with respect to any Security or Short-Term
Investment, at any date, (i) if quotations are then available, the price of such
Security or Short-Term Investment on the preceding Business Day, as calculated
based on any regularly published reporting or quotation service, or (ii) if
quotations are not then available, the market value of such Security or
Short-Term Investment, as determined by the Portfolio Manager in good faith,
based on its standard valuation procedures acceptable to the Agent in its
reasonable discretion, but exclusive of the portion of such price or valuation
attributable to the accrued interest or discount with respect to such Security
or Short-Term Investment as of such date.
"INSOLVENCY EVENT" shall mean, with respect to a specified person or
entity, the occurrence of any of the following events: (a) such person or entity
is wound up or dissolved or there is appointed over it or a substantial part of
its assets a receiver, administrator, administrative receiver, trustee or
similar officer; or (b) such person or entity (i) ceases to be able to, or
admits in writing its inability to, pay its debts as they become due and
payable, or makes a general assignment for the benefit of, or enters into any
legal composition or arrangement with, its creditors generally; (ii) applies for
or consents (by admission of material allegations of a petition or otherwise) to
the appointment of a receiver, trustee, assignee (other than the Agent),
custodian (other than the Custodian), liquidator or sequestrator (or other
similar official) of such person or entity or of any substantial part of its
properties or assets, or authorizes such an application or consent, or
proceedings seeking such appointment are commenced without such authorization,
consent or application against such person or entity and continue undismissed
for 60 days or any such appointment is ordered by a court or regulatory body
having jurisdiction; (iii) authorizes or files a voluntary petition in
bankruptcy, or applies for or consents (by admission of material allegations of
a petition or otherwise) to the application of any bankruptcy, insolvency or
similar law, or authorizes such application or consent, or proceedings to such
end are instituted against such person or entity without such authorization,
application or consent and remain undismissed for 60 days or result in
adjudication of bankruptcy or insolvency or the issuance of an order for
relief; or (iv) permits or suffers all or any substantial part of its
properties or assets to be
-4-
<PAGE>
sequestered or attached by court order and the order (if contested in good
faith) remains undismissed for 60 days.
"INSTRUMENT" means an instrument (including, without limitation, a
promissory note) or certificated security, as each such term is defined in the
Uniform Commercial Code of any applicable jurisdiction.
"OBLIGOR" shall mean, with respect to any Security, each person or
entity which is obligated to make payments with respect to such Security,
including any guarantor of such person or entity's obligations.
"SECURITY" means indebtedness constituting a debenture, bond, note,
security entitlement, certificated security or other Instrument or evidence of
indebtedness issued by an Obligor or Obligors, other than a line of credit or a
loan.
"SHORT-TERM INVESTMENTS" means the short-term interest bearing and
short-term discount obligations held by the Issuer from time to time in the
Custodial Account pursuant to Section 6 of the Custodial Agreement.
"SHORTFALL 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.
"SURPLUS AMOUNT" means, on any date, the positive difference, if any,
of (i) 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, MINUS (ii) the outstanding Invested Amount on such date.
"SWAP EVENT" means the occurrence of any one or more of the following:
(a) the Swap Provider shall have voluntarily commenced any proceeding or filed
any petition under any bankruptcy, insolvency or similar law seeking the
dissolutions, liquidation or reorganization of the Swap Provider, (b)
involuntary proceedings or an involuntary petition shall have been commenced or
filed against the Swap Provider by any person or entity under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or reorganization
of the Swap Provider or an order of relief shall have been entered or such
proceeding or petition shall not have been dismissed within sixty (60) days, or
(c) the Swap Provider (i) shall fail to make any payment or deposit when due
under the Swap Agreement or (ii) shall fail to perform or shall breach any
covenant or any other agreement under the Swap Agreement and such failure to
perform or breach is not cured within five Business Days, such period to begin
at the time at which the Swap Provider knew, or reasonably should have known, of
such breach or failure to perform.
-5-
<PAGE>
2. APPOINTMENT AND AUTHORITY OF THE PORTFOLIO MANAGER.
(a) APPOINTMENT. The Issuer hereby appoints the Portfolio Manager,
the 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 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 of 1933, as amended, and a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act and that the Issuer shall promptly inform the Portfolio Manager 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 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.
-6-
<PAGE>
(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
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 in accordance with this Agreement and the other
Transaction Documents or for the termination, cancellation, offsetting or
assignment of the Swap Agreement;
(iv) holding, maintaining and preserving records with respect to
acquisitions of, or investments in, sales or divestitures of, and
distributions and payments in connection with, Securities and Short-Term
Investments and with respect to the Swap Agreement; and
(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 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.
-7-
<PAGE>
(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 or (ii) any provision of the
Certificate of Incorporation or Bylaws of the Issuer, (b) take any action that
would cause the Issuer to become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended, (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 any agreement which, in the
reasonable judgment of the Portfolio Manager, the Issuer would not reasonably be
able to satisfy or perform.
(h) ATTORNEY-IN-FACT; LIMITATIONS ON AUTHORITY OF THE PORTFOLIO
MANAGER AS ATTORNEY-IN-FACT; AUTHORITY WITH RESPECT TO BANK ACCOUNTS; NATURE OF
SERVICES. (i) Subject to clause (ii) of this clause (h), the Issuer hereby
irrevocably appoints the Portfolio Manager as the Issuer's attorney-in-fact,
with full authority in the place and stead of the Issuer and in the name of the
Issuer or otherwise, from time to time in the Portfolio Manager's discretion,
but subject to the direction of the Issuer, to take such actions on behalf of
the Issuer as may be necessary or advisable for purposes of the administration
and management of the operations of the Issuer, and the right to ask, demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due in connection therewith and to receive,
endorse, and collect any drafts or other instruments, documents and chattel
paper in connection therewith, and to file any claims or take any action or
institute any proceedings which may be necessary or desirable for the collection
thereof or to enforce compliance with the terms and conditions of any of such
documents, instruments and agreements.
(ii) Anything in clause (i) of this clause (h) or elsewhere in this
Agreement to the contrary notwithstanding, the Portfolio Manager is not hereby
authorized to execute on behalf of or as attorney-in-fact for the Issuer any
Transaction Document, or any amendment, modification or waiver to or under any
Transaction Document.
(iii) The Issuer authorizes the Portfolio Manager to transfer and
deposit funds of the Issuer to and in such bank accounts including, without
limitation, the Custodial Account, as may be established in the name of the
Issuer.
3. CUSTODY. All transactions with respect to assets in the Portfolio
shall be carried out through the Custodian or such other custodian(s) as the
Issuer and the Agent 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 the
-8-
<PAGE>
Agent shall have no 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 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.
4. DELEGATION; APPOINTMENT OF ARM CAPITAL ADVISORS, LLC. The
Portfolio Manager shall be permitted to perform its services hereunder through
any of its officers or through any agents selected by it, PROVIDED, that such
agents shall be approved in writing by the Agent from time to time. 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. The Agent hereby consents to the appointment of ARM Capital Advisors,
LLC, a Delaware limited liability company ("ARM Capital"), as exclusive
investment sub-Portfolio Manager to the Portfolio pursuant to the terms of that
certain Investment Portfolio Manager Agreement between the Portfolio Manager and
ARM Capital dated as of April 21, 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.
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:
(1) FIRST, to the extent that any amounts payable under clauses
(1) through (4) of clause (b) below remain unpaid with respect to any
Settlement Date prior to such Business Day, such Cashflow shall be
paid to the persons or entities entitled thereto in the order of
priority set forth in clauses (1) through (4) of clause (b) below; 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
-9-
<PAGE>
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 first anniversary of the commencement of the Amortization
Period, then upon the written request of the 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 Advisors, Inc., 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;
(3) to the Custodian, for the payment of accrued and unpaid fees
and expenses payable under the Custodial Agreement;
(4) 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;
(5) if such Settlement Date shall occur during the Amortization
Period or following the Agent's receipt of a Partial Amortization
Notice, to the Agent, for distribution to or for the account of the
Certificateholders for the repayment of the Invested Amount with
respect to the Face Amount Certificate until, in the case of the
Amortization Period, the Invested Amount is repaid in full, and in the
case of such period following the receipt of a Partial Amortization
Notice, the Invested Amount is reduced by the amount indicated on the
applicable Partial Amortization Notice;
(6) to the 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
-10-
<PAGE>
Certificateholder under the Face Amount Certificate Agreement or the
Face Amount Certificate;
(7) [Intentionally Omitted];
(8) 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);
(9) 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);
(10) if no Swap Event has occurred and is continuing, to the Swap
Provider, in payment of accrued and unpaid amounts owing by the Issuer
under the Swap Agreement; and
(11) 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 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 to execute, deliver and
perform its obligations under this Agreement.
(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
requires such qualification.
-11-
<PAGE>
(C) DUE AUTHORIZATION. The Portfolio Manager's execution, delivery
and performance of this Agreement and the other agreements and instruments
executed by the Portfolio Manager as contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Portfolio
Manager.
(d) ENFORCEABILITY. This Agreement 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 performance of its obligations under this Agreement do not
(i) conflict with or violate in any material respects any law 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 such 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.
(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 (ii)
seeking to prevent the consummation of any of the transactions contemplated by
this Agreement, 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.
(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.
(h) AMORTIZATION EVENT. To the best of its knowledge, no Amortization
Event has occurred or is continuing.
(i) YEAR 2000 COMPLIANCE. The Portfolio Manager has reviewed and
assessed all computer applications which are material to the Portfolio
Manager's, and its affiliates performing any of its duties hereunder, businesses
with respect to the ability of such applications
-12-
<PAGE>
to correctly recognize references to, and abbreviations of, the year 2000
(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, that such deficiencies would not materially and
adversely affect its ability to perform its obligations hereunder.
The representations and warranties set forth in this Section 6 shall
survive the issuance of the Certificate and 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 Certificate and all
the other obligations of the Issuer under the Face Amount Certificate Agreement.
Upon a discovery by the Issuer, the Portfolio Manager or the Agent 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.
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.
-13-
<PAGE>
(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 AGENT'S RIGHTS. The Portfolio Manager will take no
action pursuant hereto which would materially impair the rights of the Issuer or
the Agent 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 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 to the
Issuer and the Agent:
(i) within three Business Days after its knowledge of the
occurrence of any Amortization Event, notification of such occurrence;
(ii) within ten Business Days 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 and the Swap
Provider) prepared in accordance with generally accepted accounting
principles by certified public accountants of national standing reasonably
satisfactory to the Agent;
-14-
<PAGE>
(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 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 "Monthly Compliance Report"
with respect to the Portfolio for the most recently ended calendar month
substantially in the form attached hereto as EXHIBIT E, which report shall
demonstrate the Issuer's and the Portfolio Manager's compliance with the
Investment Guidelines and certain other restrictions set forth herein, as
of the last Business Day of such calendar month;
(viii) within three Business Days after the placement on
watchlist for downgrade, or 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, including, without limitation, the Swap Provider, notice
of such placement on the watchlist, withdrawal or reduction; and
(ix) 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
Portfolio Manager and its affiliates performing services hereunder as the
Agent 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 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 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.
-15-
<PAGE>
(i) OTHER AGREEMENTS. 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 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, has been delivered, or will be delivered, to the Agent) to the
Custodian immediately upon the acquisition of the related Security, but in no
case later than ten (10) 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 to the
Custodial Account.
(l) REPORTING. Each Weekly Report and Monthly 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, that a security interest
in the Securities and other Pledged Collateral has been granted to the Agent,
pursuant to the Pledge Agreement for the benefit of the Certificateholders.
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 endeavor 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
-16-
<PAGE>
to forward duplicate confirmations of those transactions to the Portfolio
Manager at such place and in such manner as may be designated from time to time
by the Portfolio Manager (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.
9. ALLOCATION OF INVESTMENT OPPORTUNITIES. The Issuer understands
and agrees that the Portfolio Manager performs investment management services
for various persons and entities and may take action with respect to any of such
persons or entities which may differ from any actions taken (or from the timing
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, its affiliates,
and any of their respective officers directors, employees, agents and
representatives (the "Affiliated Persons"), 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 Agent acknowledges and agrees that such Affiliated
Person will have no obligation to disclose the information to the Issuer or the
Agent or use it for the Issuer or the 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 instructions; or (iii)
any act or failure to act by the Custodian, any broker(s) or dealer(s)
engaging in
-17-
<PAGE>
transactions for the Issuer's, or any other third 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 ten (10) days of the acquisition thereof,
or (vi) the Portfolio Manager's gross negligence or willful misconduct,
EXCLUDING, HOWEVER, in each case, (1) Indemnified Amounts to the extent arising
out of or resulting from the willful misconduct or gross negligence by such
Indemnified Party or the Issuer of any of his, her or its obligations and duties
or (2) recourse for uncollectible Securities (unless such Securities are
uncollectible as a result of any breach, failure or claim described in clause
(i), (ii), (iii), (iv), (v) or (vi) above) or, (3) indemnification of the Issuer
or Indemnified Party for lost profits or for consequential, special or punitive
damages or (4) any income or franchise taxes (or any interest or penalties with
respect thereto) or other taxes on or measured by the gross or net income or
receipts of such Indemnified Party or the Issuer or any withholding taxes. The
agreements contained in this Section 11(b) shall survive the Termination Date
and the payment of all amounts due under any Transaction Document.
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 1940, as
amended) 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.
-18-
<PAGE>
(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 Agent and the Issuer. No such
resignation shall become effective until the 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 Agent 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 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. (i) 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 Agent in writing or, if no such
date is specified in such Removal Notice or otherwise specified by the Agent,
until the earlier of a date agreed upon by the Portfolio Manager and the Agent
or a date specified by the Agent in a written notice to the Portfolio Manager,
and (ii) in the case of the resignation of the Portfolio Manager, until the
Agent or a Successor Portfolio Manager shall have assumed the responsibilities
and obligations of the Portfolio Manager pursuant to this Section 13. The 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 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 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 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
Agent without further action shall automatically be appointed the Successor
Portfolio Manager. At any time after such appointment, the Agent 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 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 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 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
-19-
<PAGE>
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 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 Portfolio Manager (including, to the
extent applicable, the 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
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 Agent or its designee at a place selected
by the Successor Portfolio Manager and in such form as the Successor Portfolio
Manager or the Agent may reasonably request.
(e) RELEASE. In no event shall the appointment and acceptance of a
Successor Portfolio Manager (including the succession of the 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
-20-
<PAGE>
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 Agent shall not be liable for any acts or omissions
of any Portfolio Manager (including, without limitation, any Successor Portfolio
Manager appointed by the Agent pursuant to this Section 11) other than acts or
omissions of the 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 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 internal laws applicable to contracts made
and to be performed entirely within the State of Illinois.
(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 on the
signature pages hereof. 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.
(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,
-21-
<PAGE>
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
(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.
(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 Agent's forbearance in any particular
case shall not be a waiver as to action that may be taken by the Issuer or the
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 Agent and ISC 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.
(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 Agent or the Certificateholders by each other, (y) by
the Agent or the Certificateholders to any prospective or actual assignee or
participant of any of them or (z) by the Agent to any rating agency, commercial
paper dealer or provider of a surety, guaranty or credit or liquidity
enhancement to ISC or any entity organized for the purpose of purchasing, or
making loans secured by, financial assets for which FNBC acts as the
administrative agent and to any officers,
-22-
<PAGE>
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 Agent for the making
of such disclosures generally to persons of such type. In addition, the
Certificateholders and the 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 ISC, it will not
institute against, or join any other person or entity in instituting against,
ISC 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.
(i) JURISDICTION. THE PORTFOLIO MANAGER HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO,
ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN THE ISSUER, THE PORTFOLIO MANAGER AND THE AGENT
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO
ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS, PROVIDED, THAT THE ISSUER, THE PORTFOLIO MANAGER AND
THE AGENT ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS, AND,
PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE
TO PRECLUDE THE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
OTHER JURISDICTION TO REALIZE ON THE PLEDGED COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS OF THE ISSUER, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE AGENT. THE PORTFOLIO MANAGER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND THE PORTFOLIO MANAGER HEREBY WAIVES ANY OBJECTION WHICH
IT MAY
-23-
<PAGE>
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT. THE PORTFOLIO MANAGER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE PORTFOLIO
MANAGER AT THE ADDRESS SET FORTH IN SECTION 15(D) AND THAT SERVICE SO MADE SHALL
BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(j) WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE AGENT AND THE
PORTFOLIO MANAGER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE
OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.
(k) HEADINGS. The headings and subheadings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
(l) 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.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be entered into on the day and year first above written.
INTEGRITY CAPITAL ADVISORS, INC.
By /s/ ILLEGIBLE
--------------------------------
Title: General Counsel & Secretary
515 West Madison Street, 4th Floor
Louisville, Kentucky 40202
Facsimile: (502) 582-7995
Attention: Robert H. Scott
312 CERTIFICATE COMPANY
By /s/ William D. Morris CEO
-------------------------------- -----
Title: Chief Executive Officer
515 West Madison Street, 8th Floor
Louisville, Kentucky 40202
Facsimile: (502) 582-7903
Attention: Robert Maddox, President
-25-
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO, AS AGENT
By /s/ Eleanor C. Nadbielny
--------------------------
Title: Authorized Agent
One First National Plaza
Mail Suite 0594
Chicago, Illinois 60670-0594
Attention: Ann Marie Somers
Facsimile No.: (312) 732-4487
-26-
<PAGE>
EXHIBIT A
ARM FINANCIAL GROUP
SHORT-TERM PORTFOLIO GUIDELINES
<TABLE>
<CAPTION>
MIN./MAX/ MAX. PER MAX. PER
ASSET CLASS EXP. ISSUE ISSUER
- ----------- --------- -------- --------
<S> <C> <C> <C>
U.S. Government & Agencies 0/100% unlimited unlimited
Mortgage-backed Securities
Agency CMOs 0/50% 5% 9.5%
Non-agency CMOs (residential) 0/50% 5% 9.5%
Non-agency CMOs (commercial) (1) 0/10% 5% 9.5%
Agency Pass Throughs 0/50% 5% 9.5%
Support Tranches 0/10% 5% 9.5%
Asset-backed Securities 0/30% 5% 9.5%
Auto Loans
Credit Card Receivables
Home Equity
Manufactured Housing
Corporate Debt (2) 0/60% 5% 5%
Industrials
Telecommunications
Utilities
Banks
Finance Companies
144A Private Placements (3) 0/30% 2.5% 2.5%
Foreign Debt 0/20% 2.5% 2.5%
(U.S. Dollar Denominated only)
Non-Investment Grade Securities (4) 0/5% 1% 1%
(No lower than BB/NAIC "3" rated)
Cash and Cash Equivalents (6) 0/100% 5% 5%
Non-Speculative Hedging Instruments (5) 0/3% 1% 1%
</TABLE>
(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.
<PAGE>
Short-term Portfolio Guidelines
Page Two
GENERAL
1. The average effective duration of the portfolio cannot exceed 1.75 years.
2. The average credit quality of the portfolio cannot be less than AA/NAIC
"1".
3. The portfolio cannot contain investments in real estate, direct commercial
mortgages, common stocks, leveraged futures or other leveraged/speculative
derivatives.
4. Any derivative position must be used for hedging only and must result in
the portfolio still being in compliance with all other investment
guidelines.
<PAGE>
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
<PAGE>
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.
<PAGE>
NON-SPECULATIVE HEDGING INSTRUMENTS
Caps, floors or swaps may only be used as part of a hedging program to
explicitly manage the risk profile of the portfolio, and will only be written
against specified securities (i.e. caps/floors at lifetime maximums/minimums for
ARMs). They may not be used for speculative purposes. This does not imply that
all such security structures in the portfolio will be hedged at all times.
Credit quality of acceptable counterparties will be AA or better. Caps and
floors exposure will be calculated as the lesser of cost or market value. Swap
exposure for determining compliance with investment guideline limitations will
be calculated as the absolute value of the swap market value. Any such
derivative position will be included in the portfolio when determining
compliance with all other investment guidelines.
ADDITIONAL DEFINITIONS
Newly issued and TBA securities as well as extended settlement on purchases of
permitted securities are explicitly allowed as long as the securities involved
otherwise comply with these stated investment guidelines. Such transactions are
not considered to be forward contacts.
PROHIBITED ASSET CLASSES
The following asset classes are prohibited investments:
Interest only CMO class
Principal only CMO class
Inverse floater CMO class
Forwards*
Futures*
Options*
*Except as explicitly discussed under Permitted Asset Classes.
<PAGE>
EXHIBIT B
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;
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT C
312 Certificate Company Weekly Report
<TABLE>
<CAPTION>
<S><C>
SUMMARY INFORMATION:
Purchase Limit: $ 500,000,000 Liquidity Termination Date: 4/22/99
------------------- ----------
Weekly Period Ended: (Date] Payment Due Date, if any, to Issuer: [Date + 5
------------------- ----------
Date Due to Agent [Date + 3 Bus. Days] Bus. Days]
------------------- ----------
<CAPTION>
- --------------------------------------------------------------------------------
I. Reconciliation of Invested Amount
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
II. Reconciliation of the Portfolio's Fair Market Value (FMV)
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
[COMPLIANCE PARAGRAPH]
The First National Bank of Chicago Page 1
<PAGE>
EXHIBIT D
<TABLE>
<CAPTION>
<S><C>
312 Certificate Company Settlement Report
SUMMARY INFORMATION:
Purchase Limit: $ 500,000,000 Liquidity Termination Date: 4/22/99
------------------- ----------
Settlement Period Ended: 31-May-98 Applicable LIBOR Rate:
------------------- ----------
Date Due to Agent: [Settlement Date] Blended LIBOR Rate:
------------------- ----------
<CAPTION>
- --------------------------------------------------------------------------------
1. Reconciliation of Invested Amount
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
II. Reconciliation of the Portfolio's Fair Market Value (FMV)
- --------------------------------------------------------------------------------
<S> <C>
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.
<CAPTION>
- --------------------------------------------------------------------------------
III. Settlement Period Portfolio Book Income Determination
- --------------------------------------------------------------------------------
<S> <C>
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)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
IV. Priority Of Payments
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
V. Required Swap Payment (if any) by Swap Provider:
- --------------------------------------------------------------------------------
<S> <C>
Program Cost Subtotal - Book Income (IV.G-III.G) $0.00
Approximate LIBOR Spread (bps) (IV.H-III.H) 0.00
- --------------------------------------------------------------------------------
The First National Bank of Chicago Page 1
<PAGE>
312 Certificate Company Settlement Report
<CAPTION>
- --------------------------------------------------------------------------------
VI. Book Income Available for Distributions
- --------------------------------------------------------------------------------
<S> <C>
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.)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
VII. Portfolio Monitoring
- --------------------------------------------------------------------------------
Termination
Actual Trigger
------ -------
<S> <C> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
VIII. Payment Summary Section:
- --------------------------------------------------------------------------------
<S> <C>
A. To Issuer (IV.A+IV.F): $0.00
B. To Custodian (IV.C): $0.00
C. To Agent (IV.D+IV.E): $0.00
D. To Portfolio Manager (VI.C): $0.00
E. To Swap Provider (VI.D): $0.00
F. To Issuer or Parent, if available, at Issuer's Discretion (II.H): $0.00
- --------------------------------------------------------------------------------
</TABLE>
This Compliance Certificate is furnished pursuant to that certain Face Amount
Certificate Agreement (the "Agreement") dated as of April 24, 1998, among 312
Certificate Company (the "Issuer"), ISC (the "Certificateholder") and The
First National Bank of Chicago, 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__.
-----------------------
The First National Bank of Chicago Page 2
<PAGE>
312 Certificate Company Monthly Compliance Report
<TABLE>
<CAPTION>
<S><C>
SUMMARY INFORMATION:
Purchase Limit: $500,000,000 Liquidity Termination Date: 4/22/99
------------- -------
As of Last Day of Settlement Period: [Date]
-------------
Due to Agent on Settlement Date: [Date]
-------------
<CAPTION>
MAXIMUM ACTUAL MAXIMUM ACTUAL
MAXIMUM ACTUAL PER ISSUE PER ISSUE PER ISSUER PER ISSUER
ASSET CLASS EXPOSURE EXPOSURE EXPOSURE EXPOSURE EXPOSURE EXPOSURE
- ----------- -------- -------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government & Agencies 100% n/a n/a
Mortgage-backed Securities 5% 9.5%
Agency CMOs 50%
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%
</TABLE>
(COMPLIANCE PARAGRAPH]
The First National Bank of Chicago Page l
<PAGE>
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "AGREEMENT") dated as of
April 24, 1998, is made by 312 CERTIFICATE COMPANY, a Delaware corporation (the
"PLEDGOR"), in favor of THE FIRST NATIONAL BANK OF CHICAGO, as Agent for the
Certificateholders (as such term is defined below). Capitalized terms used
herein which are not otherwise defined herein shall have the meanings assigned
to such terms in the Face Amount Certificate Agreement (as such term is defined
below).
PRELIMINARY STATEMENTS:
A. Pursuant to the Face Amount Certificate Agreement of even date
herewith (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "FACE AMOUNT CERTIFICATE AGREEMENT"), among
the Pledgor, International Securitization Corporation, a Delaware corporation
("ISC"), and the Agent, the Agent has acquired a $500,000,000 Installment
Face Amount Certificate of even date herewith (as amended, substituted or
replaced from time to time, the "FACE AMOUNT CERTIFICATE") issued by the
Pledgor for the benefit of ISC and certain financial institutions from time
to time party to that certain Liquidity Agreement dated as of even date
herewith as "Liquidity Banks", among The First National Bank of Chicago, as
the "Liquidity Agent" thereunder, ISC and such Liquidity Banks (ISC and such
Liquidity Banks being referred to herein collectively as the
"CERTIFICATEHOLDERS").
B. The Agent and the Certificateholders have required that in
connection with the Agent's acquisition of the Face Amount Certificate for the
benefit of the Certificateholders under the Face Amount Certificate Agreement
that the Pledgor shall have made the pledge and granted the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Certificateholders to cause the Agent to acquire the Face Amount
Certificate, the Pledgor hereby agrees with the Agent as follows:
SECTION 1. PLEDGE, ASSIGNMENT AND GRANT OF SECURITY INTEREST. The
Pledgor hereby assigns, pledges and grants to the Agent, for its benefit and the
benefit of the Certificateholders, all of the Pledgor's right, title and
interest in and to the following, whether now owned or hereafter acquired (the
"PLEDGED COLLATERAL"):
(a) all personal property of the Pledgor, including, without
limitation, all "Securities" (under and as defined in the Investment
Management Agreement), the Swap Agreement and any other investment
property, loans, chattel paper, general intangibles and instruments;
<PAGE>
(b) the Custodial Account and all monies held therein and all other
monies, securities, reserves and other property now or at any time in the
possession of the Agent or its bailee, agent or custodian, including,
without limitation, the Custodian, and relating to any of the foregoing;
and
(c) all proceeds, products, rents and profits of the foregoing,
including, without limitation, all interest, dividends, monies,
instruments, securities and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of the foregoing.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all obligations of the Pledgor now or hereafter existing under the
Face Amount Certificate and the Face Amount Certificate Agreement, whether for
principal, interest, fees, expenses or otherwise, and all obligations of the
Pledgor now or hereafter existing under this Agreement (all such obligations of
the Pledgor being the "OBLIGATIONS"). Without limiting the generality of the
foregoing, this Agreement secures the payment of all amounts which constitute
part of the Obligations and would be owed by the Pledgor to the Agent or any
Certificateholder under the Face Amount Certificate and the Face Amount
Certificate Agreement but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Pledgor.
SECTION 3. PLEDGOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable under the contracts and
agreements included in the Pledged Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Agent of any of
the rights hereunder shall not release the Pledgor from any of its duties or
obligations under the contracts and agreements included in the Pledged
Collateral and (c) the Agent shall have no obligation or liability under the
contracts and agreements included in the Pledged Collateral by reason of this
Agreement, nor shall the Agent be obligated to perform any of the obligations or
duties of the Pledgor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
SECTION 4. DELIVERY; TRANSFER OF PLEDGED COLLATERAL. The Issuer shall
cause, or direct the Portfolio Manager to cause, all instruments, chattel paper
and certificated securities representing or evidencing any Pledged Collateral to
be delivered to, and held by, the Custodian on behalf of the Agent and, in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Agent. Notwithstanding the preceding sentence, the Issuer
shall deliver the Swap Agreement directly to the Agent on the date hereof
Following the occurrence of (i) a Liquidation Event or (ii) the first
anniversary of the start of the Amortization Period, the Agent shall have the
right, at any time in its discretion and without notice to the Pledgor, to
deliver to the Custodian a "Notice of Exclusive Control" (under and as defined
in the Control Agreement of even date herewith among the Agent, the Issuer and
the Custodian, as amended from time to time, the "Control
-2-
<PAGE>
Agreement") stating that the Agent is exercising exclusive control over the
Account. Following delivery of such notice, neither the Pledgor nor the
Portfolio Manager (i) shall issue any entitlement orders to the Custodian
withdrawing any financial assets from the Custodial Account or (ii) accept
delivery of any such financial assets including, without limitation, any
instruments, chattel paper or certificated securities or any free credit balance
or other amount owing from the Custodian to the Issuer with respect to the
Custodial Account.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants as follows:
(a) The Pledgor's chief place of business, chief executive office and
registered agent for service of process within the Commonwealth of Kentucky, and
the office where it keeps its records concerning the Pledged Collateral, are
located at its address specified in SECTION 15.
(b) The Pledgor is the legal and beneficial owner of the Pledged
Collateral free and clear of any lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Agreement. No effective financing statement or other document similar in
effect covering all or any part of the Pledged Collateral is on file in any
recording office except such as may have been filed in favor of the Agent
relating to this Agreement. The Pledgor's legal name is set forth on the
first page of this Agreement. The Pledgor has no trade names.
(c) This Agreement and the pledge and assignment of the Pledged
Collateral pursuant hereto and the execution and delivery of the Control
Agreement create a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Obligations, and all filings and
other actions necessary or desirable to perfect and protect such security
interest have been duly taken.
(d) No consent of any other person or entity and no authorization,
approval or other action by, and no notice to or filing with, any governmental
agency, division or regulatory body which has not yet been obtained is required
(i) for the pledge and assignment by the Pledgor of the Pledged Collateral
pursuant to this Agreement, for the grant by the Pledgor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by the Pledgor, (ii) for the perfection or maintenance of the pledge,
assignment and security interest created hereby (including the first priority
nature of such pledge, assignment and security interest) or (iii) for the
exercise by the Agent of the rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Agreement.
(e) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
-3-
<PAGE>
(f) The Pledgor has, independently and without reliance upon the Agent
and based on such documents and information as it has deemed appropriate, made
its own decision to enter into this Agreement.
SECTION 6. FURTHER ASSURANCES. (a) The Pledgor agrees that from time
to time, at the expense of the Pledgor, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Agent may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Pledged Collateral.
Without limiting the generality of the foregoing, the Pledgor will: (i) at the
request of the Agent, mark conspicuously each of its records pertaining to the
Pledged Collateral with a legend, in form and substance satisfactory to the
Agent, indicating that such document or Pledged Collateral is subject to the
pledge, assignment and security interest granted hereby; (ii) if any Pledged
Collateral shall be evidenced by an instrument, chattel paper or certificated
security pledged to the Agent hereunder, deliver to the Custodian (if such
instrument, chattel paper or certificated security has not already been
delivered to the Custodian pursuant to SECTION 4) such instrument, chattel paper
or certificated security duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Agent; and (iii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Agent may request, in order to perfect and
preserve the pledge, assignment and security interest granted or purported to be
granted hereby.
(b) The Pledgor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Pledged Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Pledged Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Agent from time to time statements
and schedules further identifying and describing the Pledged Collateral and such
other reports in connection with the Pledged Collateral as the Agent may
reasonably request, all in reasonable detail.
SECTION 7. PLACE OF PERFECTION: RECORDS. The Pledgor shall keep its
chief place of business, chief executive office, registered agent for service of
process within the Commonwealth of Kentucky and the office where it keeps its
records concerning the Pledged Collateral at the location therefor specified in
SECTION 5(a) or, upon 30 days' prior written notice to the Agent, at any other
locations in a jurisdiction where all actions required by SECTION 6 shall have
been taken with respect to the Pledged Collateral. The Pledgor will hold and
preserve such records and will permit representatives of the Agent at any time
during normal business hours to inspect and make abstracts from such records.
-4-
<PAGE>
SECTION 8. COLLECTION OF PLEDGED COLLATERAL; CUSTODIAL ACCOUNT ETC. In
accordance with the terms of the Face Amount Certificate Agreement, the Pledgor
shall establish, and deposit the Sale Proceeds with respect to the Face Amount
Certificate into, the Custodial Account. The Custodial Account shall be
maintained with the Custodian and shall be subject to the terms of the Custodial
Agreement and the Control Agreement. The Pledgor hereby agrees to instruct all
obligors with respect to any Pledged Collateral, including, without limitation,
the Swap Provider, to cause all collections and payments to be delivered
directly to the Custodian for deposit in the Custodial Account and if the
Pledgor or its agent shall receive any such collections or payments, the Pledgor
or its agent shall deposit such collections or payment into the Custodial
Account within one Business Day following receipt thereof. Following delivery of
a Notice of Exclusive Control by the Agent to the Custodian, neither the
Pledgor, nor any person or entity claiming by, through or under the Pledgor
shall have any control over the use of, or any right to withdraw any item or
amount from the Custodial Account. Prior to delivery of such Notice of Exclusive
Control, the Issuer, and the Portfolio Manager on its behalf, are hereby
authorized and empowered (a) to make withdrawals from time to time from the
Custodial Account when specifically permitted pursuant to the terms of the
Investment Management Agreement. The Agent is hereby irrevocably authorized and
empowered, as the Pledgor's attorney-in-fact, to endorse any item deposited in
the Custodial Account or presented for deposit in the Custodial Account
requiring the endorsement of the Pledgor, which authorization is coupled with an
interest.
SECTION 9. AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
irrevocably appoints the Agent as the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time to take any action and to execute any instrument
which the Agent may deem necessary or appropriate in order to perfect its
interest granted under this Agreement, or following a (i) a Liquidation Event or
(ii) the first anniversary of the start of the Amortization Period, exercise its
remedies hereunder, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Pledged Collateral,
(b) to receive, indorse, and collect any drafts or other instruments,
documents, security certificates and chattel paper, in connection
therewith, and
(c) to file any claims or take any action or institute any proceedings
which the Agent may deem necessary or desirable for the collection of any
of the Pledged Collateral or otherwise to enforce compliance with the
terms, conditions or rights of the Agent with respect to any of the Pledged
Collateral.
SECTION 10. AGENT MAY PERFORM. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the
-5-
<PAGE>
reasonable expenses of the Agent incurred in connection therewith shall be
payable by the Pledgor under SECTION 13(b).
SECTION 11. THE AGENT'S DUTIES. The powers conferred on the Agent
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Pledged Collateral, as to ascertaining or taking action with respect to matters
relative to any of the Pledged Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any Pledged Collateral. The Agent shall be deemed to have exercised reasonable
care in the custody and preservation of any Pledged Collateral in its possession
if such Pledged Collateral is accorded treatment substantially equal to that
which the Agent accords its own property.
SECTION 12. REMEDIES. If (i) a Liquidation Event or (ii) the first
anniversary of the start of the Amortization Period, shall have occurred:
(a) The Agent may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it at law or equity, all the rights and remedies of a secured
party on default under the Uniform Commercial Code in effect in the State
of Illinois at that time (the "CODE") (whether or not the Code applies to
the affected Pledged Collateral), and also may (i) require the Pledgor to,
and the Pledgor hereby agrees that it will at its expense and upon request
of the Agent forthwith, assemble all or part of the Pledged Collateral as
directed by the Agent and make it available to the Agent at a place to be
designated by the Agent which is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Pledged Collateral
or any part thereof in one or more parcels at public or private sale, at
any of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Agent may deem commercially
reasonable. The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the Pledgor of the time
and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned. The power to effect any sale of any portion of
the Pledged Collateral shall not be exhausted by any one or more sales as
to any portion of such Pledged Collateral remaining unsold, but shall
continue unimpaired until all of the Pledged Collateral shall have been
sold or payment in full of the Obligations and all other amounts payable
under this Agreement.
-6-
<PAGE>
(b) Any cash held by the Agent as Pledged Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from,
or other realization upon all or any part of the Pledged Collateral may, in
the discretion of the Agent, be held by the Agent as collateral for, and/or
then or at any time thereafter be applied (after payment of any amounts
payable to the Agent pursuant to SECTION 13) in whole or in part by the
Agent against, all or any part of the Obligations in such order as may be
required by the Investment Management Agreement. Any surplus of such cash
or cash proceeds held by the Agent and remaining after payment in full of
all the Obligations shall be paid over to the Pledgor or to whomsoever may
be lawfully entitled to receive such surplus.
(c) The Agent may exercise any and all rights and remedies of the
Pledgor under or in connection with the Pledged Collateral, including,
without limitation, any and all rights of the Pledgor to demand or
otherwise require payment of any amount under, or performance of any
provision of, any of the Pledged Collateral.
(d) All payments received by the Pledgor under or in connection with
any of the Pledged Collateral shall be received in trust for the benefit of
the Agent, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Agent in the same form as so received (with any
necessary indorsement).
SECTION 13. INDEMNITY AND EXPENSES. (a) The Pledgor agrees to
indemnify the Agent and each Certificateholder from and against any and all
claims, losses and liabilities (including reasonable attorneys' fees) growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's or such Certificateholder's gross negligence or willful
misconduct.
(b) The Pledgor will upon demand pay to the Agent the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Pledged Collateral, (iii) the exercise or enforcement of any of the
rights of the Agent hereunder or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
SECTION 14. AMENDMENTS; ETC. No amendment or waiver of any provision
of this Agreement, and no consent to any departure by the Pledgor here from,
shall in any event be effective unless the same shall be in writing and signed
by the Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 15. ADDRESSES FOR NOTICES. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Pledgor, at its address at 515
West Market Street, 8th Floor, Louisville, Kentucky, 40202,
-7-
<PAGE>
Attention: Robert Maddox, President, Facsimile: 502/582-7903, and if to the
Agent, at its address at One First National Plaza, Mail Suite 0594, Chicago,
Illinois 60670-0594, Attention: Ann Marie Somers, Asset-Backed Finance,
Facsimile: 312/732-4487, or, as to either party, at such other address as shall
be designated by such party in a written notice to the other party. All such
notices and other communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails, telecopied,
delivered to the telegraph company, confirmed by telex answerback or delivered
to the cable company, respectively.
SECTION 16. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER FACE
AMOUNT CERTIFICATE AGREEMENT. This Agreement shall create a continuing security
interest in the Pledged Collateral and shall (i) remain in full force and effect
until the later of (x) the payment in full of the Obligations and (y) the date
on which the Face Amount Certificate Agreement has terminated in accordance with
the terms hereof, (ii) be binding upon the Pledgor, its successors and assigns,
and (iii) inure to the benefit of, and be enforceable by, the Agent, the
Certificateholders and their respective successors, transferees and assigns.
Upon the later of the payment in full of the Obligations and all other amounts
payable under this Agreement and the Termination Date, the security interest
granted hereby shall terminate and all rights to the Pledged Collateral shall
revert to the Pledgor. Upon any such termination, the Agent will, at the
Pledgor's expense, execute and deliver to the Pledgor such documents as the
Pledgor shall reasonably request to evidence such termination.
SECTION 17. GOVERNING LAW; TERMS. This Agreement shall be governed by
and construed in accordance with the internal laws (and not the law of
conflicts) of the State of Illinois, except to the extent that the validity or
perfection of the security interest hereunder, or remedies hereunder, in respect
of any particular Pledged Collateral are governed by the laws of a jurisdiction
other than the State of Illinois. Unless otherwise defined herein or in the Face
Amount Certificate Agreement, terms used in Article 9 of the Code are used
herein as therein defined.
SECTION 18. SEVERABILITY. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement, or
the application of such terms or provisions to persons or circumstances, other
than those to which it is held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.
-8-
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
312 CERTIFICATE COMPANY
By: /s/ Robert L. Maddox
-------------------------------------
Title: President
Acknowledged and accepted
this 24th day of April, 1998
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: /s/ Eleanor C. Nadbielny
--------------------------------
Title: Authorized Agent
Signature Page to Pledge and Security Agreement
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
EXECUTION FORM
Name of Principal: 312 CERTIFICATE COMPANY
---------------------------------------------------
Address of Principal:
---------------------------------------------------
Execution Date:
---------------------------------------------------
Effective Date:
---------------------------------------------------
This Standard Custody Agreement is entered into on the Execution Date set forth
above, effective on the Effective Date set forth above, by and between the above
named Principal ("Principal") and Bank One, Kentucky, N.A., ("Custodian"), with
its principal offices located at 416 West Jefferson Street, Louisville, KY
40202. In consideration of the mutual covenants and conditions of this
agreement, the Custodian and Principal hereby agree to the provisions of this
agreement attached hereto and the Schedules, if any, of this agreement attached
hereto.
IN WITNESS WHEREOF, this agreement is executed by Custodian and the Principal on
the Execution Date.
CUSTODIAN PRINCIPAL
Bank One, Kentucky, N.A. 312 CERTIFICATE COMPANY
By /s/ Thomas S. Albright By: /s/ Robert L. Maddox
----------------------------- ---------------------------
Printed Name: Thomas S. Albright Printed Name: Robert L. Maddox
------------------ ----------------
Title: VP Title: President
------------------------- -----------------------
Dated: 4/21/98 Dated: 4/23/98
------------------------- -----------------------
By: /s/ Robert L. Maddox
---------------------------
Printed Name: Robert L. Maddox
----------------
Title: President
-----------------------
Dated: 4/23/98
-----------------------
-2-
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
TABLE OF CONTENTS FOR PROVISIONS
Section 1 Appointment of Custodian
Section 2 Delivery of Securities, Cash and Other Property
Section 3 Accounts
Section 4 Proper Instructions
Section 5 Collection of Income
Section 6 Short-Term Investments
Section 7 Payment of Monies
Section 8 Duties of Custodian with Respect to Securities of the
Principal Held by Custodian
Section 9 Voting and Other Actions
Section 10 Responsibility of Custodian
Section 11 Records and Reports
Section 12 Effective Period, Termination and Interpretive and
Additional Provisions
Section 13 Successor Custodian
Section 14 Compensation of Custodian and Reimbursement of Expenses
Section 15 Notices
Section 16 Overdrafts or Indebtedness
Section 17 Governing Law
Section 18 Severability
Section 19 Non-Waiver
Section 20 No Third Party Benefit
Section 21 Captions
Section 22 Dispute Resolution and Arbitration
Section 23 Entire Agreement
-3-
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
PROVISIONS
These Provisions are applicable to the Standard Custody Agreement between the
Custodian and the Principal described in the foregoing Execution Form.
1. APPOINTMENT OF CUSTODIAN. Subject to the terms and conditions of this
agreement, the Principal hereby appoints and Custodian hereby accepts the
appointment by the Principal as custodian for certain cash, securities and other
property owned by the Principal and delivered to Custodian.
2. DELIVERY OF SECURITIES, CASH AND OTHER PROPERTY. The Principal shall
deliver to Custodian cash, securities and other property. Custodian shall accept
for deposit hereunder additional cash, securities and property upon receiving
written notice from Principal. Custodian shall only be responsible for custody
hereunder of cash, securities and property delivered to it and then only while
the cash, securities and property are held in and as a part of the custodial
account. Such cash, securities (hereinafter "Securities") and other property
held in and as part of the custodial account shall hereinafter be referred to as
the "Assets."
3. ACCOUNTS. Custodian shall open and maintain a separate account or
accounts in the name of the Principal, subject only to draft or order by
Custodian pursuant to the terms of this agreement, and shall maintain in such
account or accounts all cash received by it for the account of the Principal.
All separate accounts governed by this agreement are listed in Schedule B
attached hereto.
4. PROPER INSTRUCTIONS. For purposes of this agreement, "proper
instructions" shall mean (a) any oral authorizations, instructions or approvals
of any kind transmitted to Custodian in person or by telephone by a person
believed in good faith by Custodian to be a person authorized by a resolution of
the Board of Directors of the Principal; or (b) written authorizations,
instructions, or approvals of any kind transmitted to Custodian by mail,
personal delivery, facsimile, telegram or other written means by a person
believed in good faith by Custodian to be a person authorized by a resolution of
the Board of Directors of the Principal to give such authorizations,
instructions or approvals on behalf of the Principal. The Principal shall
confirm any oral authorization, instruction or approval described in (a), above,
the same business day by transmittal to Custodian of a written authorization,
instruction or approval described in (b), above.
5. COLLECTION OF INCOME. Custodian shall collect all income and other
payments with respect to registered Securities held hereunder to which the
Principal shall be entitled by law or pursuant to custom in the securities
business, and shall collect all income and principal and other payments with
respect to bearer Securities if, on the date of payment by the issuer, such
Securities are held by Custodian or agent thereof, and shall deposit such income
and principal, as collected, into the Principal's account. Without limiting the
generality of the foregoing, Custodian shall detach and present for payment all
coupons and other income and principal items requiring presentation as and when
they become due, shall collect dividends and interest when due on Securities
held hereunder, and shall endorse and deposit for collection, in the name of the
Principal, checks, drafts, and other negotiable instruments on the same day as
received.
With respect to Securities of foreign issuers, while Custodian will
use its best efforts to collect any monies which may to its knowledge become
collectible arising from such Securities, including dividends, interest and
other income, it is understood that Custodian shall be under no responsibility
for any failure or delay in effecting such collections or giving such notices.
-4-
<PAGE>
Custodian shall not be under any obligation or duty to take action to
effect collection of any amount, if the Securities (domestic or foreign) on
which such amount is payable are in default and payment is refused after due
demand or presentation. Custodian will, however, notify the Principal in writing
of such default and refusal to pay.
6. SHORT-TERM-INVESTMENTS. It is contemplated that Principal will, from
time to time, provide Custodian with written guidelines setting forth specific
short term interest bearing and short term discount obligations which are
acceptable to Principal, and Custodian agrees to act within said guidelines.
In the absence of written guidelines from Principal, Custodian is
specifically authorized, empowered and directed to invest any short term monies
in:
(i) Securities of any open-end or closed-end management
type investment company or investment trust registered under the
Investment Company Act of 1940, as amended, which would be
regarded by prudent businessmen as a safe investment. The fact
that Custodian, any affiliate of Custodian, or any affiliate of
BANC ONE CORPORATION is providing services to and receiving
remuneration from the foregoing investment company or investment
trust as investment advisor, custodian, transfer agent,
registrar, or otherwise shall not preclude Custodian from
investing in the securities of such investment company or
investment trust;
(ii) Savings accounts, time deposit accounts, certificates
of deposit, money market funds or other evidences of deposit
issued by Bank One, Columbus, N.A. and/or any other national
bank, savings and loan institution, state member bank, state
non-member bank, or other depository institution which now or in
the future is an affiliate or subsidiary of Custodian or of BANC
ONE CORPORATION.
7. PAYMENT OF MONIES. Custodian shall pay out monies from the custodian
account in the following cases only:
(a) Upon the purchase of Securities for the account of the Principal
but only (i) against the delivery of such Securities to Custodian
(or any bank, banking firm or trust company doing business in the
United States or abroad which has been designated by Custodian as
its agent for this purpose) registered in the name of the
Principal or in the name of a nominee of the Principal or in the
name of a nominee of Custodian or in proper form for transfer;
(ii) in the case of a purchase effected through a Securities
Depository, in accordance with the conditions set forth in
Section 8 below; or (iii) in the case of repurchase agreements
entered into between the Principal and another bank or
broker-dealer, against delivery of Securities either in
certificate form or through an entry crediting Custodian's
account at the Federal Reserve Bank with such securities.
(b) In connection with conversion, exchange or surrender of
Securities owned by the Principal as set forth in Section 8 of
this agreement;
(c) For any other purpose of the Principal, but only upon receipt of
proper instructions from the Principal specifying the amount of
such payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be made.
-5-
<PAGE>
8. DUTIES OF CUSTODIAN WITH RESPECT TO SECURITIES OF THE PRINCIPAL HELD
BY CUSTODIAN.
(a) DEPOSIT OF SECURITIES. Custodian may deposit the Securities:
(i) in the bank vault of Custodian;
(ii) in such other banks or trust companies as Custodian may
deem appropriate;
(iii) in its accounts with a clearing agency registered with
the Securities and Exchange Commission (the "Commission")
under Section 17A of the Securities Exchange Act of 1934
(the "Exchange Act"), which acts as a securities
depository (the "Securities Depository"); or
(iv) in a book-entry account which is maintained for the
Custodian by a Federal Reserve Bank (the "Book Entry
Account").
(b) SECURITIES DEPOSITORY AND BOOK ENTRY ACCOUNTS. So long as
Custodian maintains any account pursuant to subparagraphs
(a)(iii) or (a)(iv) above for the Principal, Custodian shall:
(i) deposit the Securities in such an account that includes
only assets held for the Principal;
(ii) with respect to Securities transferred to the account of
the Principal, identify as belonging to the Principal a
quantity of such Securities in the fungible bulk of
Securities (A) registered in the name of Custodian or its
nominee, or (B) shown on Custodian's account on the books
of the Securities Depository, the Book-Entry Account, or
Custodian's agent;
(iii) promptly send to the Principal reports received from the
appropriate Federal Reserve Bank or Securities Depository
on its system of internal accounting control; and
(iv) send to the Principal such reports of the systems of
internal accounting control of Custodian and its agents
through which such Securities are deposited as are
available and as the Principal may reasonably request
from time to time.
(c) HOLDING SECURITIES. Custodian shall hold and physically segregate
for the account of the Principal all Securities owned by the
Principal other than Securities held in a Securities Depository
or Book Entry Account, as provided in subparagraphs (a) and (b)
of this Section 8.
(d) REGISTRATION OF SECURITIES. Securities held by Custodian (other
than bearer Securities) shall be registered in the name of the
Principal or in the name of any nominee of the Principal or of
any nominee of Custodian. All Securities accepted by Custodian on
behalf of the Principal under the terms of this agreement shall
be in "street name" or other good delivery form.
(e) DELIVERY OF SECURITIES. Custodian shall release and deliver
Securities owned by the Principal held by Custodian or in a
Securities Depository or Book Entry Account for Custodian only
upon receipt of proper instructions, which may be continuing
instructions when Principal and Custodian specifically agree in
writing, and only in the following cases:
-6-
<PAGE>
(i) Upon the sale of such Securities for the account of the
Principal and the receipt of payment therefor;
(ii) Upon the receipt of payment in connection with any
repurchase agreement related to such Securities entered
into by the Principal;
(iii) In the case of a sale effected through a Securities
Depository or Book Entry Account, in accordance with the
provisions of subparagraphs (a) and (b) of this section
8;
(iv) In connection with tender or other similar offers for
Securities owned by the Principal, provided that, in any
such case, the cash or other consideration is to be
delivered to Custodian;
(v) To the issuer thereof or its agent when such Securities
are called, redeemed, retired, or otherwise become
payable, provided that, in any such case, the cash or
other consideration is to be delivered to Custodian;
(vi) To the issuer thereof, or its agent, for transfer into
the name of the Principal, or into the name of any
nominee or nominees of Custodian, or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units, or for exchange of interim receipts or temporary
securities for definitive securities, provided that, in
any such case, the new Securities are to be delivered to
Custodian;
(vii) To the broker selling the same for examination in
accordance with "street delivery" custom provided that
Custodian may adopt such procedures to ensure their
prompt return to Custodian by the broker in the event the
broker elects not to accept them;
(viii) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization,
or readjustment of the Securities of the issuer of such
Securities, or pursuant to provisions for conversion
contained in such Securities, provided that, in any such
case, the new Securities and cash, if any, are to be
delivered to Custodian.
(ix) In the case of warrants, rights or similar Securities,
the surrender thereof upon the exercise of such warrants,
rights or similar Securities or the surrender of interim
receipts or temporary Securities for definitive
Securities, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to
Custodian;
(x) For delivery in connection with any loans of Securities
made by the Principal, but only against receipt of
adequate collateral as specified from time to time by
proper instructions of the Principal;
(xi) For delivery as security in connection with any
borrowings by the Principal requiring a pledge of assets
by the Principal but only against receipt of amounts
borrowed;
(xii) For delivery in accordance with the provisions of any
agreement among the Principal, Custodian and a
broker-dealer registered under the Exchange Act and a
member of the National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation (the "O.C.C.")
-7-
<PAGE>
and of any registered national securities exchange or any
similar organization, regarding escrow or other
arrangements in connection with transactions of the
Principal; and
(xiii) For any other purpose of the Principal, but only upon
receipt of proper instructions from the Principal
specifying the Securities to be delivered, setting forth
the purpose for which such delivery is to be made,
declaring such purpose to be a proper purpose, and naming
the person or persons to whom delivery of such Securities
shall be made.
(f) SECURITY HOLDINGS DISCLOSURE. Custodian is not authorized and
shall not disclose the name, address or security positions of the
Principal in response to requests concerning shareholder
communications under Section 14 of the Exchange Act, the rules
and regulations thereunder, and any similar statute, regulation,
or rule in effect from time to time.
9. VOTING AND OTHER ACTIONS. Custodian shall promptly deliver or mail to
the Principal all forms of proxies and all notices of meetings affecting or
relating to Securities held for the account of the Principal. Upon receipt of
proper instructions, Custodian shall execute and deliver such proxies or other
authorizations as may be required. Neither Custodian nor its nominee shall vote
any Securities or execute any proxy to vote the same or give any consent to take
any other action with respect thereto.
Custodian shall release and deliver such Securities and take any other
action as directed by the Principal, with respect to dividends, splits,
distributions, spin-offs, puts, calls, conversions, redemptions, tenders,
exchanges, mergers, reorganizations, rights, warrants or any other similar
activity relating to the Securities. Custodian shall request direction of
Principal upon receipt of actual notice where Principal has an option as to any
such activity. For purposes of this paragraph, Custodian shall be deemed to have
actual notice if any such activity is published in one or more of the following
publications: J.J. Kenny's Munibase System, Financial Card Service, Xitek, Inc.,
Standard & Poors' Called Bond Listing, Depository Trust Reorganization Notices,
and THE WALL STREET JOURNAL. If Custodian does not have actual notice of such
activity, any such activity will be handled by Custodian on a "best efforts"
basis.
10. RESPONSIBILITY OF CUSTODIAN. As long as and to the extent that it
exercises reasonable care, Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received by
it or delivered by it pursuant to this agreement and Custodian shall be held
harmless in acting upon proper instructions and shall be entitled to receive as
conclusive proof of any fact or matter required to be ascertained by it
hereunder, a certificate by the President, Treasurer, or Secretary or Assistant
Secretary of the Principal. Custodian may receive and accept a certified
resolution of the Board of Directors of the Principal as conclusive evidence of
the authority of any person to act in accordance with such vote.
Custodian shall be entitled to rely upon and may act upon advice of
counsel (who may or may not be counsel for the Principal) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
If the Principal requires Custodian to take any action with respect to
Securities, which action involves the payment of monies or which action may, in
the opinion of Custodian, result in Custodian's or its nominee's being liable
for the payment of money or incurring liability of some other form, the
Principal, as a prerequisite to requiring Custodian to take such action, shall
provide indemnity to Custodian in an amount and form satisfactory to Custodian.
Principal hereby agrees to indemnify Custodian and hold Custodian
harmless from and against any and all costs, expenses, damages, liabilities and
claims (including reasonable attorneys' fees and accountants' fees) sustained or
incurred by or asserted against Custodian by reason or as a result of any action
or inaction, or arising
-8-
<PAGE>
out of Custodian's performance hereunder; provided, that Principal shall not
indemnify Custodian for those costs, expenses, damages, liabilities or claims
arising out of Custodian's negligence or willful misconduct. This indemnity
shall be a continuing obligation of Principal, its successors and assigns,
notwithstanding the termination of this agreement.
Custodian shall not be responsible or liable for any failure or delay
in the performance of its obligations under this agreement arising out of or
caused directly or indirectly, by circumstances beyond its reasonable control,
including without limitation: acts of God; earthquakes; fires; floods; wars;
civil or military disturbance; sabotage; epidemics; riots; interruptions, loss
or malfunctions of utilities, communications service; accidents; labor disputes;
acts of civil or military authority; governmental action; or inability to obtain
labor, material, equipment or transportation.
Custodian shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this
agreement.
11. RECORDS AND REPORTS. Principal hereby acknowledges that it may have
the right to receive broker confirmations within the time period prescribed by
12 C.F.R. Section 12.5 at no additional cost. In lieu of receiving such
confirmations within such time period, Custodian and Principal agree to the
alternative procedures set forth in this Section 11. Custodian shall create and
maintain records relating to its activities and obligations under this agreement
as Custodian and the Principal shall agree to and in such manner as will meet
the obligations of the Principal, if any, under Federal and State tax laws and
any other law or administrative rules or procedures which may be applicable to
the Principal. All such records shall remain the property of the Principal, and
shall be open to the inspection and audit at reasonable times by duly authorized
officers, employees or agents of the Principal. Custodian shall, at the
Principal's request, supply the Principal with a tabulation of Securities owned
by the Principal and held by Custodian and shall supply to the Principal a
report from time to time as the parties shall agree of all monies received or
paid on behalf of the Principal and of the resultant cash balance, and such
other reports as the Principal may reasonably request.
12. EFFECTIVE PERIOD, TERMINATION AND INTERPRETIVE AND ADDITIONAL
PROVISIONS. This agreement shall become effective as of the date first set forth
on the Execution Form of this agreement and may be terminated by either party by
90 days advance notice. Upon termination hereof, the Principal shall pay to
Custodian such compensation as may be due as of the date of such termination,
and shall likewise reimburse Custodian for its costs, expenses and disbursements
as contemplated by this agreement. Upon termination, except as otherwise
provided herein including the payment of all monies owed to Custodian as set
forth in Section 14, all obligations of each party to the other party hereunder
shall cease.
In connection with the operation of this agreement, Custodian and the
Principal may agree from time to time on such provisions interpretive or in
addition to the provisions of this agreement as may in their joint opinion be
consistent with the general tenor of this agreement. Any such interpretive or
additional provisions shall be signed by both parties and annexed hereto,
provided that no such interpretive or additional provisions shall contravene any
applicable federal or state law regulations.
13. SUCCESSOR CUSTODIAN. If a successor custodian is appointed by the
Principal, Custodian shall, upon termination, deliver to such successor
custodian, duly endorsed and in form for transfer, all Securities then held
hereunder and all other property of the Principal deposited with or held by it
hereunder and Custodian shall be released of all duties and obligations under
this agreement. If no such successor custodian is appointed and this agreement
is terminated pursuant to Section 12, Custodian shall, in like manner, at its
office, upon receipt of proper instructions from the Principal, deliver such
property in accordance with such instructions. Delivery and release of
Securities and other property shall be made provided Custodian shall have no
liability for shipping or insurance costs associated therewith and full payment
has been made to Custodian of all its compensation, costs, expenses and other
amounts hereunder.
-9-
<PAGE>
In the event that property of the Principal remains in the possession
of Custodian after the date of termination hereof owing to the failure of the
Principal to appoint a successor custodian or provide proper instructions,
Custodian shall be entitled to compensation for its services during such period
and the provisions of this agreement relating to the duties and obligations of
Custodian shall remain in full force and effect. Alternatively, Custodian shall
have the right to commence an action in the nature of an interpleader, and seek
to deposit the property in a court of competent jurisdiction.
14. COMPENSATION OF CUSTODIAN AND REIMBURSEMENT OF EXPENSES. Custodian
shall be entitled to compensation for its services as set forth in Schedule A
attached hereto and made a part hereof (the "Fee Schedule"), for
reimbursement of its out of pocket expenses as provided in this agreement,
and for all other necessary and proper disbursements and expenses made or
incurred by Custodian in the performance of its duties and obligations under
this agreement. The Principal shall pay or reimburse Custodian from time to
time for any transfer taxes payable upon transfers of Securities made
hereunder.
The Principal shall promptly pay or reimburse Custodian for the
payment of any expense or liability named by the Principal, including but not
limited to the following payments for the account of the Principal: delivery
charges, insurance, interest, taxes, management, accounting and legal fees, and
other operating expenses of the Principal.
15. NOTICES. Any notices required or desired to be given to any party
hereto shall be in writing, shall be addressed to such other party at that
party's address set forth at the beginning of this agreement and shall be deemed
given when deposited in the United States mail, certified, return receipt
requested, or actually received by the party to whom it was addressed if
delivered by an alternate method. Any party may change the address to which
notices or other communications are to be given by giving the other party notice
of such change.
16. OVERDRAFTS OR INDEBTEDNESS. If Custodian, in its sole discretion,
advances cash on behalf of the Principal which results in an overdraft because
the cash held by Custodian for the account of the Principal shall be
insufficient to pay the total amount payable upon a purchase of Securities as
set forth in proper instructions or which results in an overdraft for some other
reason, or if the Principal is for any other reason indebted to Custodian
(including any amount owed by Principal to Custodian pursuant to Section 14,
above, and except for other borrowings for temporary or emergency purposes using
securities as collateral pursuant to a separate agreement), such overdraft or
indebtedness shall be deemed to be a loan made by Custodian to the Principal
payable on demand and shall bear interest from the date incurred at a rate per
annum (based on a 360-day year for the actual number of days involved) equal to
2% over the prime rate in effect from time to time as announced by THE WALL
STREET JOURNAL under the section titled MONEY RATES, or any successor title,
such rate to be adjusted on the effective date of any change in such prime rate.
In addition, the Principal hereby grants to and agrees that Custodian shall have
a continuing lien and security interest in and to any property at any time held
by it for the benefit of the Principal or in which the Principal may have an
interest which is then in Custodian's possession or control or in possession or
control, of any third party acting on Custodian's behalf. The Principal
authorizes Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any balance
of account standing to the Principal's credit on the Custodian's books.
17. GOVERNING LAW. This agreement shall be construed and enforced
according to the laws of the State of Kentucky and all provisions shall be
administered according to the laws of said State, except as said laws are
superseded or preempted by any Federal law.
18. SEVERABILITY. The intention of the parties to this agreement is to
comply fully with all laws, rules, regulations and public policies, and this
agreement shall be construed consistently with all laws, rules, regulations
and public policies to the extent possible. If and to the extent that any court
of competent jurisdiction determines it is impossible to construe any provision
of this agreement consistently with any law, rule, regulation or public
-10-
<PAGE>
policy and consequently holds that provision to be invalid, such holding shall
in no way affect the validity of the other provisions of this agreement, which
shall remain in full force and effect.
19. NON-WAIVER. No failure by any party to insist upon compliance with any
term of this agreement, to exercise any option, enforce any right, or seek any
remedy upon any default of any other party shall affect, or constitute a waiver
of, the first party's right to insist upon such strict compliance, exercise that
option, enforce that right, or seek that remedy with respect to that default or
any prior, contemporaneous, or subsequent default. No custom or practice of the
parties at variance with any provision of this agreement shall affect or
constitute a waiver of, any party's right to demand strict compliance with all
provisions of this agreement.
20. NO THIRD PARTY BENEFIT. This agreement is intended for the exclusive
benefit of the parties to this agreement and their respective successors and
assigns, and nothing contained in this agreement shall be construed as creating
any rights or benefits in or to any third party.
21. CAPTIONS. The captions of the various sections of this agreement are
not part of the context of this agreement, but are only labels to assist in
locating those sections and shall be ignored in construing this agreement.
22. DISPUTE RESOLUTION AND ARBITRATION. Any controversy or claim arising
out of or relating to this agreement, or the breach of the same, shall be
settled through consultation and negotiation in good faith and a spirit of
mutual cooperation. However, if those attempts fail, the parties agree that any
misunderstandings or disputes arising from this agreement shall be decided by
arbitration which shall be conducted, upon request by either party, before three
(3) arbitrators (unless both parties agree on one (1) arbitrator) designated by
the American Arbitration Association (the "AAA"), in accordance with the terms
of the Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the United States Arbitration Act (Title 9 of the United States
Code), or if such Act is not applicable, any substantially equivalent state law.
The parties further agree that the arbitrator(s) will decide which party must
bear the expenses of the arbitration proceedings.
23. ENTIRE AGREEMENT. This agreement represents the entire agreement
between the parties and may not be modified or amended except by a writing
signed by the party to be charged, except as otherwise provided herein.
-11-
<PAGE>
BANK ONE KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
SCHEDULE A
SCHEDULE OF DOMESTIC CUSTODY FEES FOR ARM FINANCIAL GROUP
This Schedule A sets forth the compensation agreed upon by 312
CERTIFICATE COMPANY (the "Principal") to be paid to Bank One, Kentucky,
N.A., (the "Custodian") pursuant to the terms and conditions of Section 14 of
the Standard Custody Agreement effective __________, 19____ and executed by
such parties. Any changes to the fee schedule shall be by execution of a new
Schedule A.
Effective Date of this Fee Schedule: April 3, 1998
-------------
Our basic approach to charging master custody fees is a blended fee structure
based on our fiduciary role, number of accounts opened, securities holdings, and
transaction volume.
Bank One's domestic custody services include safekeeping and controlling cash
and marketable securities in our nominee name via our trust accounting system;
processing the receipt and delivery of trades versus payment on a contractual
settlement date basis; collecting principal and income; investing cash balances
in a Bank One money market vehicle; monitoring for corporate actions; and
providing accountings of activity and positions as required.
Our quote is based upon our current understanding of services required and is
subject to change pending a detailed review of the portfolios and clarification
of additional services required.
I. ACCOUNT FEE
A flat charge of $750 per month will apply to each account maintained.
II. ISSUE HOLDING FEE
DTC/PTC/FED eligible security holdings $1.50 per issue per month
Physical exchange-traded security holdings $3.00 per issue per month
Unique assets such as closely held stock, limited partnerships, private
placements, insurance contracts, and other non exchange-traded assets are
subject to a flat annual fee per issue of $360 ($30/month) which includes year
end valuation. This fee increases to $50 per month per issue if monthly
valuation is required.
III. TRANSACTIONS
A fee of $15 will apply to all transactions including securities
purchases/sales, free receipts/deliveries, maturities/redemptions/exchanges and
outgoing wires. No transaction charges apply to dividend/interest payments and
Bank One sweep vehicle transactions.
A fee of $5 per principal paydown will apply to amortized securities.
-12-
<PAGE>
IV. ADDITIONAL FEES
<TABLE>
<S> <C>
Check Cut $ 10
On-Line Portfolio Access* $ 50 per month
Out of pocket expenses at cost
</TABLE>
Basic on-line system access; windows-based custody workstation software
with significant additional flexibility is $350 per month.
CUSTODIAN PRINCIPAL
Bank One, Kentucky, N.A. 312 CERTIFICATE COMPANY
By /s/ Thomas S. Albright By: /s/ Robert L. Maddox
----------------------------- ---------------------------
Printed Name: Thomas S. Albright Printed Name: Robert L. Maddox
------------------ ----------------
Title: VP Title: President
------------------------- -----------------------
Dated: 4/21/98 Dated: 4/23/98
------------------------- -----------------------
By: /s/ Robert L. Maddox
---------------------------
Printed Name: Robert L. Maddox
----------------
Title: President
-----------------------
Dated: 4/23/98
-----------------------
-13-
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
SCHEDULE B
SEPARATE ACCOUNTS
This Schedule B sets forth all separate accounts opened by the
Custodian under the terms and conditions of the Standard Custody Agreement
effective _________, 19__, by and between 312 CERTIFICATE COMPANY
("Principal") and Custodian. Any additions or deletions to this schedule will
be by execution of a new Schedule B.
<TABLE>
<CAPTION>
SEPARATE ACCOUNT NAME SEPARATE ACCOUNT NUMBER
<S> <C>
N/A N/A
</TABLE>
CUSTODIAN PRINCIPAL
Bank One, Kentucky, N.A. 312 CERTIFICATE COMPANY
By /s/ Thomas S. Albright By: /s/ Robert L. Maddox
----------------------------- ---------------------------
Printed Name: Thomas S. Albright Printed Name: Robert L. Maddox
------------------ ----------------
Title: VP Title: President
------------------------- -----------------------
Dated: 4/21/98 Dated: 4/23/98
------------------------- -----------------------
By: /s/ Robert L. Maddox
---------------------------
Printed Name: Robert L. Maddox
----------------
Title: President
-----------------------
Dated: 4/23/98
-----------------------
-14-
<PAGE>
CONTROL AGREEMENT
This Control Agreement (the "Agreement") is made as of April 24, 1998
by and among The First National Bank of Chicago, as agent for certain financial
institutions (the "Agent"), 312 Certificate Company, a Delaware corporation
(the "Principal"), and Bank One, Kentucky, N.A., a national banking association,
with its principal office located at 416 West Jefferson Street, Louisville, KY
40202 (the "Custodian").
Each of the Agent, the Principal and the Custodian hereby agree as
follows:
PREAMBLE:
1. The Custodian and the Principal have entered into a Standard
Custody Agreement, a copy of which is attached hereto as Exhibit A (the
"Custody Agreement"), pursuant to which the Custodian has established its
custodial account number 3402824200 in the name of the Principal (the
"Account").
2. The Principal and the Agent have entered into a Pledge and
Security Agreement (as from time to time amended, restated, supplemented or
otherwise modified, the "Pledge Agreement"), in which INTER ALIA, the Principal
has granted to the Agent on behalf of the "Certificateholders" (as such term is
defined in the Pledge Agreement) a security interest in the Account and the
financial assets and any free credit balance carried therein.
3. The Agent, the Principal and the Custodian are entering into this
Agreement to provide for the control of the Account and to perfect the security
interest of the Agent in the Account and the financial assets and any free
credit balance carried therein as more fully described in the Pledge Agreement.
TERMS:
Section 1. THE ACCOUNT. The Custodian hereby represents and warrants
to the Agent and the Principal that (a) the Account has been established in the
name of the Principal as recited above, (b) the Custody Agreement, the security
entitlements arising out of the financial assets carried in the Account and such
free credit balance are valid and legally binding obligations of the Custodian,
and (c) except for the claims and interests of the Agent and of the Principal in
the Account, the Custodian does not know of any claim to or interest in the
Account or in any financial asset carried therein. The Custodian will treat all
property held by it in the Account as financial assets under Articles 8 and 9 of
the Uniform Commercial Code of the Commonwealth of Kentucky (the "Code").
<PAGE>
Section 2. NO WITHDRAWALS. The Custodian shall neither accept nor
comply with any entitlement order from the Principal, or its authorized
representatives, withdrawing any financial assets from the Account nor deliver
any such financial assets including, without limitation, any instruments,
chattel paper or certificated securities, to the Principal, or its authorized
representatives, nor pay any free credit balance or other amount owing from the
Custodian to the Principal with respect to the Account following a Notice of
Exclusive Control (as defined below) from the Agent.
Section 3. AGENT FOR PERFECTION; PRIORITY OF LIEN. (a) Pursuant to
the Pledge Agreement, the Principal has granted to the Agent for the benefit of
Certificateholders a security interest in the Account, all financial assets
carried therein and any free credit balance therein. The Custodian consents to
such security interest and, in order to perfect the interests of the Agent in
any financial assets carried in the Account which constitute instruments,
chattel paper and certificated securities, the Custodian, acting directly or
through its agents, shall hold such financial assets, as agent hereunder for the
Agent on the terms and conditions hereinafter set forth. The Custodian shall
maintain possession of any financial assets carried in the Account which
constitute instruments, chattel paper and certificated securities, within the
State of Ohio at all times that this Agreement is in effect.
(b) The Custodian hereby confirms that the Account is a cash account
and that notwithstanding any provision of the Custody Agreement so permitting,
it will not advance any margin or other credit to the Principal therein, either
directly or indirectly by executing purchase orders in excess of any credit
balance or money market mutual funds held in the Account, executing sell orders
on securities not held in the Account or by executing trades in instruments such
as options and commodities contracts that create similar obligations, nor shall
the Custodian hypothecate any securities carried in the Account. The Custodian
hereby waives and releases all liens, encumbrances, claims and rights of setoff
the Custodian may have against the Account or any financial asset carried in the
Account or any credit balance in the Account and agrees that, except for payment
of its customary fees and commissions pursuant to the Custody Agreement, it will
not assert any such lien, encumbrance, claim or right or the priority thereof
against the Account or any financial asset carried in the Account or any credit
balance in the Account. The Custodian will not agree with any third party that
the Custodian will comply with entitlement orders concerning the Account
originated by such third party without the prior written consent of the Agent
and the Principal.
Section 4. CONTROL. Except as otherwise provided in Sections 2 and 3
above, the Custodian shall make trades of financial assets held in the Account
at the instruction of the Principal, or its authorized representatives, and
comply with entitlement orders concerning such trades from the Principal, or its
authorized representatives, until such time as the Agent delivers a written
notice to the Custodian which states that the Agent is exercising exclusive
control over the Account. Such notice is referred to herein as the "Notice of
Exclusive Control." After the Custodian receives a Notice of Exclusive Control,
it will immediately cease complying with all
-2-
<PAGE>
instructions or entitlement orders concerning the Account originated by the
Principal or its representatives.
Section 5. STATEMENTS, CONFIRMATIONS, RECORDS AND NOTICES OF ADVERSE
CLAIMS. The Custodian will send copies of all statements, confirmations and
other correspondence including, without limitation, any notice of termination,
concerning the Account or the Custody Agreement simultaneously to each of the
Principal and the Agent at its respective addresses for notice as specified in
Section 16. The Custodian shall also permit the Agent to inspect and audit the
records related to the Account to the same extent as the Principal shall be
authorized under Section 11 of the Custody Agreement. If any person asserts any
lien, encumbrance or adverse claim against the Account or in any financial asset
carried therein, the Custodian will promptly notify the Agent and the Principal
thereof.
Section 6. RESPONSIBILITY OF THE CUSTODIAN. Except for advancing
margin or other credit to the Principal in violation of Section 3 above, the
Custodian shall have no responsibility or liability to the Agent for making
trades of financial assets held in the Account at the instruction of the
Principal, or its authorized representatives, or complying with entitlement
orders received thereafter in accordance with Section 4 above concerning the
Account from the Principal, or its authorized representatives, which are
received by the Custodian before the Custodian receives a Notice of Exclusive
Control. The Custodian shall have no responsibility or liability to the
Principal for complying with a Notice of Exclusive Control or complying with
entitlement orders concerning the Account originated by the Agent. The Custodian
shall have no duty to investigate or make any determination as to whether the
conditions for the issuance of a Notice of Exclusive Control contained in any
agreement between the Principal and the Agent have occurred. Neither this
Agreement nor the Pledge Agreement imposes or creates any obligation or duty of
the Custodian other than those expressly set forth herein.
Section 7. TAX REPORTING. All items of income, gain, expense and loss
recognized in the Account shall be reported to the Internal Revenue Service and
all state and local taxing authorities under the name and taxpayer
identification number of the Principal.
Section 8. CUSTODY AGREEMENT. This Agreement supplements the Custody
Agreement between the Custodian and the Principal. IN THE EVENT OF A CONFLICT
BETWEEN THIS AGREEMENT AND THE CUSTODY AGREEMENT, THE TERMS OF THIS AGREEMENT
WILL PREVAIL. Regardless of any provision in the Custody Agreement, Kentucky
shall be deemed to be the Custodian's location for the purposes of this
Agreement and the perfection and priority of the Agent's security interest in
the Account.
Section 9. TERMINATION. The rights and powers granted herein to the
Agent have been granted in order to perfect its security interest in the
Account, are powers coupled with an interest and will neither be affected by the
bankruptcy or insolvency of the Principal nor by the lapse of time. The
obligations of the Custodian under Sections 2, 3, 4 and 5 above shall continue
in effect until the security interest of the Agent in the Account has been
terminated pursuant to the
-3-
<PAGE>
terms of the Pledge Agreement and the Agent has notified the Custodian of such
termination in writing. Upon receipt of such notice, the obligations of the
Custodian under Sections 2, 3, 4 and 5 above with respect to the operation and
maintenance of the Account after the receipt of such notice shall terminate, the
Agent shall have no further right to originate entitlement orders concerning the
Account and the Custodian may take such steps as the Principal may request to
vest full ownership and control of the Account in the Principal, including, but
not limited to, transferring all of the financial assets and credit balances in
the Account to another securities account in the name of the Principal or its
designee.
Section 10. PORTFOLIO MANAGER. The Custodian hereby acknowledges that
Integrity Capital Advisors, Inc. (the "Portfolio Manager") has been appointed by
the Principal pursuant to that certain Investment Management Agreement dated as
of April 24, 1998 among the Principal, the Portfolio Manager and the Agent to
take any action and provide instructions to the Custodian with respect to the
Account from time to time, and the Custodian agrees that any such actions or
instructions taken or delivered by the Portfolio Manager and/or its affiliates
shall be construed as actions taken, or instructions delivered, by the Principal
for purposes of the Custody Agreement and this Agreement.
Section 11. THIS AGREEMENT. This Agreement, the schedules and exhibits
hereto and the agreements and instruments required to be executed and delivered
hereunder set forth the entire agreement of the parties hereto with respect to
the subject matter hereof and supersede and discharge all prior agreements
(written or oral) and negotiations and all contemporaneous oral agreements
concerning such subject matter and negotiations. There are no oral conditions
precedent to the effectiveness of this Agreement.
Section 12. AMENDMENTS. No amendment, modification or termination of
this Agreement or waiver of any right hereunder shall be binding on any party
hereto unless it is in writing and is signed by the party to be charged.
Section 13. SEVERABILITY. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement, or
the application of such terms or provisions to persons or circumstances, other
than those to which it is held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.
Section 14. SUCCESSORS. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors or assigns.
Section 15. RULES OF CONSTRUCTION. In this Agreement, words in the
singular number include the plural, and in the plural include the singular;
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates words of the neuter gender may refer to any gender and the
word "or" is disjunctive but not exclusive. The captions and
-4-
<PAGE>
section numbers appearing in this Agreement are inserted only as a matter of
convenience. They do not define, limit or describe the scope or intent of the
provisions of this Agreement. Except as otherwise defined herein all terms
herein shall have the meanings ascribed thereto in Articles 8 or 9 of the Code.
Section 16. NOTICES. Any notice, request or other communication
required or permitted to be given under this Agreement shall be in writing and
deemed to have been properly given when delivered in person, or when sent by
telecopy or other electronic means and electronic confirmation of error free
receipt is received or three days after being sent by certified or registered
United States mail, return receipt requested, postage prepaid, addressed to the
party at the address set forth underneath such parties' name on the signature
page of this Agreement. Any party may change its address for notices in the
manner set forth above.
Section 17. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing and delivering one or
more counterparts.
Section 18. CHOICE OF LAW. The parties hereto agree that certain
material events, occurrences and transactions relating to this Agreement bear a
reasonable relationship to the State of Kentucky. The validity, terms,
performance and enforcement of this Agreement shall be governed by the laws of
the State of Kentucky which are applicable to agreements which are executed,
delivered and performed in that State.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
THE FIRST NATIONAL BANK OF CIHCAGO,
as Agent
BY: /s/ Eleanor C. Nadbielny
--------------------------------
Title: Authorized Agent
------------------------
One First National Plaza
Mail Suite 0594
Chicago, Illinois 60670-0594
Attention: Ann Marie Somers
Facsimile No.: (312) 732-4487
312 CERTIFICATE COMPANY
BY: /s/ Robert L. Maddox
--------------------------------
Title: President
------------------------
515 West Market Street
8th Floor
Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Facsimile No. (502) 582-7903
BANK ONE, KENTUCKY, N.A
By: /s/ Thomas S. Albright
--------------------------------
Title: Vice President
416 West Jefferson Street
P.O. Box 32500
Louisville, Kentucky 40232-2500
Attention: J. Terry Strange,
Relationship Manager KYI-2306
Facsimile No. (502) 566-3954
-------------------------
-6-
<PAGE>
Exhibit A
to
Control Agreement
CUSTODY AGREEMENT
Attached.
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
EXECUTION FORM
Name of Principal: 312 CERTIFICATE COMPANY
-----------------------------------------------------------
Address of Principal:
-----------------------------------------------------------
Execution Date:
-----------------------------------------------------------
Effective Date:
-----------------------------------------------------------
This Standard Custody Agreement is entered into on the Execution Date set forth
above, effective on the Effective Date set forth above, by and between the above
named Principal ("Principal") and Bank One, Kentucky, N.A., ("Custodian"), with
its principal offices located at 416 West Jefferson Street, Louisville, KY
40202. In consideration of the mutual covenants and conditions of this
agreement, the Custodian and Principal hereby agree to the provisions of this
agreement attached hereto and the Schedules, if any, of this agreement attached
hereto.
IN WITNESS WHEREOF, this agreement is executed by Custodian and the Principal on
the Execution Date.
CUSTODIAN PRINCIPAL
Bank One, Kentucky, N.A. 312 CERTIFICATE COMPANY
By: /s/ Thomas S. Albright By: /s/ Robert L. Maddox
--------------------------- --------------------------
Printed Name: Thomas S. Albright Printed Name: Robert L. Maddox
------------------- ----------------
Title: VP Title: President
-------------------------- -----------------------
Dated: 4/21/98 Dated: 4/23/98
-------------------------- -----------------------
By: /s/ Robert L. Maddox
--------------------------
Printed Name: Robert L. Maddox
-----------------
Title: President
----------------------
DATED: 4/23/98
-----------------------
-2-
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
TABLE OF CONTENTS FOR PROVISIONS
Section 1 Appointment of Custodian
Section 2 Delivery of Securities, Cash and Other Property
Section 3 Accounts
Section 4 Proper Instructions
Section 5 Collection of Income
Section 6 Short-Term Investments
Section 7 Payment of Monies
Section 8 Duties of Custodian with Respect to Securities of the
Principal Held by Custodian
Section 9 Voting and Other Actions
Section 10 Responsibility of Custodian
Section 11 Records and Reports
Section 12 Effective Period, Termination and Interpretive and
Additional Provisions
Section 13 Successor Custodian
Section 14 Compensation of Custodian and Reimbursement of Expenses
Section 15 Notices
Section 16 Overdrafts or Indebtedness
Section 17 Governing Law
Section 18 Severability
Section 19 Non-Waiver
Section 20 No Third Party Benefit
Section 21 Captions
Section 22 Dispute Resolution and Arbitration
Section 23 Entire Agreement
-3-
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
PROVISIONS
These Provisions are applicable to the Standard Custody Agreement between the
Custodian and the Principal described in the foregoing Execution Form.
1. APPOINTMENT OF CUSTODIAN. Subject to the terms and conditions of
this agreement, the Principal hereby appoints and Custodian hereby accepts the
appointment by the Principal as custodian for certain cash, securities and other
property owned by the Principal and delivered to Custodian.
2. DELIVERY OF SECURITIES, CASH AND OTHER PROPERTY. The Principal
shall deliver to Custodian cash, securities and other property. Custodian shall
accept for deposit hereunder additional cash, securities and property upon
receiving written notice from Principal. Custodian shall only be responsible for
custody hereunder of cash, securities and property delivered to it and then only
while the cash, securities and property are held in and as a part of the
custodial account. Such cash, securities (hereinafter "Securities") and other
property held in and as part of the custodial account shall hereinafter be
referred to as the "Assets."
3. ACCOUNTS. Custodian shall open and maintain a separate account or
accounts in the name of the Principal, subject only to draft or order by
Custodian pursuant to the terms of this agreement, and shall maintain in such
account or accounts all cash received by it for the account of the Principal.
All separate accounts governed by this agreement are listed in Schedule B
attached hereto.
4. PROPER INSTRUCTIONS. For purposes of this agreement, "proper
instructions" shall mean (a) any oral authorizations, instructions or approvals
of any kind transmitted to Custodian in person or by telephone by a person
believed in good faith by Custodian to be a person authorized by a resolution of
the Board of Directors of the Principal; or (b) written authorizations,
instructions, or approvals of any kind transmitted to Custodian by mail,
personal delivery, facsimile, telegram or other written means by a person
believed in good faith by Custodian to be a person authorized by a resolution of
the Board of Directors of the Principal to give such authorizations,
instructions or approvals on behalf of the Principal. The Principal shall
confirm any oral authorization, instruction or approval described in (a), above,
the same business day by transmittal to Custodian of a written authorization,
instruction or approval described in (b), above.
5. COLLECTION OF INCOME. Custodian shall collect all income and
other payments with respect to registered Securities held hereunder to which the
Principal shall be entitled by law or pursuant to custom in the securities
business, and shall collect all income and principal and other payments with
respect to bearer Securities if, on the date of payment by the issuer, such
Securities are held by Custodian or agent thereof, and shall deposit such income
and principal, as collected, into the Principal's account. Without limiting the
generality of the foregoing, Custodian shall detach and present for payment all
coupons and other income and principal items requiring presentation as and when
they become due, shall collect dividends and interest when due on Securities
held hereunder, and shall endorse and deposit for collection, in the name of the
Principal, checks, drafts, and other negotiable instruments on the same day as
received.
With respect to Securities of foreign issuers, while Custodian
will use its best efforts to collect any monies which may to its knowledge
become collectible arising from such Securities, including dividends, interest
and other income, it is understood that Custodian shall be under no
responsibility for any failure or delay in effecting such collections or giving
such notices.
-4-
<PAGE>
Custodian shall not be under any obligation or duty to take action to
effect collection of any amount, if the Securities (domestic or foreign) on
which such amount is payable are in default and payment is refused after due
demand or presentation. Custodian will, however, notify the Principal in writing
of such default and refusal to pay.
6. SHORT-TERM INVESTMENTS. It is contemplated that Principal will,
from time to time, provide Custodian with written guidelines setting forth
specific short term interest bearing and short term discount obligations
which are acceptable to Principal, and Custodian agrees to act within said
guidelines.
In the absence of written guidelines from Principal, Custodian is
specifically authorized, empowered and directed to invest any short term monies
in:
(i) Securities of any open-end or closed-end management
type investment company or investment trust registered under the
Investment Company Act of 1940, as amended, which would be
regarded by prudent businessmen as a safe investment. The fact
that Custodian, any affiliate of Custodian, or any affiliate of
BANC ONE CORPORATION is providing services to and receiving
remuneration from the foregoing investment company or investment
trust as investment advisor, custodian, transfer agent,
registrar, or otherwise shall not preclude Custodian from
investing in the securities of such investment company or
investment trust;
(ii) Savings accounts, time deposit accounts, certificates
of deposit, money market funds or other evidences of deposit
issued by Bank One, Columbus, N.A. and/or any other national
bank, savings and loan institution, state member bank, state
non-member bank, or other depository institution which now or in
the future is an affiliate or subsidiary of Custodian or of BANC
ONE CORPORATION.
7. PAYMENT OF MONIES. Custodian shall pay out monies from the
custodian account in the following cases only:
(a) Upon the purchase of Securities for the account of the
Principal but only (i) against the delivery of such
Securities to Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which
has been designated by Custodian as its agent for this
purpose) registered in the name of the Principal or in the
name of a nominee of the Principal or in the name of a
nominee of Custodian or in proper form for transfer; (ii)
in the case of a purchase effected through a Securities
Depository, in accordance with the conditions set forth in
Section 8 below; or (iii) in the case of repurchase
agreements entered into between the Principal and another
bank or broker-dealer, against delivery of Securities
either in certificate form or through an entry crediting
Custodian's account at the Federal Reserve Bank with such
securities.
(b) In connection with conversion, exchange or surrender of
Securities owned by the Principal as set forth in Section 8
of this agreement;
(c) For any other purpose of the Principal, but only upon
receipt of proper instructions from the Principal specifying
the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to
be a proper purpose, and naming the person or persons to
whom such payment is to be made.
-5-
<PAGE>
8. DUTIES OF CUSTODIAN WITH RESPECT TO SECURITIES OF THE PRINCIPAL
HELD BY CUSTODIAN.
(a) DEPOSIT OF SECURITIES. Custodian may deposit the
Securities:
(i) in the bank vault of Custodian;
(ii) in such other banks or trust companies as Custodian
may deem appropriate;
(iii) in its accounts with a clearing agency registered
with the Securities and Exchange Commission (the
"Commission") under Section 17A of the Securities
Exchange Act of 1934 (the "Exchange Act"), which
acts as a securities depository (the "Securities
Depository"); or
(iv) in a book-entry account which is maintained for the
Custodian by a Federal Reserve Bank (the "Book Entry
Account").
(b) SECURITIES DEPOSITORY AND BOOK ENTRY ACCOUNTS. So long as
Custodian maintains any account pursuant to subparagraphs
(a)(iii) or (a)(iv) above for the Principal, Custodian
shall:
(i) deposit the Securities in such an account that
includes only assets held for the Principal;
(ii) with respect to Securities transferred to the
account of the Principal, identify as belonging to
the Principal a quantity of such Securities in the
fungible bulk of Securities (A) registered in the
name of Custodian or its nominee, or (B) shown on
Custodian's account on the books of the Securities
Depository, the Book-Entry Account, or Custodian's
agent;
(iii) promptly send to the Principal reports received from
the appropriate Federal Reserve Bank or Securities
Depository on its system of internal accounting
control; and
(iv) send to the Principal such reports of the systems of
internal accounting control of Custodian and its
agents through which such Securities are deposited
as are available and as the Principal may reasonably
request from time to time.
(c) HOLDING SECURITIES. Custodian shall hold and physically
segregate for the account of the Principal all Securities
owned by the Principal other than Securities held in a
Securities Depository or Book Entry Account, as provided
in subparagraphs (a) and (b) of this Section 8.
(d) REGISTRATION OF SECURITIES. Securities held by Custodian
(other than bearer Securites) shall be registered in the
name of the Principal or in the name of any nominee of the
Principal or of any nominee of Custodian. All Securities
accepted by Custodian on behalf of the Principal under the
terms of this agreement shall be in "street name" or other
good delivery form.
(e) DELIVERY OF SECURITIES. Custodian shall release and deliver
Securities owned by the Principal held by Custodian or in
a Securities Depository or Book Entry Account for
Custodian only upon receipt of proper instructions, which
may be continuing instructions when Principal and Custodian
specifically agree in writing, and only in the following
cases:
-6-
<PAGE>
(i) Upon the sale of such Securities for the account of
the Principal and the receipt of payment therefor;
(ii) Upon the receipt of payment in connection with any
repurchase agreement related to such Securities
entered into by the Principal;
(iii) In the case of a sale effected through a Securities
Depository or Book Entry Account, in accordance with
the provisions of subparagraphs (a) and (b) of this
section 8;
(iv) In connection with tender or other similar offers
for Securities owned by the Principal, provided
that, in any such case, the cash or other
consideration is to be delivered to Custodian;
(v) To the issuer thereof or its agent when such
Securities are called, redeemed, retired, or
otherwise become payable, provided that, in any such
case, the cash or other consideration is to be
delivered to Custodian;
(vi) To the issuer thereof, or its agent, for transfer
into the name of the Principal, or into the name of
any nominee or nominees of Custodian, or for
exchange for a different number of bonds,
certificates or other evidence representing the
same aggregate face amount or number of units, or
for exchange of interim receipts or temporary
securities for definitive securities, provided
that, in any such case, the new Securities are to
be delivered to Custodian;
(vii) To the broker selling the same for examination in
accordance with "street delivery" custom provided
that Custodian may adopt such procedures to ensure
their prompt return to Custodian by the broker in
the event the broker elects not to accept them;
(viii) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization, or readjustment of the Securities
of the issuer of such Securities, or pursuant to
provisions for conversion contained in such
Securities, provided that, in any such case, the
new Securities and cash, if any, are to be
delivered to Custodian.
(ix) In the case of warrants, rights or similar
Securities, the surrender thereof upon the exercise
of such warrants, rights or similar Securities or
the surrender of interim receipts or temporary
Securities for definitive Securities, provided
that, in any such case, the new Securities and cash,
if any, are to be delivered to Custodian;
(x) For delivery in connection with any loans of
Securities made by the Principal, but only against
receipt of adequate collateral as specified from
time to time by proper instructions of the
Principal;
(xi) For delivery as security in connection with any
borrowings by the Principal requiring a pledge of
assets by the Principal but only against receipt of
amounts borrowed;
(xii) For delivery in accordance with the provisions of
any agreement among the Principal, Custodian and a
broker-dealer registered under the Exchange Act and
a member of the National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation
(the "O.C.C.")
-7-
<PAGE>
and of any registered national securities exchange
or any similar organization, regarding escrow or
other arrangements in connection with transactions
of the Principal; and
(xiii) For any other purpose of the Principal, but only
upon receipt of proper instructions from the
Principal specifying the Securities to be
delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to
be a proper purpose, and naming the person or
persons to whom delivery of such Securities shall
be made.
(f) SECURITY HOLDINGS DISCLOSURE. Custodian is not authorized
and shall not disclose the name, address or security
positions of the Principal in response to requests
concerning shareholder communications under Section 14 of
the Exchange Act, the rules and regulations thereunder,
and any similar statute, regulation, or rule in effect
from time to time.
9. VOTING AND OTHER ACTIONS. Custodian shall promptly deliver or
mail to the Principal all forms of proxies and all notices of meetings affecting
or relating to Securities held for the account of the Principal. Upon receipt of
proper instructions, Custodian shall execute and deliver such proxies or other
authorizations as may be required. Neither Custodian nor its nominee shall vote
any Securities or execute any proxy to vote the same or give any consent to take
any other action with respect thereto.
Custodian shall release and deliver such Securities and take any
other action as directed by the Principal, with respect to dividends, splits,
distributions, spin-offs, puts, calls, conversions, redemptions, tenders,
exchanges, mergers, reorganizations, rights, warrants or any other similar
activity relating to the Securities. Custodian shall request direction of
Principal upon receipt of actual notice where Principal has an option as to any
such activity. For purposes of this paragraph, Custodian shall be deemed to have
actual notice if any such activity is published in one or more of the following
publications: J.J. Kenny's Munibase System, Financial Card Service, Xitek, Inc.,
Standard & Poors' Called Bond Listing, Depository Trust Reorganization Notices,
and THE WALL STREET JOURNAL. If Custodian does not have actual notice of such
activity, any such activity will be handled by Custodian on a "best efforts"
basis.
10. RESPONSIBILITY OF CUSTODIAN. As long as and to the extent that it
exercises reasonable care, Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received by
it or delivered by it pursuant to this agreement and Custodian shall be held
harmless in acting upon proper instructions and shall be entitled to receive as
conclusive proof of any fact or matter required to be ascertained by it
hereunder, a certificate by the President, Treasurer, or Secretary or Assistant
Secretary of the Principal. Custodian may receive and accept a certified
resolution of the Board of Directors of the Principal as conclusive evidence of
the authority of any person to act in accordance with such vote.
Custodian shall be entitled to rely upon and may act upon advice
of counsel (who may or may not be counsel for the Principal) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
If the Principal requires Custodian to take any action with
respect to Securities, which action involves the payment of monies or which
action may, in the opinion of Custodian, result in Custodian's or its nominee's
being liable for the payment of money or incurring liability of some other form,
the Principal, as a prerequisite to requiring Custodian to take such action,
shall provide indemnity to Custodian in an amount and form satisfactory to
Custodian.
Principal hereby agrees to indemnify Custodian and hold Custodian
harmless from and against any and all costs, expenses, damages, liabilities and
claims (including reasonable attorneys' fees and accountants' fees) sustained or
incurred by or asserted against Custodian by reason or as a result of any action
or inaction, or arising
-8-
<PAGE>
out of Custodian's performance hereunder; provided, that Principal shall not
indemnify Custodian for those costs, expenses, damages, liabilities or claims
arising out of Custodian's negligence or willful misconduct. This indemnity
shall be a continuing obligation of Principal, its successors and assigns,
notwithstanding the termination of this agreement.
Custodian shall not be responsible or liable for any failure or
delay in the performance of its obligations under this agreement arising out of
or caused directly or indirectly, by circumstances beyond its reasonable
control, including without limitation: acts of God; earthquakes; fires; floods;
wars; civil or military disturbance; sabotage; epidemics; riots; interruptions,
loss or malfunctions of utilities, communications service; accidents; labor
disputes; acts of civil or military authority; governmental action; or inability
to obtain labor, material, equipment or transportation.
Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
agreement.
11. RECORDS AND REPORTS. Principal hereby acknowledges that it may
have the right to receive broker confirmations within the time period prescribed
by 12 C.F.R. Section 12.5 at no additional cost. In lieu of receiving such
confirmations within such time period, Custodian and Principal agree to the
alternative procedures set forth in this Section 11. Custodian shall create and
maintain records relating to its activities and obligations under this agreement
as Custodian and the Principal shall agree to and in such manner as will meet
the obligations of the Principal, if any, under Federal and State tax laws and
any other law or administrative rules or procedures which may be applicable to
the Principal. All such records shall remain the property of the Principal, and
shall be open to the inspection and audit at reasonable times by duly authorized
officers, employees or agents of the Principal. Custodian shall, at the
Principal's request, supply the Principal with a tabulation of Securities owned
by the Principal and held by Custodian and shall supply to the Principal a
report from time to time as the parties shall agree of all monies received or
paid on behalf of the Principal and of the resultant cash balance, and such
other reports as the Principal may reasonably request.
12. EFFECTIVE PERIOD, TERMINATION AND INTERPRETIVE AND ADDITIONAL
PROVISIONS. This agreement shall become effective as of the date first set
forth on the Execution Form of this agreement and may be terminated by either
party by 90 days advance notice. Upon termination hereof, the Principal shall
pay to Custodian such compensation as may be due as of the date of such
termination, and shall likewise reimburse Custodian for its costs, expenses
and disbursements as contemplated by this agreement. Upon termination, except
as otherwise provided herein including the payment of all monies owed to
Custodian as set forth in Section 14, all obligations of each party to the
other party hereunder shall cease.
In connection with the operation of this agreement, Custodian and
the Principal may agree from time to time on such provisions interpretive or in
addition to the provisions of this agreement as may in their joint opinion be
consistent with the general tenor of this agreement. Any such interpretive or
additional provisions shall be signed by both parties and annexed hereto,
provided that no such interpretive or additional provisions shall contravene any
applicable federal or state law regulations.
13. SUCCESSOR CUSTODIAN. If a successor custodian is appointed by the
Principal, Custodian shall, upon termination, deliver to such successor
custodian, duly endorsed and in form for transfer, all Securities then held
hereunder and all other property of the Principal deposited with or held by it
hereunder and Custodian shall be released of all duties and obligations under
this agreement. If no such successor custodian is appointed and this agreement
is terminated pursuant to Section 12, Custodian shall, in like manner, at its
office, upon receipt of proper instructions from the Principal, deliver such
property in accordance with such instructions. Delivery and release of
Securities and other property shall be made provided Custodian shall have no
liability for shipping or insurance costs associated therewith and full payment
has been made to Custodian of all its compensation, costs, expenses and other
amounts hereunder.
-9-
<PAGE>
In the event that property of the Principal remains in the possession
of Custodian after the date of termination hereof owing to the failure of the
Principal to appoint a successor custodian or provide proper instructions,
Custodian shall be entitled to compensation for its services during such period
and the provisions of this agreement relating to the duties and obligations of
Custodian shall remain in full force and effect. Alternatively, Custodian shall
have the right to commence an action in the nature of an interpleader, and seek
to deposit the property in a court of competent jurisdiction.
14. COMPENSATION OF CUSTODIAN AND REIMBURSEMENT OF EXPENSES.
Custodian shall be entitled to compensation for its services as set forth in
Schedule A attached hereto and made a part hereof (the "Fee Schedule"), for
reimbursement of its out of pocket expenses as provided in this agreement, and
for all other necessary and proper disbursements and expenses made or incurred
by Custodian in the performance of its duties and obligations under this
agreement. The Principal shall pay or reimburse Custodian from time to time for
any transfer taxes payable upon transfers of Securities made hereunder.
The Principal shall promptly pay or reimburse Custodian for the
payment of any expense or liability named by the Principal, including but not
limited to the following payments for the account of the Principal: delivery
charges, insurance, interest, taxes, management, accounting and legal fees, and
other operating expenses of the Principal.
15. NOTICES. Any notices required or desired to be given to any party
hereto shall be in writing, shall be addressed to such other party at that
party's address set forth at the beginning of this agreement and shall be deemed
given when deposited in the United States mail, certified, return receipt
requested, or actually received by the party to whom it was addressed if
delivered by an alternate method. Any party may change the address to which
notices or other communications are to be given by giving the other party notice
of such change.
16. OVERDRAFTS OR INDEBTEDNESS. If Custodian, in its sole
discretion, advances cash on behalf of the Principal which results in an
overdraft because the cash held by Custodian for the account of the Principal
shall be insufficient to pay the total amount payable upon a purchase of
Securities as set forth in proper instructions or which results in an
overdraft for some other reason, or if the Principal is for any other reason
indebted to Custodian (including any amount owed by Principal to Custodian
pursuant to Section 14, above, and except for other borrowings for temporary
or emergency purposes using securities as collateral pursuant to a separate
agreement), such overdraft or indebtedness shall be deemed to be a loan made
by Custodian to the Principal payable on demand and shall bear interest from
the date incurred at a rate per annum (based on a 360-day year for the actual
number of days involved) equal to 2% over the prime rate in effect from time
to time as announced by THE WALL STREET JOURNAL under the section titled
MONEY RATES, or any successor title, such rate to be adjusted on the effective
date of any change in such prime rate. In addition, the Principal hereby
grants to and agrees that Custodian shall have a continuing lien and security
interest in and to any property at any time held by it for the benefit of the
Principal or in which the Principal may have an interest which is then in
Custodian's possession or control or in possession or control, of any third
party acting on Custodian's behalf. The Principal authorizes Custodian, in
its sole discretion, at any time to charge any such overdraft or indebtedness
together with interest due thereon against any balance of account standing to
the Principal's credit on the Custodian's books.
17. GOVERNING LAW. This agreement shall be construed and enforced
according to the laws of the State of Kentucky and all provisions shall be
administered according to the laws of said State, except as said laws are
superseded or preempted by any Federal law.
18. SEVERABILITY. The intention of the parties to this agreement is
to comply fully with all laws, rules, regulations and public policies, and this
agreement shall be construed consistently with all laws, rules, regulations and
public policies to the extent possible. If and to the extent that any court of
competent jurisdiction determines it is impossible to construe any provision of
this agreement consistently with any law, rule, regulation or public
-10-
<PAGE>
policy and consequently holds that provision to be invalid, such holding shall
in no way affect the validity of the other provisions of this agreement, which
shall remain in full force and effect.
19. NON-WAIVER. No failure by any party to insist upon compliance
with any term of this agreement, to exercise any option, enforce any right, or
seek any remedy upon any default of any other party shall affect, or constitute
a waiver of, the first party's right to insist upon such strict compliance,
exercise that option, enforce that right, or seek that remedy with respect to
that default or any prior, contemporaneous, or subsequent default. No custom or
practice of the parties at variance with any provision of this agreement shall
affect or constitute a waiver of, any party's right to demand strict compliance
with all provisions of this agreement.
20. NO THIRD PARTY BENEFIT. This agreement is intended for the
exclusive benefit of the parties to this agreement and their respective
successors and assigns, and nothing contained in this agreement shall be
construed as creating any rights or benefits in or to any third party.
21. CAPTIONS. The captions of the various sections of this agreement
are not part of the context of this agreement, but are only labels to assist in
locating those sections and shall be ignored in construing this agreement.
22. DISPUTE RESOLUTION AND ARBITRATION. Any controversy or claim
arising out of or relating to this agreement, or the breach of the same, shall
be settled through consultation and negotiation in good faith and a spirit of
mutual cooperation. However, if those attempts fail, the parties agree that any
misunderstandings or disputes arising from this agreement shall be decided by
arbitration which shall be conducted, upon request by either party, before three
(3) arbitrators (unless both parties agree on one (1) arbitrator) designated by
the American Arbitration Association (the "AAA"), in accordance with the terms
of the Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the United States Arbitration Act (Title 9 of the United States
Code), or if such Act is not applicable, any substantially equivalent state law.
The parties further agree that the arbitrator(s) will decide which party must
bear the expenses of the arbitration proceedings.
23. ENTIRE AGREEMENT. This agreement represents the entire agreement
between the parties and may not be modified or amended except by a writing
signed by the party to be charged, except as otherwise provided herein.
-11-
<PAGE>
BANK ONE KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
SCHEDULE A
SCHEDULE OF DOMESTIC CUSTODY FEES FOR ARM FINANCIAL GROUP
This Schedule A sets forth the compensation agreed upon by 312
CERTIFICATE COMPANY (the "Principal") to be paid to Bank One, Kentucky, N.A.,
(the "Custodian") pursuant to the terms and conditions of Section 14 of the
Standard Custody Agreement effective ___________, 19__ and executed by such
parties. Any changes to the fee schedule shall be by execution of a new
Schedule A.
Effective Date of this Fee Schedule: April 3, 1998
Our basic approach to charging master custody fees is a blended fee structure
based on our fiduciary role, number of accounts opened, securities holdings,
and transaction volume.
Bank One's domestic custody services include safekeeping and controlling cash
and marketable securities in our nominee name via our trust accounting system;
processing the receipt and delivery of trades versus payment on a contractual
settlement date basis; collecting principal and income; investing cash balances
in a Bank One money market vehicle; monitoring for corporate actions; and
providing accountings of activity and positions as required.
Our quote is based upon our current understanding of services required and is
subject to change pending a detailed review of the portfolios and clarification
of additional services required.
I. ACCOUNT FEE
A flat charge of $750 per month will apply to each account maintained.
II. ISSUE HOLDING FEE
DTC/PTC/FED eligible security holdings $1.50 per issue per month
Physical exchange-traded security holdings $3.00 per issue per month
Unique assets such as closely held stock, limited partnerships, private
placements, insurance contracts, and other non exchange-traded assets are
subject to a flat annual fee per issue of $360 ($30/month) which includes year
end valuation. This fee increases to $50 per month per issue if monthly
valuation is required.
III. TRANSACTIONS
A fee of $15 will apply to all transactions including securities
purchases/sales, free receipts/deliveries, maturities/redemptions/exchanges and
outgoing wires. No transaction charges apply to dividend/interest payments and
Bank One sweep vehicle transactions.
A fee of $5 per principal paydown will apply to amortized securities.
-12-
<PAGE>
IV. ADDITIONAL FEES
Check Cut $ 10
On-Line Portfolio Access* $ 50 per month
Out of pocket expenses at cost
Basic on-line system access; windows-based custody workstation software with
significant additional flexibility is $350 per month.
CUSTODIAN PRINCIPAL
Bank One, Kentucky, N.A. 312 CERTIFICATE COMPANY
By: /s/ Thomas S. Albright By: /s/ Robert L. Maddox
------------------------------- ------------------------------------
Printed Name: Thomas S. Albright Printed Name: Robert L. Maddox
--------------------- --------------------------
Title: VP Title: President
---------------------------- ---------------------------------
Dated: 4/21/98 Dated: 4/23/98
---------------------------- ---------------------------------
By: Robert L. Maddox
------------------------------------
Printed Name: Robert L. Maddox
--------------------------
Title: President
---------------------------------
Dated: 4/23/98
---------------------------------
-13-
<PAGE>
BANK ONE, KENTUCKY, N.A.
STANDARD CUSTODY AGREEMENT
SCHEDULE B
SEPARATE ACCOUNTS
This Schedule B sets forth all separate accounts opened by the Custodian
under the terms and conditions of the Standard Custody Agreement effective
____________, 19__, by and between 312 CERTIFICATE COMPANY ("Principal") and
Custodian. Any additions or deletions to this schedule will be by execution of a
new Schedule B.
SEPARATE ACCOUNT NAME SEPARATE ACCOUNT NUMBER
N/A N/A
CUSTODIAN PRINCIPAL
Bank One, Kentucky, N.A. 312 CERTIFICATE COMPANY
By: /s/ Thomas S. Albright By: /s/ Robert L. Maddox
----------------------------- -----------------------------------
Printed Name: Thomas S. Albright Printed Name: Robert L. Maddox
------------------- --------------------------
Title: VP Title: President
-------------------------- ---------------------------------
Dated: 4/21/98 Dated: 4/23/98
-------------------------- ---------------------------------
By: /s/ Robert L. Maddox
------------------------------------
Printed Name: Robert L. Maddox
--------------------------
Title: President
-----------------------------------
Dated: 4/23/98
-----------------------------------
-14-
<PAGE>
(MULTICURRENCY--CROSS BORDER)
ISDA-Registered Trademark-
INTERNATIONAL SWAP DEALERS ASSOCIATION, INC.
MASTER AGREEMENT
dated as of April 24, 1998
--------------
INTEGRITY LIFE
INSURANCE COMPANY ("Party A") and 312 CERTIFICATE COMPANY ("Party B")
- ------------------------------- ------------------------------------
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of
the relevant Transaction has occurred or been effectively designated and
(3) each other applicable condition precedent specified in this Agreement.
Copyright -C- 1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same date
in the same currency in respect of such Transactions, regardless of whether
such amounts are payable in respect of the same Transaction. The election may
be made in the Schedule or a Confirmation by specifying that subparagraph
(ii) above will not apply to the Transactions identified as being subject to
the election, together with the starting date (in which case subparagraph
(ii) above will not, or will cease to, apply to such Transactions from such
date). This election may be made separately for different groups of
Transactions and will apply separately to each pairing of Offices through
which the parties make and receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. ALL payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified by
the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that party
("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to
be deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y
under this Section 2(d)) promptly upon the earlier of determining
that such deduction or withholding is required or receiving
notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities, and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to
the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure that
the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will equal
the full amount Y would have received had no such deduction or
withholding been required. However, X will not be required to pay
any additional amount to Y to the extent that it would not be
required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure
would not have occurred but for (I) any action taken by a
taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is
entered into (regardless of whether such action is taken or
brought with respect to a party to this Agreement) or (II) a
Change in Tax Law.
2 ISDA-Registered Trademark- 1992
<PAGE>
(ii) LIABILITY. If:--
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not be
required to pay an additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision of
its constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
3 ISDA-Registered Trademark- 1992
<PAGE>
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official of any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs--
(i) any forms, documents or certificates relating to taxation specified in
the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any
deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of such
demand), with any such form or document to be accurate and completed in a
manner reasonably satisfactory to such other party and to be executed and
to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated.
4 ISDA-Registered Trademark- 1992
<PAGE>
organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
notice of a Termination Event or any agreement or obligation under Section
4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party
in accordance with this Agreement if such failure is not remedied on or
before the thirtieth day after notice of such failure is given to the
party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period his elapsed.
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction; (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default event
of default or other similar condition or event (however
5 ISDA-Registered Trademark- 1992
<PAGE>
described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) in an aggregate amount of not less than the
applicable Threshold Amount as specified in the Schedule) which has
resulted in such Specified Indebtedness becoming, or becoming capable at
such time of being declared, due and payable under such agreements or
instruments, before it would otherwise have been due and payable or (2) a
default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on the
due date thereof in an aggregate amount of not less than the applicable
Threshold Amount under such agreements or instruments (after giving effect
to any applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or other
similar law affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and, in the case of
any such proceeding or petition instituted or presented against
it, such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or liquidation or (B) is
not dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof; (5)
has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation
or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver,
trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7) (inclusive);
or (9) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing
acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at
the time of such consolidation, amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it
or its predecessor was a party by operation of law or pursuant to
an agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event
6 ISDA-Registered Trademark- 1992
<PAGE>
Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or (y) a Change in
Tax Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount is required to be deducted or withheld for or
on account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in
respect of such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B)).
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X consolidates
or amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, another entity and such action does not
constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate, will
be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event"
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
7 ISDA-Registered Trademark- 1992
<PAGE>
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying the
nature of that Termination Event and each Affected Transaction and will
also give such other information about that Termination Event as the other
party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such other party's policies in effect at
such time would permit it to enter into transactions with the transferee on
the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or
a Tax Event occurs and there are two Affected Parties, each party will use
all reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that Termination
Event.
(iv) RIGHT TO TERMINATE. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in the case
of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event
or an Additional Termination Event if there is more than one Affected
Party, or the party which is not the Affected Party in the case of a Credit
Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, by not more than 20 days notice to the other party and
provided that the relevant Termination Event is then
8 ISDA-Registered Trademark- 1992
<PAGE>
continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section 2(a)(i)
or 2(e) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement. The
amount, if any, payable in respect of an Early Termination Date shall be
determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and specifying
any amount payable under Section 6(e)) and (2) giving details of the
relevant account to which any amount payable to it is to be paid. In the
absence of written confirmation from the source of a quotation obtained in
determining a Market Quotation, the records of the party obtaining such
quotation will be conclusive evidence of the existence and accuracy of
such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment) in the
Termination Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:--
(1) FIRST METHOD AND MARKET QUOTATION. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to the Defaulting Party.
(2) FIRST METHOD AND LOSS. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of this
Agreement.
(3) SECOND METHOD AND MARKET QUOTATION. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the
sum of the Settlement Amount (determined by the
9 ISDA-Registered Trademark- 1992
<PAGE>
Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to the Defaulting
Party. If that amount is a positive number, the Defaulting Party
will pay it to the Non-defaulting Party: if it is a negative
number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party.
(4) SECOND METHOD AND LOSS. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's
Loss in respect of this Agreement. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting
Party: if it is a negative number, the Non-defaulting Party will
pay the absolute value of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) ONE AFFECTED PARTY. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is not
the Affected Party, respectively, and, if Loss applies and fewer
than all the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions,
and an amount will be payable equal to (I) the sum of (a)
one-half of the difference between the Settlement Amount of
the party with the higher Settlement Amount ("X") and the
Settlement Amount of the party with the lower Settlement
Amount ("Y") and (b) the Termination Currency Equivalent of
the Unpaid Amounts owing to X less (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with
the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
10 ISDA-Registered Trademark- 1992
<PAGE>
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without prejudice
to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii)
for the payment of any amount relating to any early termination in respect of
this Agreement or (iii) in respect of a judgment or order of another court
for the payment of any amount described in (i) or (ii) above, the party
seeking recovery, after recovery in full of the aggregate amount to which
such party is entitled pursuant to the judgment or order, will be entitled to
receive immediately from the other party the amount of any shortfall of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency and will refund promptly to the other party any excess of
the Contractual Currency received by such party as a consequence of sums paid
in such other currency if such shortfall or such excess arises or results
from any variation between the rate of exchange at which the Contractual
Currency is converted into the currency of the judgment or order for the
purposes of such judgment or order and the rate of exchange at which such
party is able, acting in a reasonable manner and in good faith in converting
the currency received into the Contractual Currency, to purchase the
Contractual Currency with the amount of the currency of the judgment or order
actually received by such party. The term "rate of exchange" includes,
without limitation, any premiums and costs of exchange payable in connection
with the purchase of or conversion into the Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
11 ISDA-Registered Trademark- 1992
<PAGE>
9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
12 ISDA-Registered Trademark- 1992
<PAGE>
to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it
is delivered:
(ii) if sent by telex, on the date the recipient's answerback is
received:
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the Borough of Manhattan in New
York City, if this Agreement is expressed to be governed by the laws of the
State of New York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any
13 ISDA-Registered Trademark- 1992
<PAGE>
reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL TERMINATION EVENT", has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate:
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any Law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
14 ISDA-Registered Trademark- 1992
<PAGE>
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such
jurisdiction, or being or having been organised, present or engaged in a
trade or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding
a connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
15 ISDA-Registered Trademark- 1992
<PAGE>
been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
16 ISDA-Registered Trademark- 1992
<PAGE>
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and
the other party to this Agreement (or any Credit Support Provider of such
other party or any applicable Specified Entity of such other party) which is
a rate swap transaction, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of these
transactions), (b) any combination of these transactions and (c) any other
transaction identified as a Specified Transaction in this Agreement or the
relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto) that
is imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
17 ISDA-Registered Trademark- 1992
<PAGE>
value of that which was (or would have been) required to be delivered as of
the originally scheduled date for delivery, in each case together with (to
the extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding)
such Early Termination Date, at the Applicable Rate. Such amounts of interest
will be calculated on the basis of daily compounding and the actual number of
days elapsed. The fair market value of any obligation referred to in clause
(b) above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
Integrity Life Insurance Company 312 Certificate Company
- --------------------------------------- ------------------------------
(Name of Party) (Name of Party)
By: /s/ Thomas A. Bauer By: /s/ William D. Morris
------------------------------------ ---------------------------
Name: Thomas A. Bauer Name: William D. Morris
Title: Derivatives Portfolio Manager Title: CEO
Date: April 24, 1998 Date: April 24, 1998
18 ISDA-Registered Trademark- 1992
<PAGE>
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of April 24, 1998
between Integrity Life Insurance Company ("PARTY A")
and 312 Certificate Company ("PARTY B")
PART 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" has no meaning for the purpose of this Agreement.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14
of this Agreement.
(c) The provisions of the following "EVENT OF DEFAULT" provisions shall
apply only to Party A, and shall not apply to Party B:
Section 5(a)(i) Failure to Pay;
Section 5(a)(ii) Breach of Agreement;
Section 5(a)(iv) Misrepresentations; and
Section 5(a)(v) Default under Specified Transaction.
(d) The "CROSS DEFAULT" provisions of Section 5(a)(vi)
will apply to Party A
will not apply to Party B
If such provisions apply:
"SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14
of this Agreement PROVIDED HOWEVER that Specified Indebtedness shall
not include deposits, contributions, premiums or additions to
guaranteed investment contracts, annuities, funding agreements or
other policyholder-level or insurance-related obligations issued or
guaranteed by Party A.
"THRESHOLD AMOUNT" means, with respect to Party A, an amount equal to
$10,000,000. For the purposes of Section 5(a)(vi) of this Agreement,
any Specified Indebtedness of Party A denominated in a currency other
than U.S. Dollars will be converted into U.S. Dollars at the exchange
rate therefor as of the date of conversion reasonably chosen by
Party B.
19
<PAGE>
(e) The "TAX EVENT"and "TAX EVENT UPON MERGER" provisions of
Section 5(b)(ii) and 5(b)(iii) will not apply to either Party A nor
Party B.
(f) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will apply to Party A
will not apply to Party B.
(g) "TERMINATION CURRENCY" means U.S. Dollars
(h) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not
apply to either Party A or Party B.
(i) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this
Agreement:
(i) Neither Market Quotation nor Loss will apply; and
(ii) Neither The First Method or The Second Method will apply
Instead the Provisions set out in a Confirmation in relation to the
relevant Transaction will apply.
PART 2. TAX REPRESENTATIONS.
(a) PAYER TAX REPRESENTATION. For the purpose of Section 3(e) of this
Agreement, Party A and Party B will make the following representation:
It is not required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of
any Tax from any payment (other than interest under Section 2(e),
6(d)(ii) or 6(e) of this Agreement) to be made by it to the other
party under this Agreement. In making this representation, it may rely
on:
(i) the accuracy of any representation made by the other party
pursuant to Section 3(f) of this Agreement;
(ii) the satisfaction of the agreement of the other party contained
in Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided by the
other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement; and
20
<PAGE>
(iii) the satisfaction of the agreement of the other party contained
in Section 4(d) of this Agreement;
PROVIDED THAT it shall not be a breach of this representation where
the reliance is placed on clause (ii) and the other party does not
deliver a form or document under Section 4(a)(iii) by reason of
material prejudice to its legal or commercial position.
(b) PAYEE TAX REPRESENTATION. For the purposes of Section 3(f) of this
Agreement, Party A and Party B make the representations specified
below:
(i) Party A and Party B each hereby represents that each payment
received or to be received by it in connection with this
Agreement will be effectively connected with its conduct of a
trade or business in the United States of America.
(ii) Party A hereby represents that it is a stock insurance company
organized and existing under the laws of the State of Ohio,
and its U.S. tax identification number is 86-0214103.
(ii) Party B hereby represents that it is a corporation organized
and existing under the laws of the State of Delaware, and
its U.S. tax identification number is 61-1324769.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees
to deliver the following documents, which (other than the opinion of counsel
referred to in clause (b)(5) below) will be covered by the Section 3(d)
REPRESENTATION:
(a) Tax forms, documents or certificates to be delivered are:
Any document or certificate reasonably required and reasonably
requested by a party in connection with its obligations to make a
payment under this Agreement which would enable such party to make the
payment free from any deduction or withholding for or on account of
any Tax or as would reduce the rate at which deduction or withholding
for or on account of any Tax is applied to that payment.
Party required to deliver: Party A and Party B
Date by which to be delivered: As soon as reasonably practicable
following a request by the other party.
(b) Other documents to be delivered are:
21
<PAGE>
(1) A certificate or list providing the names, signatures and
giving evidence satisfactory in form and substance to the
other party of the authority of the officers of the party to
execute this Agreement and any Confirmation.
Party required to deliver: Party A and Party B
Date by which to be delivered: Upon execution of this Agreement or
Confirmation, and when the list is updated as the case may be.
(2) Certified copies of all documents evidencing necessary
corporate and other authorizations and approvals with
respect to the execution, delivery and performance by the
party of this Agreement.
Party required to deliver: Party A and Party B
Date by which to be delivered: Upon execution of this Agreement.
(3) Certificate of Incorporation and By-laws as in effect from
time to time, certified by the Secretary or an Assistant
Secretary of the applicable party.
Party required to deliver: Party A and Party B
Date by which to be delivered: Upon execution of this Agreement.
(4) A copy of the annual report of Party A, or its parent,
containing audited consolidated financial statements for
each fiscal year certified by independent certified public
accountants and prepared in accordance with accounting
principles that are generally accepted in the country in
which such party is organized.
Party required to deliver: Party A
Date by which to be delivered: As soon as reasonably practicable after
public availability.
(5) Such other documents as the other party may reasonably request
in connection with each Transaction, including, without
limitation, an opinion of counsel and such other written
information with respect to the condition or operations,
financial or otherwise, of either party as the other party
may reasonably request from time to time.
Party required to deliver: Party A and Party B
Date by which to be delivered: Upon reasonable request of the other
party.
22
<PAGE>
PART 4. MISCELLANEOUS.
<TABLE>
<S> <C>
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this
Agreement:
Address of notices or communications to Party A:
Address: 515 West Market Street, 4th Floor, Louisville, Kentucky 40202
Attention: Robert H. Scott
Facsimile No.: 502/582-7995
Address of notices or communications to Party B:
Address: 515 West Market Street, 8th Floor, Louisville, Kentucky 40202
Attention: Robert L. Maddox, President
Facsimile No.: 502/582-7903
and with a copy to: Goldberg & Simpson, P.S.C.
Address: First National Tower, 30th Floor, Louisville, Kentucky 40202
Attention: Steven Goodman
Facsimile No.: 502/581-1344
and with a copy to: The First National Bank of Chicago, as Agent
Address: One First National Plaza, Mail Suite 0594, Chicago, Illinois 60670-0594
Attention: Ann Marie Somers, Asset-Backed Finance Surveillance
Facsimile No.: 312/732-4487
and with a copy to: Sidley & Austin
Address: One First National Plaza, Chicago, Illinois 60603
Attention: Thomas W. Albrecht
Fax No.: 312/853-7036 Telephone No.: 312/853-7000
</TABLE>
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement:
Party A appoints as its Process Agent, Not applicable.
Party B appoints as its Process Agent, Not applicable.
(c) OFFICES. The provisions of Section 10(a) will not apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
23
<PAGE>
(e) CREDIT SUPPORT PROVIDER means in relation to Party A, not applicable
CREDIT SUPPORT PROVIDER means in relation to Party B, not applicable
(f) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the internal laws of the State of Illinois, without
regard to conflicts of law principles.
(g) "AFFILIATE" will have the meaning specified in Section 14 of this
Agreement
(h) CALCULATION AGENT. The Calculation Agent shall be Party B, unless
otherwise specified in a Confirmation in relation to the relevant
Transaction.
PART 5. OTHER PROVISIONS.
(1) SEPARATE AGREEMENTS. Section 1(c) of this Agreement shall be deleted
and replaced with the following:
"Notwithstanding anything to the contrary in this Agreement, each
Transaction is entered into on the basis that this document is
incorporated by reference into the Confirmation relating to that
Transaction so that this document and the relevant Confirmation shall
form a single agreement with respect to that Transaction, and
"Transaction" and "Agreement" shall be interpreted accordingly. This
document shall not be construed to form a single agreement with two or
more Confirmations together unless specific provision to that effect
is made in the relevant Confirmations. It is understood that the
parties would not enter into any Transaction except on the foregoing
terms. References to this "Agreement" mean, with respect to a
Transaction, this document together with the Confirmation relating to
that Transaction."
Section 6(a) of this Agreement shall be amended by deleting from the
fifth and sixth lines thereof the words "all outstanding
Transactions", and inserting in each case the words "the Transaction".
(1) OBLIGATIONS. In Section 2(a)(iii), the words "or Potential Event of
Default" shall be deleted.
(2) PAYMENTS. The following shall be inserted as Section 2(d)(iii) of the
Agreement:
"(iii) REFUNDS. If Party A or Party B has paid an Additional Amount
under Section 2(d)(i) or paid any amount pursuant to Section 2(d)(ii)
and the other party subsequently receives any refund of any amount
deducted or withheld in respect thereof from any revenue authority it
shall promptly pay the amount refunded over to the paying party,
together with any interest received thereon."
24
<PAGE>
(3) Section 3 of this Agreement is hereby amended by adding the following
additional subsections:
"(g) NO AGENCY. It is entering into this Agreement and each
Transaction as principal (and not as agent or in any other capacity,
fiduciary or otherwise).
(h) ELIGIBLE SWAP PARTICIPANT. It is an "eligible swap participant" as
defined in the Part 35 Regulations of the U.S. Commodity Futures
Trading Commission (the "CFTC"). Neither this Agreement nor any
Transaction is one of a fungible class of agreements that are
standardized as to their material economic terms, within the meaning
of CFTC Regulations Section 35.2(b). The creditworthiness of the other
party was or will be a material consideration in entering into or
determining the terms of this Agreement and each Transaction,
including pricing, cost or credit enhancement terms of the Agreement
or Transaction, within the meaning of CFTC Regulations Section
35.2(c). It has entered into this Agreement (including each
Transaction) in conjunction with its line of business (including
financial intermediation services) or the financing of its business."
(4) Section 5(a)(iv) of this Agreement is hereby amended by the insertion
of the words "specified in Section 3 or in the Schedule hereto" after
the word "representation".
(5) CROSS DEFAULT. Section 5(a)(vi) of this Agreement is replaced in its
entirety with the following:
"(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule
as applying to the party, the occurrence or existence of (1) a default
by such party in making one or more payments on the due date thereof
relating to Specified Indebtedness of such party in an aggregate
amount of not less than the applicable Threshold Amount (as specified
in the Schedule) which has resulted in such Specified Indebtedness
becoming, or becoming capable at such time of being declared, due and
payable under such agreements or instruments, before it would
otherwise have been due and payable or (2) a default by such party in
making one or more payments on the due date thereof in an aggregate
amount of not less than the applicable Threshold Amount under such
agreements or instruments (after giving effect to any applicable
notice requirement or grace period);"
(5A) TAX EVENT. The parties acknowledge that the occurrence of a Tax Event
shall not constitute a Termination Event for purposes of this
Agreement. Notwithstanding the foregoing, if a Tax Event occurs, the
Affected Party will comply with the notice requirements of Section
6(b)(i).
(6) TRANSFERS. Section 7 of this Agreement is replaced in its entirety
with the following:
25
<PAGE>
"(a) Neither this Agreement nor any interest or obligation in or under
this Agreement may be transferred by Party A to another entity
without the prior written consent of Party B and the "Agent" (as
such term is defined in clause (b) below); and
(b) Neither this Agreement nor any interest in or under this
Agreement may be transferred by Party B to any other entity
without Party A's prior written consent, such consent not to
be unreasonably withheld, PROVIDED, HOWEVER, that
notwithstanding the foregoing, Party A hereby consents to
Party B's assignment of all of Party B's interest hereunder as
security for its obligations (the "SECURED OBLIGATIONS") under
that certain Face Amount Certificate Agreement dated as of
April 24, 1998 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the
"FACE AMOUNT CERTIFICATE AGREEMENT") among Party B,
International Securitization Corporation and The First
National Bank of Chicago, as Agent thereunder (the "AGENT"),
and certain related agreements, and hereby agrees that it
shall recognize any such secured party transferee as having
all of the rights of Party B hereunder."
(7) JURISDICTION; WAIVER OF JURY TRIAL. Section 13 of this Agreement is
replaced in its entirety with the following:
"(i) With respect to any suit, action or proceeding relating to this
Agreement ("PROCEEDINGS"), each party irrevocably submits to the
exclusive jurisdiction of the state or federal courts located in Cook
County, City of Chicago, Illinois, PROVIDED, that the parties
acknowledge that any appeals from those courts may have to be heard by
a court located outside of Cook County, City of Chicago, Illinois,
and, PROVIDED, FURTHER, that nothing in this agreement shall be deemed
or operate to preclude either party from bringing suit or taking other
legal action in any other jurisdiction to enforce a judgment or other
court order in its favor. Each party hereto expressly submits and
consents in advance to such jurisdiction in any action or suit
commenced in any such court, and waives any objection which it may
have based upon lack of personal jurisdiction, improper venue or FORUM
NON CONVENIENS and hereby consents to the granting of such legal or
equitable relief as is deemed appropriate by such court.
(ii) Because disputes arising in connection with complex financial
transactions are most quickly and economically resolved by an
experienced and expert person and the parties wish applicable state
and federal laws to apply (rather than arbitration rules), the parties
desire that disputes arising hereunder or relating hereto be resolved
by a judge applying such applicable laws. Therefore, to achieve the
best combination of the benefits of the judicial system and of
arbitration, the parties hereto waive all right to trial by jury in
any Proceedings brought to resolve any dispute, whether sounding in
contract, tort, or otherwise, between the parties
26
<PAGE>
hereto arising out of, connected with, related to, or incidental to
the relationship established in connection with, this Agreement."
(8) INTERPRETATION. References in this Agreement to the parties hereto, Party A
and Party B shall (for the avoidance of doubt) include, where appropriate,
any permitted successor or assign thereof.
(9) DEFINITIONS. This Agreement, each Confirmation and each Transaction are
subject to the 1991 ISDA Definitions (as published by the International
Swaps and Derivatives Association, Inc.) (the "DEFINITIONS") and will be
governed in all respects by the provisions set forth in the Definitions,
without regard to any amendments to the Definitions subsequent to the date
hereof. The provisions of the Definitions are incorporated by reference in
and shall be deemed to be part of this Agreement and each Confirmation as
if set forth in full in this Agreement and in each such Confirmation. In
the event of any inconsistency between the provisions of this Agreement and
the Definitions, this Agreement will prevail.
(10) PERFORMANCE BY THE AGENT. Party A acknowledges that the obligations of
Party B under the Agreement may be performed by the Agent.
(11) NO PROCEEDINGS AGAINST PARTY B. Party A hereby agrees (which agreement
shall, pursuant to the terms of this Agreement, be binding upon its
successors and assigns) that it shall not institute against, or join any
other person in instituting against, Party B any bankruptcy,
reorganization, arrangement, insolvency, or liquidation proceeding, or
other proceeding under any federal or state bankruptcy or similar law, for
one year and a day after the Secured Obligations of Party B have been paid
in full and the Face Amount Certificate Agreement shall have terminated in
accordance with its terms. The provisions of this Section 11 shall survive
the termination of this Agreement.
(12) NO RECOURSE. Anything contained in this Agreement to the contrary
notwithstanding, all payments to be made by Party B under this Agreement
shall be made by Party B solely from cash available to Party B for the
payment of such obligations following application of Party B's funds in
accordance with the priority of payments set forth in the Investment
Management Agreement dated as of April 24, 1998 (as the same may be
amended, restated, supplemented or otherwise modified from time to time,
the "INVESTMENT MANAGEMENT AGREEMENT") among Party B, Integrity Capital
Advisors, Inc., a Delaware corporation, as the "Portfolio Manager"
thereunder (in such capacity, the "PORTFOLIO MANAGER") and the Agent
(collectively "AVAILABLE FUNDS"). No recourse shall be had against Party B
personally or against any incorporator, shareholder, officer, director,
employee, agent, attorney, accountant or other representative of Party B
with respect to any of the covenants, agreements, representations or
warranties of Party B contained in this Agreement, it being understood that
such covenants, representations or warranties are enforceable only to the
extent of Available Funds. The provisions of this Section 12 shall
27
<PAGE>
survive the termination of this Agreement. Party A hereby acknowledges
that, pursuant to the terms and conditions of this Agreement, Party B is or
may be required, from time to time, to make certain payments to Party A,
either as compensation for services rendered, reimbursement for out of
pocket expenses, indemnification, or otherwise, as set forth herein. Party
A hereby agrees that, notwithstanding any other provision of this
Agreement, at any time that any Secured Obligations are outstanding and no
Insolvency Event (as defined below) has occurred and is continuing, (i)
Party B shall not make any such payment to Party A, (ii) Party B shall have
no duty, liability or obligation to make any such payment to Party A, (iii)
no such payment shall be due from Party B and (iv) Party A shall have no
right to enforce any claim against Party B in respect of any such payment,
in each case unless and to the extent (x) that the making of such payment
by Party B would not render Party B insolvent and (y) Party B has received
funds with respect to such obligations which may be used to make such
payment and which funds are not required to pay Secured Obligations when
due. As used in this Section the term "INSOLVENCY EVENT" shall mean an
event of the type described in Section 5(a)(vii) of the Agreement with
respect to Party B.
(13) NO SET-OFF. Notwithstanding any Set-off right contained in any Other
Agreement (as defined below) or any agreement relating to any Other
Agreement between Party A or any Affiliate of Party A, on the one hand, and
Party B or any Affiliate of Party B on the other, whether now in existence
or hereafter entered into, each party agrees that all payments required to
be made by it under this Agreement shall be made without Set-off, and that
it shall not withhold payment or delivery under this Agreement in respect
of, any default by the other party or any Affiliate of the other party
under any Other Agreement or any amount relating to any Other Agreement
between the other party or any Affiliate of the other party, on the one
hand, and it or any affiliate of it, on the other, PROVIDED, HOWEVER, that
the foregoing shall not be construed so as to preclude the operation of the
netting provision of Section 2(c)(ii). As used herein, "OTHER AGREEMENT"
means any agreement, including, but not limited to, (i) any transaction
(including an agreement with respect thereto) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap,
commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction,
cap transaction floor transaction, currency option or any other similar
transaction (including any option with respect to any of these
transactions), (ii) any obligation (whether present or future, contingent
or otherwise) in respect of borrowed money, or (iii) any combination of one
or more of the transactions described above. Furthermore, for this purpose,
"SET-OFF" means set-off, offset, combination of accounts, right of
retention or withholding or similar right or requirement to which each
party is entitled or subject (whether arising under this Agreement, another
contract, applicable law or otherwise) that is exercised by, or imposed on,
each party.
28
<PAGE>
(14) No amendment, modification or waiver in respect of this Agreement which
otherwise conforms to the requirements set forth in Section 9(b) shall be
effective unless the prior written approval of the Agent has been
obtained.
INTEGRITY LIFE INSURANCE COMPANY 312 CERTIFICATE COMPANY
By: /s/ Thomas A. Bauer By: /s/ William D. Morris
--------------------------------- ------------------------
Name: Thomas A. Bauer Name: William D. Morris
--------------------------------- ------------------------
Title: Derivatives Portfolio Manager Title: CEO
--------------------------------- ------------------------
29
<PAGE>
INTEGRITY LIFE INSURANCE COMPANY
515 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
Swap Transaction
April 24,1998
312 Certificate Company
515 West Market Street, 8th Floor
Louisville. Kentucky 40202
Attn: Robert L. Maddox
Tel: (502) 582-7903
Re: SWAP TRANSACTION
Dear Sir or Madam:
The purpose of this Confirmation is to set forth the terms and
conditions of the Swap Transaction entered into between you and us on the Trade
Date specified below (the "Swap Transaction"). This Confirmation constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA
Definitions (as published by the International Swaps and Derivatives
Association, Inc.) are incorporated into this Confirmation. In the event of any
inconsistency between those definitions and provisions and this Confirmation,
this Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the ISDA
Master Agreement dated as of April 24, 1998, as amended and supplemented
from time to time (the "Agreement") between Integrity Life Insurance
Company ("Part A") and 312 Certificate Company ("Part B"). All
provisions contained in the Agreement govern this Confirmation except as
expressly modified below.
2. The terms of the particular Swap Transaction to which this Confirmation
relates are as follows:
Notional Amount: the average daily "Invested Amount" under and as
defined in the Face Amount Certificate Agreement.
<PAGE>
Trade Date: April 24, 1998
Effective Date: April 24, 1998
Termination Date: April 22, 1999, PROVIDED, that the Termination Date
shall be automatically extended for a period of 364
days on each Termination Date then in effect unless
Party B shall otherwise request that such extension
not occur, which request shall only be effective if
consented to in writing by the Agent.
Calculation Period: Each "Settlement Period" under and as defined in the
Face Amount Certificate Agreement.
Floating Amounts
A. Floating Rate Payer: Part A
Party A Payment Dates: Each "Settlement Date" under and as defined
in the Face Amount Certificate Agreement or
following notice from Party B or the Agent
that an "Amortization Event" or the first
anniversary of the commencement of the
"Amortization Period" (in each case as such
terms are defined in the Face Amount
Certificate Agreement) has occurred, then
upon the written request of the Agent, each
Business Day thereafter.
Party A Floating Amount: The amount equal to the greater of (a) the
product of (i) the average daily outstanding
"Invested Amount" under and as defined in
the Face Amount Certificate Agreement during
the most recently ended Settlement Period or
on such Business Day, as applicable, and
(ii) the sum of (x) the applicable One-Month
LIBOR under and as determined in accordance
with the terms of the Face Amount
Certificate Agreement for the Settlement
Period most recently ended or on each day
since the last Party A Payment Date (under
this clause A.), as applicable and (y) 0.25%
per annum, or (b) the aggregate amount
payable to or for the account of Party B,
the Portfolio Manager, the Custodian or the
Agent, for its benefit or the benefit of the
Certificateholders, for application to any
obligations of Party B described in clauses
(1) through (4), (6) and (8) of subsection
5(b) of the Investment Management
2
<PAGE>
Agreement on such Settlement Date or
Business Day, as applicable.
Provided however, that the Party A Floating
Payment Dates and the Party A Floating
Amount described above are subject to
Section 3 below.
B. Floating Rate Payer: Party A
Party A Payment Dates: The last Business Day of each calendar week.
Party A Floating Amount: (a) If the ratio, expressed as a percentage
and determined as of the last Business Day
of the preceding calendar week (such
percentage, the "Value Percentage"), of (i)
the sum of the aggregate Fair Market Value
of the Portfolio on such date plus any free
cash balances on deposit in the Custodial
Account on such date, to (ii) the
outstanding "Invested Amount" under and as
defined in the Face Amount Certificate
Agreement on such date, is less than 97.0%,
then an amount equal to the "Shortfall
Amount" under and as defined in the
Investment Management Agreement, or (b) if
the Value Percentage is greater than or
equal to 97.0%, then zero.
Provided, however, that the Party A Floating
Payment Dates and the Party A Floating
Amount described above are subject to
Section 3 below.
C. Floating, Rate Payer: Party B
Party B Payment Dates: Each "Settlement Date" under and as defined
in the Face Amount Certificate Agreement or
following notice from Party B or the Agent
that an "Amortization Event" or the first
anniversary of the commencement of the
"Amortization Period" (in each case as such
terms are defined in the Face Amount
Certificate Agreement) has occurred, then
upon the written request of the Agent, each
Business Day thereafter.
3
<PAGE>
Party B Floating Amount: The amount equal to the sum of (x) the amount
of Book Income for the Settlement Period
most recently ended or on each day since the
last Party B Payment Date. MINUS (y) the
aggregate amount payable to or for the
account of the Portfolio Manager for
application to any obligations of Party B
described in clause (9) of subsection 5(b)
of the Investment Management Agreement.
Provided, however, that the Party B Floating
Payment Dates and the Party B Floating
Amount described above are subject to
Section 3 below.
3. If an Early Termination Date occurs the provisions of Section 6(e)(i) and
6(e)(ii) of the Agreement will not apply to this Transaction. In addition
to the foregoing and without prejudice to either party's rights under the
succeeding sentence, neither party hereto shall have the right to terminate
this Agreement pursuant to Section 6(a) or 6(b) of the Agreement,
notwithstanding the fact that an Event of Default or Termination Event may
exist. Upon the occurrence of (i) a "Liquidation Event" of the type
described in clause (viii) of the definition of such term in the Face
Amount Certificate Agreement or (ii) the first anniversary of the
commencement of the "Amortization Period" under and as defined in the Face
Amount Certificate Agreement, then upon the Agent or Party B's delivery of
notice to Party A, the parties hereto shall make the following payments:
Party A Final Settlement
Payment Amount: The amount equal to the greater of (a) the
product of (i) the average daily outstanding
"Invested Amount" under and as defined in
the Face Amount Certificate Agreement during
the period from the later of the last Party
A Payment Date referred to in clause "A"
above or the last day of the most recently
ended Settlement Period (such period, the
"Final Settlement Period") and (ii) the sum
of (x) the applicable One-Month LIBOR under
and as determined in accordance with the
terms of the Face Amount Certificate
Agreement for the Final Settlement Period
and (y) 0.25% per annum, and (b) the
aggregate amount payable to or for the
account of Party B, the Portfolio Manager,
the Custodian or the Agent, for its benefit
or the benefit of the Certificateholders,
for application to any obligations of Party
B described in clauses (1) through (6) and
(8) of subsection 5(b) of the Investment
Management Agreement on such date.
4
<PAGE>
Party B Final Settlement
Payment Amount: An amount equal to the excess of (x) the sum
of the aggregate Fair Market Value of the
Portfolio on such date plus any free cash
balances on deposit in the Custodial Account
on such date, MINUS (y) the aggregate amount
payable to or for the account of the
Portfolio Manager for application to any
obligations of Party B described in clause
(9) of subsection 5(b) of the Investment
Management Agreement on such date.
Upon payment of the Party A Final Settlement Payment Amount in full, Party A
shall be discharged from all further and future obligations (except for
obligations which were due on or prior to the happening of the above event)
hereunder without affecting the obligations of Party B hereunder
4. Condition Precedent
Section 2(a)(iii) of the Agreement shall apply in respect of the obligations of
Party B but shall not apply in respect of the obligations of the Party A.
Instead, the following shall apply in respect of the obligations of Party A:
"Party A shall pay all Party A Floating Amounts and the Party A Final Settlement
Payment Amount, any unpaid amounts payable by it and any other amounts due in
respect of this Transaction to Party B promptly when due and, notwithstanding
the fact that at any time Party B fails to make any payment due to Party A in
respect of this Transaction."
5. Netting
Notwithstanding anything to the contrary set forth in the Agreement (including
Section 2(c) thereof). Party A shall not be permitted to net or offset the
amount of the Party B Final Settlement Amount against its obligations hereunder
in order to reduce the amount of the Party A Final Settlement Amount Payable on
any date.
6. Account Details
Payments to Party A:
Account for payments in USD: The Chase Manhattan Bank
ABA#: 021-000-021
A/C#: 037-2-406926
A/C Name: Integrity Life Concentration
5
<PAGE>
Payments to Part B:
Account for payments in USD: Bank One, Kentucky, N.A.
ABA#: 044-000-037
A/C#: 98-04-01787
A/C Name: Bank One Custody
For further credit to:
A/C#: 3402824200
A/C Name: 312 Certificate
7. Additional Definitions
"BOOK INCOME" means, with respect to any applicable period of time,
the sum of the following amounts (i) interest income received in cash during
such period with respect to the Portfolio, MINUS (ii) accrued interest on any
Security or Short-Term Investment paid in connection with the purchase of such
Security or Short-Term Investment by the Issuer during such period, PLUS (iii)
accrued income on the Portfolio as of the last day of such period, MINUS (iv)
accrued income on the Portfolio as of the day immediately preceding the first
day of such period, PLUS (v) correction of any discount on the Portfolio during
such period, MINUS (vi) amortization of any premium amounts accrued during such
period.
"BUSINESS DAY" means any day on which banks are not authorized or
required to close in New York, New York or Chicago, Illinois and The Depository
Trust Company of New York is open for business, and, if the applicable Business
Day relates to any computation or payment to be made with respect to the
One-Month LIBOR, any day on which dealings in U.S. Dollar deposits are carried
on in the London interbank market.
"CUSTODIAL ACCOUNT" shall have the meaning given to such term in the
Face Amount Certificate Agreement.
"FAIR MARKET VALUE" means, with respect to any Security or Short-Term
Investment, at any date, (i) if quotations are then available, the price of such
Security on the preceding Business Day, as appearing in, and calculated based
on, any regularly published reporting or quotation service price, or (ii) if
quotations are not then available, the market value of such Security or
Short-Term Investment, as determined by the Portfolio Manager, based on its
standard valuation procedures acceptable to the Agent in its reasonable
discretion but in the case of both (i) and (ii) excluding the portion of such
price or value attributable to the accrued interest or discount with respect to
such Security or Short-Term Investment as of such date.
"ONE-MONTH LIBOR" shall have the meaning given to such term in the
Face Amount Certificate.
6
<PAGE>
"PORTFOLIO" means the Securities and Short-Term Investments of the
Issuer held from time to time in the Custodial Account.
"SHORT-TERM INVESTMENTS" shall have the meaning given to such term
in the Investment Management Agreement.
"SECURITY" means indebtedness constituting a debenture, bond, note or
other instrument or evidence of indebtedness issued by an obligor or obligors,
other than a line of credit or a loan.
8. Calculations
All calculations of applicable amounts hereunder shall, to the extent
applicable, be calculated based on actual days over a year consisting of 360
days.
6A
<PAGE>
Please confirm that the foregoing correctly sets forth the terms of
our agreement by executing a copy of this Confirmation and returning it to us.
Yours sincerely,
INTEGRITY LIFE INSURANCE COMPANY
By /s/ ILLEGIBLE
-------------------------------
Name: ILLEGIBLE
Title: ILLEGIBLE
Confirmed as of the date first written:
312 CERTIFICATE COMPANY
By: /s/ William D. Morris
------------------------------
Name: William D. Morris
Title: CEO
<PAGE>
AMENDMENT NO. 1
TO
FACE AMOUNT CERTIFICATE AGREEMENT
This Amendment No. I (the "Amendment") is dated as April 21, 1999 among
312 CERTIFICATE COMPANY, a Delaware corporation (the "Issuer"), INTERNATIONAL
SECURITIZATION CORPORATION, a bankruptcy-remote Delaware corporation ("ISC")
and THE FIRST NATIONAL BANK OF CHICAGO, as Agent for the Certificateholders (as
such term is defined in the Agreement).
WITNESSETH:
WHEREAS, the Issuer, ISC and the Agent are parties to that certain Face
Amount Certificate Agreement dated as of April 24, 1998 (as amended from time to
time, the "Agreement"); and
WHEREAS, the Issuer, ISC 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. Section 1 of the Agreement is amended by replacing the phrase "up to a
total principal amount of $500,000,000" appearing at the end thereof with the
phrase "up to a total principal amount not to exceed the Maximum Certificate
Amount as then determined".
2.2. The definition of "Cashflow" in Section 5 of the Agreement is amended
by inserting the following prior to the closed parenthetical at the end
thereof:
"or any Permitted Hedging Transaction"
2.3. The definition of "Scheduled Liquidity Termination Date" in Section 5
of the Agreement is amended by replacing the date "April 22, 1999" appearing
therein with the date "April 20, 2000".
2.4. The definition of "Transaction Documents" in Section 5 of the
Agreement is amended by inserting the following immediately prior to the words,
"Liquidity Agreement" in the third line thereof:
"the transaction confirmations and agreements evidencing Permitted
Hedging Transactions,"
2.5. Section 5 of the Agreement is amended by the insertion of the
following defined terms therein:
<PAGE>
" 'Maximum Certificate Amount" means, at any time, the lesser of (i)
the Aggregate Commitment (as defined in the Liquidity Agreement) as
then determined, (ii) an amount equal to the Letter of Credit Amount
divided by 10% (as defined in the Letter of Credit Reimbursement
Agreement) as then determined, and (iii) $600,000,000.
"Permitted Hedging Transaction" shall have its meaning as set forth
in the Investment Management Agreement."
2.6. Amendment to Exhibit C. Section 3(e) of Exhibit C to the Agreement is
amended by replacing the last three lines thereof (beginning with "except for
purchase") with the following:
"except for purchases and funding of Eligible Securities, the Swap
Agreement and Permitted Hedging Transactions pursuant to the terms of
this Agreement, the Investment Management Agreement and the Pledge
Agreement."
3. REFERENCES TO PORTFOLIO, CERTIFICATE. For purposes of clarification,
all references in the Agreement or any other Transaction Document to the term
"Portfolio" shall be deemed to include any and all Permitted Hedging
Transactions entered into by or on behalf of the Issuer, and all references in
the Agreement or any other Transaction Document to the term "Certificate" shall
be deemed to be references to the replacement Certificate in the form of Exhibit
A hereto issued by the Issuer pursuant to Section 5 hereof.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and ISC
to enter into this Amendment the Issuer represents and warrants that:
4.1. The representations and warranties set forth in Exhibit C of the
Agreement are true, correct and complete on the date hereof as if made on and as
of the date hereof and that there exists no Amortization Event or event or
condition which with the lapse of time, the giving of notice or both, would
constitute an Amortization Event on the date hereof.
4.2. The execution and delivery by the Issuer of this Amendment and the
replacement Certificate has been duty authorized by proper corporate proceedings
of the Issuer and this Amendment, and the Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligation of the Issuer
enforceable against the Issuer in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or other similar laws relating to or limiting creditors' rights generally.
4.3. Neither the execution and delivery by the Issuer of this Amendment
and the replacement Certificate, nor the consummation of the transactions herein
contemplated, nor compliance with the provisions hereof will violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
the Issuer or the Issuer's articles of incorporation or by-laws or the
provisions of any indenture, instrument or agreement to which the Issuer is a
party or is subject, or by which it or its property, is bound, or conflict with
or constitute a default thereunder.
5. EFFECTIVE DATE. This Amendment shall become effective as of the date above
first written upon receipt by the Agent of:
(i) Counterparts of this Amendment and amendments dated as of the date
hereof to
<PAGE>
the Liquidity Agreement, the Investment Management Agreement, the
Pledge and Security Agreement, the Swap Agreement, the Liquidity Fee
Letter, the Letter of Credit Reimbursement Agreement and the Letter
of Credit, duly signed by all parties thereto.
(ii) A duly executed replacement Certificate in the form of Exhibit A
hereto.
(iii) Copies, certified by an officer of the Issuer, of its by-laws and of
its Board of Directors' resolutions (and resolutions of other bodies,
if any are deemed necessary by counsel for any Purchaser) authorizing
the execution of and performance by the Issuer of its obligations
under this Amendment and the Agreement as amended by this Amendment.
(iv) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the Issuer, which shall identify by name and title and
bear the signature of the officers of the Issuer authorized to sign
this Amendment.
(v) A written opinion of counsel for the Issuer addressed to the Agent
and the Certificateholders in substantially the form of Exhibit B-1
hereto.
(vi) A written opinion of counsel for Integrity Capital Advisors, Inc. and
Integrity Life Insurance Company addressed to the Agent and the
Certificateholders in substantially the form of Exhibit B-2 hereto.
(vii) Such other documents as the Agent or any Certificateholder may
request.
6. RATIFICATION. The Agreement, as amended hereby, is hereby ratified,
approved and confirmed in all respects.
7. 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.
8. COSTS AND EXPENSES. The Issuer agrees to pay all costs, fees, and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent, which attorneys may be employees of the Agent) incurred by the
Agent in connection with the preparation, execution and enforcement of 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.
<PAGE>
IN WITNESS WHEREOF, the Issuer, ISC and the Agent have executed this
Amendment as of the date first above written.
312 CERTIFICATE COMPANY
By: /s/ William D. Morris
-----------------------------------
Title: CEO
-----------------------------------
INTERNATIONAL SECURITIZATION
CORPORATION
By: /s/ Stephanie Wolf
-----------------------------------
Title: Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO,
individually as a Certificateholder and as Agent
By: /s/ Stephanie Wolf
-----------------------------------
Title: First Vice President
-----------------------------------
<PAGE>
EXHIBIT A
312 CERTIFICATE COMPANY
$600,000,000 INSTALLMENT FACE AMOUNT CERTIFICATE
APRIL 21, 1999
312 Certificate Company, a corporation duly organized and existing
under the laws of the State of Delaware (the "Issuer"), shall pay to The First
National Bank of Chicago, as agent (the "Agent") for International
Securitization Corporation ("ISC") and any subsequent entity which, in the
future purchases an interest in this installment face amount certificate (this
"Certificate") and such future potential purchasers are pursuant to the
Liquidity Agreement (collectively, ISC hereinafter referred to as the
"Certificateholders") the principal amount of $600,000,000, or, if less, the
aggregate unpaid principal amount of all installment purchase payments made by
the Certificateholders from time to time (the "Invested Amount"), and to pay
interest on the Invested Amount as more fully set forth in that certain Face
Amount Certificate Agreement dated as of April 23, 1998, among the Issuer, ISC
and the Agent (as amended, restated, supplemented or otherwise modified from
time to time, the "Face Amount Certificate Agreement").
This Certificate is issued pursuant to the Face Amount Certificate
Agreement. Reference is hereby made to the Face Amount Certificate Agreement for
a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Issuer, the Agent and the Certificateholders and
the terms upon which this Certificate is delivered. All terms used in this
Certificate which are not defined herein shall have the meanings assigned to
them in the Face Amount Certificate Agreement. The provisions of the Face Amount
Certificate Agreement are hereby incorporated by reference herein and shall be
binding on the Issuer, the Agent and the Certificateholders as if fully set
forth herein. As provided in the Face Amount Certificate Agreement, this
Certificate is secured by the Pledged Collateral. To the extent provided in the
Face Amount Certificate Agreement and the Pledge Agreement, the
Certificateholders, (and the Agent on their behalf) shall be entitled to the
benefits of a security interest in the Pledged Collateral, for the benefit of
the Certificateholders.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE IS ISSUED IN REPLACEMENT OF, AND
EVIDENCES OBLIGATIONS PREVIOUSLY EVIDENCED BY, THAT CERTAIN $500,000,000
INSTALLMENT FACE AMOUNT CERTIFICATE DATED APRIL 23,1998 ISSUED BY THE ISSUER TO
THE AGENT.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE IS SUBJECT TO PREPAYMENT AND/OR
REDEMPTION PRIOR TO ITS MATURITY AS SET FORTH IN THE FACE AMOUNT CERTIFICATE
AGREEMENT
THIS INSTALLMENT FACE AMOUNT CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "33 ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA (THE "BLUE SKY
LAWS"). THE HOLDER HEREOF, BY PURCHASING THIS INSTALLMENT FACE AMOUNT
CERTIFICATE OR ANY INTEREST HEREIN (THE
<PAGE>
"INTEREST") REPRESENTS THAT IT IS AN "ACCREDITED INVESTOR" AS THAT TERM IS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE '33 ACT AND AGREES THAT
SUCH INTEREST WILL ONLY BE OFFERED, RESOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE '33 ACT, THE APPLICABLE BLUE SKY
LAWS AND THE RESTRICTIONS SET FORTH IN THE FACE AMOUNT CERTIFICATE AGREEMENT.
THIS FACE AMOUNT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO
CONFLICT OF LAWS PRINCIPLES, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed as of the date first above-written.
Dated: April 21, 1999 312 CERTIFICATE COMPANY
By:
---------------------------
Name:
---------------------
Title:
---------------------
<PAGE>
EXHIBIT B-1
Form of Opinion of Counsel of 312 Certificate Company
April 21, 1999
International Securitization Corporation ("ISC")
The First National Bank of Chicago ("FNBC"),
individually and as agent for the "Liquidity Banks"
(as defined in the "Face Amount Certificate
Agreement" referred to below)
One First National Plaza
Chicago, Illinois 60670
Ladies and Gentlemen:
I am general counsel for 312 Certificate Company, a bankruptcy-remote
Delaware corporation ("312"). In that capacity we have acted as counsel to 312
in connection with the preparation, execution and delivery, as applicable, of
the following documents and agreements each dated as of the date hereof (unless
otherwise specified below):
(a) Amendment No. 1 to Face Amount Certificate Agreement (the "FACA
Amendment") among 312, ISC and FNBC, as agent for the Certificateholders, and
the Face Amount Certificate Agreement dated as of April 24, 1998 (as amended by
the FACA Amendment, the "Face Amount Certificate Agreement") among 312, ISC and
FNBC, as agent for the "Certificateholders" (as defined in the Face Amount
Certificate Agreement);
(b) the $600,000,000 Installment Face Amount Certificate ("Face
Amount Certificate") issued by 312 in favor of FNBC, as agent;
(c) Amendment No. 1 to Investment Management Agreement (the "IMA
Amendment") among 312, Integrity Capital Advisors, Inc. ("Portfolio Manager")
and FNBC, as agent for the Certificateholders and the Investment Management
Agreement dated as of April 24, 1998 (as amended by the IMA Amendment, the
"Investment Management Agreement") among 312, Portfolio Manager and FNBC, as
agent for the Certificateholders;
(d) Amendment No. 1 to Pledge and Security Agreement (the "Pledge
Amendment") among 312 and FNBC, as agent for the Certificateholders and the
Pledge and Security Agreement dated as of April 24, 1998 (as amended by the
Pledge Amendment, the "Pledge Agreement") among 312 and FNBC, as agent for
the Certificateholders;
(e) Amendment No. 1 to Swap Transaction (the "Swap Amendment") among
Integrity Life Insurance Company (the "Swap Provider") and 312 and the Initial
Swap Confirmation dated April 24, 1998 (as amended by the Swap Amendment the
"Confirmation") made by the Swap Provider and acknowledged by 312;
(f) Amendment to Fee Letter (the "Liquidity Fee Amendment") among 312
and FNBC, as agent for the benefit of the Liquidity Banks and the Fee Letter
dated April 24, 1998 (as amended by the Liquidity Fee Amendment, the "Liquidity
Fee Letter") made by 312 in favor of FNBC, as agent for the
<PAGE>
benefit of the Liquidity Banks.
The instruments, documents and agreements described in Subparagraphs
(a) - (f) are herein collectively referred to as the "Transaction Documents".
All capitalized terms used herein and not otherwise defined herein shall have
the respective meanings as set forth in the Face Amount Certificate Agreement.
In rendering the opinions set forth herein, we have examined originals
or copies of the Transaction Documents. We have also examined and have relied
upon originals or copies certified or otherwise identified to our satisfaction
of the Certificates of Incorporation and By-laws of 312, and resolutions of the
Board of Directors of 312, authorizing their participation in the transactions
contemplated by the Transaction Documents, and such other records and documents,
as we have deemed necessary or relevant as a basis for our opinion. We have also
examined such certificates of public officials, such certificates of the
officers of 312 and originals or copies certified to our satisfaction of such
corporate documents, records of 312 and of such other documents, records and
papers as we have deemed relevant and necessary as a basis for our opinion
hereinafter set forth.
In such examination, we have assumed, with your approval and without
investigation, (i) the genuineness of all signatures (other than the signatures
of the officers of 312 on the Transaction Documents), (ii) the authenticity of
all originals, (iii) the conformity with originals of all documents submitted to
us as copies thereof, (iv) that each person executing the Transaction Documents
on behalf of any such party (other than 312) is duly authorized to do so; and
(v) there are no oral or written modifications of or amendments to the
Transaction Documents, and there has been no waiver of any of the provisions of
the Transaction Documents, by actions or conduct of the parties or otherwise.
Based upon the foregoing, and subject to the qualifications and
limitations stated in this letter, we are of the opinion that:
1. 312 is a corporation, duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, and is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction where the conduct of business or the ownership or operation of
property requires such qualification.
2. 312 has all requisite power and authority and has full legal right
(i) to execute and enter into each of the Transaction Documents, and (ii) to
deliver, perform, observe and comply with all of the agreements and obligations
under each of the Transaction Documents to which each is named as a party.
3. The execution, delivery and performance by 312 of each Transaction
Document have been duly authorized by all requisite corporate action.
4. Each Transaction Document has been duly executed and delivered by
a duly authorized officer of 312, and each Transaction Document constitutes the
legal, valid and binding obligation of 312 enforceable against 312 in
accordance with its terms.
5. The execution, delivery and performance by 312 of the Transaction
Documents (a) does not contravene (i) the Certificates of Incorporation of 312,
(ii) any material law, rule or regulation applicable to 312, (iii) any material
contractual restriction contained in any indenture, loan or credit agreement,
lease, mortgage, security agreement, bond, note, or other agreement or
instrument binding on
<PAGE>
312, (iv) any order, writ, judgment, award, injunction or decree binding on 312
or affecting its property, and (b) does not result in or require the creation of
any lien, security interest or other charge or encumbrance upon or with respect
to any of 312's properties (except as may be specifically contemplated in the
Transaction Documents).
6. No authorization, approval, consent or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by 312 of any
Transaction Document.
7. To our knowledge, there are no actions, suits, orders, decrees,
investigations, or other proceedings pending or threatened at law, in equity, in
arbitration or before any governmental agency, commission or official against or
affecting 312 (i) which may have a material adverse effect on the business,
operations, properties or condition (financial or otherwise) of 312 to perform
its obligations under any Transaction Documents, or (ii) which challenges or
affects the legality, validity or enforceability of any Transaction Document.
Our opinion regarding the validity and enforceability of the obligations
of 312 is subject to the provisions of applicable Federal and State bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to, or affecting
the enforcement of, creditors rights generally now or hereafter in effect, and
is subject to limitations imposed by general principles, of equity and upon the
availability of injunctive relief or other equitable remedies.
The opinions stated herein apply only insofar as (i) the laws of the
Commonwealth of Kentucky, (ii) the general corporate laws of the State of
Delaware (with respect to organization and good standing only) and (iii) the
laws of the United States may be concerned, and we express no opinion with
respect to the laws of any other jurisdiction. To the extent any of the
Transaction Documents are governed by the laws of any jurisdiction other than
the laws of Kentucky we have, with your permission, for purposes of this
opinion, assumed that the laws of such other jurisdiction and the laws of the
Commonwealth of Kentucky are identical.
The opinions set forth herein are solely for your benefit, and your
permitted assignees and participants and your respective legal counsel, in
connection with the execution of the Transaction Documents and only such parties
are entitled to rely upon them. This opinion is not to be quoted or otherwise
referred to in any document or to be filed with any governmental or other
administrative agency or other person for any purpose without my prior written
consent, except that you may furnish copies hereof to (i) your independent
auditors and attorneys, (ii) any rating agency rating any of your debts, (iii)
any state or federal authority or official having regulatory jurisdiction over
you upon the request thereof, and (iv) pursuant to order or legal process of any
court or governmental agency. This opinion is provided as a legal opinion only.
We bring to your attention the fact that our legal opinions are an expression of
judgment and not a guarantee of a result of the business to be conducted by 312
as contemplated under the Transaction Documents. No opinion may be inferred or
implied beyond the matters expressly stated herein. This opinion speaks as of
its date only, and we disclaim any undertaking or any obligation to advise you
of changes in law or facts subsequent to the date of this opinion.
Very truly yours,
Craig A. Hawley, General Counsel
<PAGE>
EXHIBIT B-2
Form of Opinion of Counsel of Integrity Capital Advisors, Inc.
And Integrity Life Insurance Company
April 21, 1999
International Securitization Corporation ("ISC")
The First National Bank of Chicago ("FNBC"),
individually and as agent for the "Liquidity Banks"
(as defined in the "Face Amount Certificate
Agreement" referred to below)
Suite 0597
One First National Plaza
Chicago, Illinois 60670
Ladies and Gentlemen:
I am general counsel for Integrity Capital Advisors, Inc., a Delaware
corporation ("Portfolio Manager") and Integrity Life Insurance Company, an
Ohio corporation (the "Swap Provider") (Portfolio Manager and the Swap
Provider shall collectively be referred to herein as the "ARM Entities"). In
that capacity we have acted as counsel to the ARM Entities in connection with
the preparation, execution and delivery, as applicable, of the following
documents and agreements each dated as of the date hereof (unless otherwise
specified below):
(a) Amendment No. 1 to Investment Management Agreement (the "IMA
Amendment") among 312, Portfolio Manager and FNBC, as agent for the
Certificateholders and the Investment Management Agreement dated as of
April 24, 1998 (as amended by the IMA Amendment, the "Investment Management
Agreement") among 312, Portfolio Manager and FNBC, as agent for the
Certificateholders;
(b) Amendment No. 1 to Swap Transaction (the "Swap Amendment") among
the Swap Provider and 312 and the Initial Swap Confirmation dated April 24, 1998
(as amended by the Swap Amendment, the "Confirmation") made by the Swap
Provider and acknowledged by 312;
The instruments, documents and agreements described in Subparagraphs
(a) and (b) are herein collectively referred to as the "Transaction Documents".
All capitalized terms used herein and not otherwise defined herein shall have
the respective meanings as set forth in the Face Amount Certificate Agreement
dated as of April 24, 1998 (as amended, the "Face Amount Certificate Agreement")
among 312, ISC and FNBC, as agent for the Certificateholders" (as defined in the
Face Amount Certificate Agreement.
In rendering the opinions set forth herein, we have examined originals
or copies of the Transaction Documents. We have also examined and have relied
upon originals or copies certified or otherwise identified to our satisfaction
of the Certificates of Incorporation and By-laws of the ARM Entities, and
resolutions of the Board of Directors of the ARM Entities, authorizing their
participation in the transactions contemplated by the Transaction Documents, and
such other records and documents, as we have deemed necessary or relevant as a
basis for our opinion. We have also examined such
<PAGE>
certificates of public officials, such certificates of the officers of the ARM
Entities and originals or copies certified to our satisfaction of such corporate
documents, records of the ARM Entities and of such other documents, records and
papers as we have deemed relevant and necessary as a basis for our opinion
hereinafter set forth.
In such examination, we have assumed, with your approval and without
investigation, (i) the genuineness of all signatures (other than the signatures
of the officers of the ARM Entities on the Transaction Documents), (ii) the
authenticity of all originals, (iii) the conformity with originals of all
documents submitted to us as copies thereof, (iv) that each person executing the
Transaction Documents on behalf of any such party (other than the ARM Entities)
is duly authorized to do so; and (v) there are no oral or written modifications
of or amendments to the Transaction Documents, and there has been no waiver of
any of the provisions of the Transaction Documents, by actions or conduct of the
parties or otherwise.
Based upon the foregoing, and subject to the qualifications and
limitations stated in this letter, we are of the opinion that:
1. Each of the ARM Entities is a corporation, duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the conduct of business or the
ownership or operation of property requires such qualification.
2. Each of the ARM Entities has all requisite power and authority and
has full legal right (i) to execute and enter into each of the Transaction
Documents, and (ii) to deliver, perform, observe and comply with all of the
agreements and obligations under each of the Transaction Documents to which each
is named as a party.
3. The execution, delivery and performance by each of the ARM
Entities of each Transaction Document to which it is a party have been duly
authorized by all requisite corporate action.
4. Each Transaction Document has been duly executed and delivered by
a duly authorized officer of each of the ARM Entities which is party thereto,
and each Transaction Document constitutes the legal, valid and binding
obligation of each of the ARM Entities which is party thereto enforceable
against each of the ARM Entities which is party thereto in accordance with its
terms.
5. The execution, delivery and performance by each of the ARM
Entities of the Transaction Documents to which it is a party (a) does not
contravene (i) the Certificates of Incorporation of any of the ARM Entities,
(ii) any material law, rule or regulation applicable to any of the ARM
Entities, (iii) any material contractual restriction contained in any indenture,
loan or credit agreement, lease, mortgage, security agreement, bond, note, or
other agreement or instrument binding on any of the ARM Entities, (iv) any
order, writ, judgment, award, injunction or decree binding on any of the ARM
Entities or affecting their respective property, and (b) does not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of the ARM Entities' properties (except
as may be specifically contemplated in the Transaction Documents).
6. No authorization, approval, consent or other action by, and no
notice to or filing with, any
<PAGE>
governmental authority or regulatory body is required for the due execution,
delivery and performance by any of the ARM Entities of any Transaction Document.
7. To our knowledge, there are no actions, suits, orders, decrees,
investigations, or other proceedings pending or threatened at law, in equity, in
arbitration or before any governmental agency, commission or official against or
affecting any of the ARM Entities (i) which may have a material adverse effect
on the business, operations, properties or condition (financial or otherwise) of
any of the ARM Entities to perform its obligations under any Transaction
Documents, or (ii) which challenges or affects the legality, validity or
enforceability of any Transaction Document.
Our opinion regarding the validity and enforceability of the
obligations of the ARM Entities is subject to the provisions of applicable
Federal and State bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to, or affecting the enforcement of, creditors rights generally
now or hereafter in effect, and is subject to limitations imposed by general
principles, of equity and upon the availability of injunctive relief or other
equitable remedies.
The opinions stated herein apply only insofar as (i) the laws of the
Commonwealth of Kentucky, (ii) the general corporate laws of the States of
Delaware and Ohio (with respect to organization and good standing only) and
(iii) the laws of the United States may be concerned, and we express no opinion
with respect to the laws of any other jurisdiction. To the extent any of the
Transaction Documents are governed by the laws of any jurisdiction other than
the laws of Kentucky we have, with your permission, for purposes of this
opinion, assumed that the laws of such other jurisdiction and the laws of the
Commonwealth of Kentucky are identical.
The opinions set forth herein are solely for your benefit, and your
permitted assignees and participants and your respective legal counsel, in
connection with the execution of the Transaction Documents and only such parties
are entitled to rely upon them. This opinion is not to be quoted or otherwise
referred to in any document or to be filed with any governmental or other
administrative agency or other person for any purpose without my prior written
consent, except that you may furnish copies hereof to (i) your independent
auditors and attorneys, (ii) any rating agency rating any of your debt, (iii)
any state or federal authority or official having regulatory jurisdiction over
you upon the request thereof, and (iv) pursuant to order or legal process of any
court or governmental agency. This opinion is provided as a legal opinion only.
We bring to your attention the fact that our legal opinions are an expression of
judgment and not a guarantee of a result of the business to be conducted by the
ARM Entities as contemplated under the Transaction Documents. No opinion may be
inferred or implied beyond the matters expressly stated herein. This opinion
speaks as of its date only, and we disclaim any undertaking or any obligation to
advise you of changes in law or facts subsequent to the date of this opinion.
Very truly yours,
John R. McGeeney, General Counsel
<PAGE>
312 CERTIFICATE COMPANY
$600,000,000 INSTALLMENT FACE AMOUNT CERTIFICATE
APRIL 21, 1999
312 Certificate Company, a corporation duly organized and existing under
the laws of the State of Delaware (the "Issuer"), shall pay to The First
National Bank of Chicago, as agent (the "Agent") for International
Securitization Corporation ("ISC") and any subsequent entity which, in the
future purchases an interest in this installment face amount certificate
(this "Certificate") and such future potential purchasers are pursuant to the
Liquidity Agreement (collectively, ISC hereinafter referred to as the
"Certificateholders") the principal amount of $600,000,000, or, if less, the
aggregate unpaid principal amount of all installment purchase payments made
by the Certificateholders from time to time (the "Invested Amount"), and to
pay interest on the Invested Amount as more fully set forth in that certain
Face Amount Certificate Agreement dated as of April 23, 1998, among the
Issuer, ISC and the Agent (as amended, restated, supplemented or otherwise
modified from time to time, the "Face Amount Certificate Agreement").
This Certificate is issued pursuant to the Face Amount Certificate
Agreement. Reference is hereby made to the Face Amount Certificate Agreement
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Issuer, the Agent and the Certificateholders and
the terms upon which this Certificate is delivered. All terms used in this
Certificate which are not defined herein shall have the meanings assigned to
them in the Face Amount Certificate Agreement. The provisions of the Face
Amount Certificate Agreement are hereby incorporated by reference herein and
shall be binding on the Issuer, the Agent and the Certificateholders as if
fully set forth herein. As provided in the Face Amount Certificate
Agreement, this Certificate is secured by the Pledged Collateral. To the
extent provided in the Face Amount Certificate Agreement and the Pledge
Agreement, the Certificateholders, (and the Agent on their behalf) shall be
entitled to the benefits of a security interest in the Pledged Collateral for
the benefit of the Certificateholders.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE IS ISSUED IN REPLACEMENT OF, AND
EVIDENCES OBLIGATIONS PREVIOUSLY EVIDENCED BY, THAT CERTAIN $500,000,000
INSTALLMENT FACE AMOUNT CERTIFICATE DATED APRIL 23, 1998 ISSUED BY THE ISSUER
TO THE AGENT.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE IS SUBJECT TO PREPAYMENT AND/OR
REDEMPTION PRIOR TO ITS MATURITY AS SET FORTH IN THE FACE AMOUNT CERTIFICATE
AGREEMENT.
THIS INSTALLMENT FACE AMOUNT CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
<PAGE>
AMENDED (THE "33 ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OF AMERICA (THE "BLUE SKY LAWS"). THE HOLDER HEREOF, BY
PURCHASING THIS INSTALLMENT FACE AMOUNT CERTIFICATE OR ANY INTEREST HEREIN
(THE "INTEREST") REPRESENTS THAT IT IS AN "ACCREDITED INVESTOR" AS THAT TERM
IS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE '33 ACT AND AGREES
THAT SUCH INTEREST WILL ONLY BE OFFERED, RESOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE '33 ACT, THE APPLICABLE BLUE SKY
LAWS AND THE RESTRICTIONS SET FORTH IN THE FACE AMOUNT CERTIFICATE AGREEMENT.
THIS FACE AMOUNT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO
CONFLICT OF LAWS PRINCIPLES, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed as of the date first above-written.
Dated: April 21, 1999
312 CERTIFICATE COMPANY
By: /s/ William D. Morris
------------------------------
Name: William D. Morris
Title: CEO
<PAGE>
AMENDMENT NO. 1
TO
LIQUIDITY AGREEMENT
This Amendment No. 1 (the "Amendment") is dated as April 21, 1999
among INTERNATIONAL SECURITIZATION CORPORATION, a bankruptcy-remote Delaware
corporation ("ISC"), the Liquidity Banks from time to time party hereto, and THE
FIRST NATIONAL BANK OF CHICAGO, as Liquidity Agent.
WITNESSETH:
WHEREAS, ISC, the Liquidity Banks and the Liquidity Agent are parties
to that certain Liquidity Agreement dated as of April 24, 1998 (as amended from
time to time, the "Agreement"); and
WHEREAS, ISC, the Liquidity Banks and the Liquidity 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. The definition of "Certificate" in Section 1.2 of the Agreement
is amended by replacing the amount "$500,000,000" appearing therein with the
amount "$600,000,000".
2.2. The definition of "Fixed Expiry Date" in Section 1.2 of the
Agreement is amended by replacing the date "April 22, 1999" appearing therein
with the date "April 20, 2000".
2.3. Annex 1 to the Agreement is hereby amended to read as set
forth on Annex 1 hereto, and the Commitment of each Liquidity Bank is hereby
amended to read as set forth opposite such Liquidity Bank's name appearing on
Annex 1 hereto.
3. CONSENT TO ACTIONS BY THE LIQUIDITY AGENT AND ISC. By signing
below, each of the Liquidity Banks consents to the execution by the Liquidity
Agent and ISC 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 (the "Certificate Agreement Amendment") and the other documents listed
in Section 5 of the Certificate Agreement Amendment.
<PAGE>
4. EFFECTIVE DATE. This Amendment shall become effective as of the
date above first written upon receipt by the Liquidity Agent of (i) counterparts
of this Amendment duly executed by ISC and the Liquidity Banks and (ii) duly
executed counterparts of the Certificate Agreement Amendment and the other
documents listed in Section 5 of the Certificate Agreement Amendment.
5. RATIFICATION. The Agreement, as amended hereby, is hereby
ratified, approved and confirmed in all respects.
6. 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.
7. 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.
8. 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 WIHEREOF, ISC, the Liquidity Banks and the Liquidity Agent
have executed this Amendment as of the date first above written.
INTERNATIONAL SECURITIZATION
CORPORATION
By: /s/ Stephanie Wolf
----------------------------
Title: Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO,
individually as a Liquidity Bank and as
Liquidity Agent
By: /s/ Stephanie Wolf
----------------------------
Title: First Vice President
-------------------------
<PAGE>
DEUTSCHE BANK AG, New York and/or Cayman
Islands Branches
By: /s/ Ruth Leung /s/ John S. McGill
---------------------------------------
Title: Ruth Leung John S. McGill
Director Director
------------------------------------
FIRSTAR BANK, NA
By: /s/ ILLEGIBLE
---------------------------------------
Title: SVP
------------------------------------
<PAGE>
ANNEX 1
<TABLE>
<CAPTION>
LIQUIDITY BANK COMMITMENT
-------------- ------------
<S> <C>
The First National Bank of Chicago $360,000,000
Deutsche Bank AG $115,000,000
Firstar Bank, NA $ 25,000,000
---------------- ------------
Total $500,000,000
</TABLE>
<PAGE>
AMENDMENT NO. 1
TO
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
This Amendment No. 1 (the "Amendment") is dated as April 21, 1999 among
INTERNATIONAL SECURITIZATION CORPORATION, a bankruptcy-remote Delaware
corporation ("ISC"), the Letter of Credit Banks from time to time party hereto,
and The First National Bank of Chicago, as Letter of Credit Agent.
WITNESSETH:
WHEREAS, ISC, the Letter of Credit Banks and the Letter of Credit Agent are
parties to that certain Letter of Credit Reimbursement Agreement dated as of
April 24, 1998 (as amended from time to time, the "Agreement"); and
WHEREAS, ISC, the Letter of Credit Banks and the Letter of Credit 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. The first Preliminary Statement of the Agreement is hereby amended by
replacing the amount "$500,000,000" appearing therein with the amount
"$600,000,000."
2.2. The definition of "Letter of Credit Expiration Date" in Article I of
the Agreement is amended by replacing the date "July 21, 1999" appearing therein
with the date "July 21, 2000".
3. EFFECTIVE DATE. This Amendment shall become effective as of the date
above first written upon receipt by the Letter of Credit Agent of (i)
counterparts of this Amendment duly executed by ISC and the Letter of Credit
Banks 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.
4. RATIFICATION. The Agreement, as amended hereby, is hereby ratified,
approved and confirmed in all respects.
5. 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.
<PAGE>
6. 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.
7. 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, ISC, the Letter of Credit Banks and the Letter of
Credit Agent have executed this Amendment as of the date first above written.
INTERNATIONAL SECURITIZATION
CORPORATION
By: /s/ Stephanie Wolf
------------------------
Title: Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO,
individually as a Letter of Credit Bank
and as Letter of Credit Agent
By: /s/ Stephanie Wolf
------------------------
Title: First Vice President
---------------------
<PAGE>
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."
Page 1
<PAGE>
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
Page 2
<PAGE>
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
Page 3
<PAGE>
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
Page 4
<PAGE>
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-."
Page 5
<PAGE>
(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
Page 6
<PAGE>
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
Page 7
<PAGE>
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
Page 8
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: /s/ Stephanie Wolf
----------------------------
Name: Stephanie Wolf
Title: First Vice President
Page 9
<PAGE>
AMENDMENT NO. 1
TO
SWAP TRANSACTION
This Amendment No. 1 (the "Amendment") is dated as of April 21, 1999
between INTEGRITY LIFE INSURANCE COMPANY, a Delaware corporation ("Party A") and
312 CERTIFICATE COMPANY, a Delaware corporation ("Party B").
W I T N E S S E T H:
WHEREAS, Party A and Party B have executed that certain ISDA Master
Agreement dated as of April 24, 1998 (as amended from time to time, the "Master
Agreement"); and
WHEREAS, Party A and Party B have executed that certain Swap Transaction
dated as of April 24, 1998 which is subject to and forms a part of the Master
Agreement (as amended from time to time, the "Swap Transaction"); and
WHEREAS, Party A and Party B desire to amend the Swap Transaction 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 Swap Transaction.
2. AMENDMENTS TO THE SWAP TRANSACTION.
2.1. The definition of "Party A Floating Amount" in Section 2(A) of the
Swap Transaction shall be amended by inserting the following in line 13 thereof
immediately following "the Portfolio Manager,":
"the counterparties to Permitted Hedging Transactions,"
2.2. The definition of "Party A Payment Dates" in Section 2(B) of the Swap
Transaction shall be amended in its entirety to read as follows:
"The second to the last Business Day of each calendar week."
Page 1
<PAGE>
2.3. The definition of "Party A Floating Amount" in Section 2(B) of the
Swap Transaction shall be amended in its entirety to read as follows:
"(a) If the ratio, expressed as a percentage and determined as of the
second to last Business Day of the preceding calendar week (such
percentage, the "Value Percentage"), of (i) the sum of the aggregate
Fair Market Value of the Portfolio on such date plus any free cash
balances on deposit in the Custodial Account (after taking into
account the Party B Floating Amount, if any, to be paid on such date)
on such date, to (ii) the outstanding "Invested Amount" under and as
defined in the Face Amount Certificate Agreement on such date, is less
than 97.0%, then an amount equal to the "Shortfall Amount" under and
as defined in the Investment Management Agreement, or (b) if the Value
Percentage is greater than or equal to 97.0%, then zero; PROVIDED,
HOWEVER, if the Value Percentage is less than 97.0% as of the second
to last Business Day of the preceding calendar week, and if the Value
Percentage has been less than 97.0% as of the second to last Business
Day of any calendar week occurring during both of (i) the immediately
preceding calendar month and (ii) the second immediately preceding
calendar month, then an amount equal to the "Additional True Up
Amount" under and as defined in the Investment Management Agreement."
2.4. The definition of "Party A Final Settlement Payment Amount" in Section
3 of the Swap Transaction shall be amended by inserting the following in line 13
thereof immediately following "the Portfolio Manager,":
"the counterparties to Permitted Hedging Transactions,"
2.4. The definition of "Book Income" in Section 7 of the Swap Transaction
shall be amended by inserting the following at the end thereof:
"PLUS (vii) any net cash in-flows under Permitted Hedging Transactions
(other than this Transaction) MINUS (viii) net cash outflows under
Permitted Hedging Transactions (other than this Transaction).
2.5. The definition of "Fair Market Value" in Section 7 of the Swap
Transaction shall be amended by inserting "(a)" in the first line thereof
immediately following "means," and by inserting the following at the end thereof
in place of the period:
"and (b) with respect to Permitted Hedging Transactions, at any date,
Page 2
<PAGE>
the mark-to-market value thereof as determined by the Portfolio
Manager in accordance with the procedures set forth in the Investment
Guidelines attached as Exhibit A to the Investment Management
Agreement."
2.6. Section 7 of the Swap Transaction shall be amended by the insertion of
the following new defined term therein:
"'Permitted Hedging Transaction' shall have the meaning given to such
term in the Investment Management Agreement."
2.7. The definition of "Portfolio" in Section 7 of the Swap Transaction
shall be amended to read in its entirety as follows:
"'Portfolio' means the Securities and Short-Term Investments of the
Issuer held from time to time in the Custodial Account and the
Permitted Hedging Transactions of the Issuer in existence from time to
time."
3. EFFECTIVE DATE. This Amendment shall become effective as of the date
above first written upon the receipt by the Agent of (i) counterparts of this
Amendment duly executed by each of Party A and Party B 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.
4. RATIFICATION. Each of the Swap Transaction and the Master Agreement,
as amended hereby, is hereby ratified, approved and confirmed in all respects.
5. REFERENCE TO MASTER AGREEMENT. From and after the effective date
hereof, each reference in the Master Agreement to "this Agreement", "hereof", or
"hereunder" or words of like import, and all references to the Master Agreement
in any and all agreements, instruments, documents, notes, certificates and other
writings of every kind and nature shall be deemed to mean the Master Agreement,
as amended by this Amendment.
6. 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.
7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
Page 3
<PAGE>
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.
Page 4
<PAGE>
IN WITNESS WHEREOF, Party A and Party B have executed this Amendment as of
the date first above written.
INTEGRITY LIFE INSURANCE COMPANY
By: /s/ John R. McGeeney
-------------------------------
Name: John R. McGeeney
Title: Exec. V.P. and General Counsel
312 CERTIFICATE COMPANY
By: /s/ William D. Morris
-------------------------------
Name: William D. Morris
Title: CEO
Page 5
<PAGE>
AMENDMENT NO. 1
TO
PLEDGE AND SECURITY AGREEMENT
This Amendment No. 1 (the "Amendment") is dated as of April 21, 1999 among
312 CERTIFICATE COMPANY, a Delaware corporation (the "Pledgor") and THE FIRST
NATIONAL BANK OF CHICAGO, as Agent for the Cerfificateholders (as such term is
defined below).
WITNESSETH:
WHEREAS, the Pledgor has executed that certain Pledge and Security
Agreement dated as of April 24, 1998 in favor of the Agent (as amended from time
to time, the "Agreement"); and
WHEREAS, the Pledgor 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. 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 Section 1(a) of the Agreement shall be amended to read in its entirety
as follows:
"(a) all personal property of the Pledgor, including, without
limitation, all "Securities" and all rights under "Permitted
Hedging Transactions" (each as defined in the Investment
Management Agreement), the Swap Agreement and any other
investment property, loans, chattel paper, general intangibles
and instruments;"
2.2 The first sentence of Section 2 of the Agreement shall be amended to
read in its entirety as follows:
"This Agreement secures the payment of all obligations of the Pledgor
now or hereafter existing under the Face Amount Certificate, the Face
Amount Certificate Agreement and the Secured Hedging Transactions,
whether for principal, interest, fees, expenses or otherwise, and all
obligations of the Pledgor now or hereafter existing under this
Agreement (all such obligations of the Pledgor being the
"Obligations")."
Page 1
<PAGE>
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent to enter
into this Amendment, the Pledgor hereby represents and warrants that the
representations and warranties set forth in Section 5 of the Agreement are true,
correct and complete on the date hereof as if made on and as of the date hereof.
4. EFFECTIVE DATE. This Amendment shall become effective as of the date
above first written upon receipt by the Agent of (i) counterparts of this
Amendment duly executed by the Pledgor, (ii) counterparts of the amendment to
the Liquidity Agreement duly executed by the parties thereto, and (iii) such
other documents as the Agent may request.
5. RATIFICATION. The Agreement as amended hereby, is hereby ratified,
approved and confirmed in all respects.
6. 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.
7. 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.
8. 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 Pledgor 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
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: /s/ Stephanie Wolf
--------------------------
Name: Stephanie Wolf
Title: First Vice President
Page 2
<PAGE>
TERMINATION MASTER AGREEMENT
THIS TERMINATION MASTER AGREEMENT effective as of July 26, 1999
(this "Agreement") is made by and among ARM Financial Group, Inc., a Delaware
corporation ("ARM"), Integrity Life Insurance Company, a stock insurance
company domiciled in Ohio and a wholly-owned indirect subsidiary of ARM
("Integrity"), and General American Life Insurance Company, a stock
insurance company domiciled in Missouri ("General American").
WHEREAS, ARM and General American entered into an Engagement
Agreement dated as of March 12, 1993, as amended (the "Engagement
Agreement"), relating to certain guaranteed investment contracts and funding
agreements (the "GICs") to be issued by General American; and
WHEREAS, effective June 1, 1999, the Engagement Agreement was
terminated by General American, however, certain rights and obligations of
the Parties under the Engagement Agreement continue to remain following such
termination; and
WHEREAS, Integrity and General American entered into a Reinsurance
Agreement dated as of March 28, 1996 (the "Reinsurance Agreement") concerning
the quota-share reinsurance by Integrity of certain of the GICs issued by
General American pursuant to the Engagement Agreement; and
WHEREAS, by letter dated May 24, 1999 Integrity gave notice of
termination of the Reinsurance Agreement as to new business; and
WHEREAS, the parties hereto (the "Parties") wish to terminate the
Reinsurance Agreement on a cut-off basis and all ongoing rights and
obligations under the Engagement Agreement effective as of July 26, 1999 (the
"Termination Date");
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and upon the terms and conditions set forth herein,
the Parties agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings set forth
below throughout the Agreement:
-1-
<PAGE>
"AFFILIATE" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person.
"ANCILLARY AGREEMENT" means the Commutation Agreement, the
Termination Agreement and the Software License Agreement.
"AGREEMENT" means this Termination Master Agreement.
"ARM" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"BOOKS AND RECORDS" means the originals or copies of all contract
information, contract forms, disclosure and other documents and filings
required under applicable laws, client communications, prospecting records,
sales records, underwriting records, securities records and financial records
in the possession or control of ARM or Integrity and relating to the GICs,
including, without limitation, any database, magnetic or optical media (to
the extent not subject to licensing restrictions) and any other form of
recorded, computer generated or stored information or process. In addition,
Books and Records includes any information pertaining to any of the
foregoing not reduced to hardcopy or electronic form which ARM will make
available to General American in a manner and at a time or times which are
mutually convenient to the parties.
"CLOSING DATE" means a closing date mutually agreeable to the
parties, but in no event later than 30 days after the execution of this
Agreement, and if no formal agreement is recorded it shall be the date of
execution of the Termination Agreement.
"COMMUTATION AGREEMENT" means the Commutation Agreement to be
entered into by Integrity and General American in substantially the form as
Exhibit A attached hereto.
"EFFECTIVE TIME" means the close of business on July 26, 1999.
"ENGAGEMENT AGREEMENT" shall have the meaning set forth in the
first recital of this Agreement.
"GENERAL AMERICAN" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"GICs" shall have the meaning set forth in the first recital of
this Agreement.
"INTEGRITY" shall have the meaning set forth in the introductory
paragraph of this Agreement.
-2-
<PAGE>
"SOFTWARE LICENSE AGREEMENT" means the mutually acceptable
Software License Agreement to be entered into by ARM and General American.
"PARTIES" shall have the meaning set forth in the third recital of
this Agreement.
"PERSON" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, governmental, judicial or regulatory body, business unit,
division or other entity.
"TERMINATION AGREEMENT" means the Termination Agreement to be
entered into by ARM and General American in substantially the form as
Exhibit B attached hereto.
"TERMINATION DATE" shall have the meaning set forth in the fifth
recital of this Agreement.
"TRUST AGREEMENT" means the Trust Agreement entered into among
Integrity, General American and Fleet National Bank, predecessor in interest
to State Street Bank & Trust, as Trustee, dated as of April 1, 1996, pursuant
to the Reinsurance Agreement.
"TRUST FUND" means the trust fund established pursuant to the Trust
Agreement.
"TRUSTEE" shall have the meaning set forth in the definition of
Trust Agreement.
ARTICLE II
AGREEMENTS OF THE PARTIES
The Parties hereby agree to execute and implement the following
agreements and to take the additional steps set forth below in connection
with the termination of the Reinsurance Agreement and all rights and
obligations under the Engagement Agreement.
Section 2.01. COMMUTATION AGREEMENT. On or prior to the Closing
Date, Integrity and General American will give joint, irrevocable
instructions to the Trustee to transfer to General American ownership and
possession of each asset in the Trust Fund, free and clear of any claims of
Integrity, the Trustee or any other Person. On the Closing Date, Integrity
and General American will execute the Commutation Agreement.
Section 2.02. TERMINATION AGREEMENT. On the Closing Date, ARM
and General American will execute the Termination Agreement.
Section 2.03. SOFTWARE LICENSE AGREEMENT. Within 30 days of the
Closing Date, ARM and General American will execute the Software License
Agreement.
-3-
<PAGE>
Section 2.04. BOOKS AND RECORDS. Within 10 days of the Closing
Date, ARM and Integrity will transfer the Books and Records to General
American.
Section 2.05 SUBSEQUENT PAYMENT. If a binding agreement
pertaining to the sale of control of ARM to a third party is executed at any
time during the two calendar years commencing after the Closing Date, and is
subsequently closed, ARM shall pay General American the sum of five million
dollars ($5,000,000) concurrent with the closing of the sale.
ARTICLE III
TRUST FUND
Section 3.01 CONDUCT OF BUSINESS. From the date hereof until
the assets comprising the Trust Fund are transferred to General American, ARM
and Integrity agree that, except as set forth below, no assets in the Trust
Fund shall be sold or otherwise transferred from the Trust Fund, that all
interest and other income of the Trust Fund received during such period shall
be maintained in the Trust Fund and that any cash in the Trust Fund shall be
invested in the ordinary course. The parties agree, however, that sales or
other transactions involving assets of the Trust Fund, after the Effective
Time but prior to their transfer to General American, may be effected with
the written consent of both ARM and General American.
Section 3.02 TRUST FUND ASSETS. The Trust will include the
following assets:
a. As of the Effective Time, those assets included in the Trust Fund as of
June 30, 1999, including hedging vehicles and cash and cash
equivalents, as modified to reflect all trust activity including but
not limited to purchases and sales, customer deposits and withdrawals,
and interest earned and interest paid, during the period after June 30,
1999 through the Effective Time. It is agreed that Integrity will
remove from the Trust Fund securities with CUSIP numbers 21075WFM2 and
21075WEW1 and replace them with a security with CUSIP number 52518RAQ9
current par of $10,140,200.
b. As of the Closing Date, additional cash in the amount of $69,150,000.
From the date hereof until the Closing Date, General American shall
have full access to the Trustee and all trust records in the possession of
ARM or Integrity for the purpose of verifying that each such asset is held in
the Trust Fund as of the Effective Time.
Section 3.03 TRUE UP OF ASSETS. In the event that any
securities are not transferable from Integrity, or for any other reason
Integrity is not able to deliver to General American good and marketable
title within a reasonable period of time, then Integrity shall add to the
Trust Fund such additional securities, cash, or other assets of equivalent
market value as of the Effective Time, reasonably acceptable to General
American. Notwithstanding the foregoing, any swap that is determined not to
be transferable within a reasonable period of time shall be
-4-
<PAGE>
terminated at General American's discretion as to execution, and General
American shall receive all proceeds and bear all costs as fully as if General
American had owned the position itself. General American acknowledges that:
(i) neither ARM nor Integrity are making any representations or warranties
with respect to the valuation of the assets in the Trust Fund; (ii) it has
had sufficient opportunity to review and value the assets in the Trust Fund;
and (iii) it, or its affiliates, have sufficient expertise and knowledge to
review and value the assets in the Trust Fund in a reasonable manner.
Section 3.04 TRUE UP OF LIABILITIES. As of the Effective Time,
the total amount of the customer account values subject to the Reinsurance
Agreement, including interest accrued is $3,428,700,000. In the event that
the said total amount is determined to be incorrect in any respect, any cash
settlement must be mutually agreeable to both parties.
ARTICLE IV
DUTY OF COOPERATION
Each Party shall cooperate fully with the others in all reasonable
respects in order to accomplish the objectives of this Agreement.
ARTICLE V
Article V reserved.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ARM
ARM hereby represents and warrants to General American as follows:
Section 6.01 ORGANIZATION AND STANDING. ARM is duly
incorporated, validly existing, and in good standing under the laws of the
State of Delaware.
Section 6.02 CORPORATE AUTHORITY. The execution of this
Agreement and the consummation of the transactions contemplated hereby by ARM
have been approved by all necessary corporate action by ARM.
Section 6.03 VALIDITY. This Agreement is, and upon due
execution and delivery, each of the Termination Agreement and the License
Agreement shall be, a valid and binding obligation of ARM enforceable against
ARM in accordance with the terms hereof and thereof.
-5-
<PAGE>
Section 6.04 ACTIONS AND PROCEEDINGS. There are no pending
actions, suits or proceedings by or with any court, governmental agency,
regulatory body or arbitration tribunal before which ARM is a party which
would prevent the consummation of this Agreement. ARM does not have
knowledge of any state of facts or contemplated events that would give rise
to any such claim, action, suit, proceeding or investigation.
Section 6.05 NO VIOLATION. Except as set forth in Schedule 6.05
hereto, the execution, delivery and performance by ARM of this Agreement and
the consummation of the transactions contemplated hereby will not violate,
conflict with or result in the breach of any terms of, or constitute (or with
notice or lapse of time or both, constitute) a default under, any contract or
other agreement to which ARM is a party or by or to which any of its assets
may be bound.
Section 6.06 CONSENTS AND APPROVALS. Except as set forth in
Schedule 6.06, the execution, delivery and performance by ARM of this
Agreement and the consummation of the transactions contemplated hereby in
accordance with the terms hereof do not require ARM to obtain any consent,
approval or action of, make any filing with, or give any notice to, any
Person.
Section 6.07 REMOVAL OF ASSETS FROM THE TRUST FUND. From June
30, 1999 through the Closing Date, no assets have been transferred from the
Trust Fund to Integrity or its Affiliates which, in the aggregate, have
resulted in any difference in the value of the Trust Fund on the Closing Date
compared to June 30, 1999 provided that, to the extent of any such
difference, as to the sole and exclusive remedy available under law,
Integrity will transfer cash in such amount as appropriate.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF INTEGRITY
Integrity hereby represents and warrants to General American as
follows:
Section 7.01 ORGANIZATION AND STANDING. Integrity is an
Ohio-domiciled life insurance company duly incorporated, validly existing,
and in good standing under the corporate and insurance laws of the State of
Ohio.
Section 7.02 CORPORATE AUTHORITY. The execution of this
Agreement and the consummation of the transactions contemplated hereby by
Integrity have been approved by all necessary corporate action by Integrity.
Section 7.03 VALIDITY. This Agreement is, and upon due
execution and delivery of the Commutation Agreement shall be, a valid and
binding obligation of Integrity enforceable against Integrity in accordance
with the terms hereof and thereof.
-6-
<PAGE>
Section 7.04 ACTIONS AND PROCEEDINGS. There are no pending
actions, suits or proceedings by or with any court, governmental agency,
regulatory body or arbitration tribunal before which Integrity is a party
which would prevent the consummation of this Agreement. Integrity does not
have knowledge of any state of facts or contemplated events that would give
rise to any such claim, action, suit, proceeding or investigation.
Section 7.05 NO VIOLATION. The execution, delivery and
performance by Integrity of this Agreement and the consummation of the
transactions contemplated hereby will not violate, conflict with or result in
the breach of any terms of, or constitute (or with notice or lapse of time or
both, constitute) a default under, any contract or other agreement to which
Integrity is a party or by or to which any of its assets may be bound.
Section 7.05 CONSENTS AND APPROVALS. The execution, delivery
and performance by Integrity of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms hereof do not
require Integrity to obtain any consent, approval or action of, make
any filing with, or give any notice to, any Person.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF GENERAL AMERICAN
General American hereby represents and warrants to each of ARM and
Integrity as follows:
Section 8.01 ORGANIZATION AND STANDING. General American is a
Missouri-domiciled life insurance company duly incorporated, validly existing,
and in good standing under the corporate and insurance laws of the State of
Missouri.
Section 8.02 CORPORATE AUTHORITY. The execution of this Agreement
and the consummation of the transactions contemplated hereby by General
American have been approved by all necessary corporate action by General
American.
Section 8.03 VALIDITY. This Agreement is, and upon due
execution and delivery, each of the Commutation Agreement, the Termination
Agreement and the License Agreement shall be, a valid and binding obligation
of General American enforceable against General American in accordance with
the terms hereof and thereof.
Section 8.04 ACTIONS AND PROCEEDINGS. There are no pending
actions, suits or proceedings by or with any court, governmental agency,
regulatory body or arbitration tribunal before which General American is a
party which would prevent the consummation of this
-7-
<PAGE>
Agreement. General American does not have knowledge of any state of facts or
contemplated events that would give rise to any such claim, action, suit,
proceeding or investigation.
Section 8.05 NO VIOLATION. The execution, delivery and
performance by General American of this Agreement and the consummation of the
transactions contemplated hereby will not violate, conflict with or result in
the breach of any terms of, or constitute (or with notice or lapse of time or
both, constitute) a default under, any contract or other agreement to which
General American is a party or by or to which any of its assets may be bound.
Section 8.06 CONSENTS AND APPROVALS. The execution, delivery
and performance by General American of this Agreement and the consummation of
the transactions contemplated hereby in accordance with the terms hereof do
not require General American to obtain any consent, approval or action of,
make any filing with, or give any notice to, any Person.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties of the Parties contained in this
Agreement shall survive the execution and delivery hereof and the
implementation of the terms and conditions of this Agreement.
ARTICLE X
FURTHER AGREEMENTS
Section 10.01 PUBLIC ANNOUNCEMENTS. ARM acknowledges that, since
General American will continue offering the GICs as a significant part of its
business, it is important that all communications to third parties relating
to the GICs, the proposed changes in terms of the GICs and the changes in the
relationship among General American, ARM and Integrity be handled in such a
way as to avoid damaging the relationships with the customers of the GICs or
the business reputation of the Parties. ARM will not issue any press
releases, make any public filings, or make any presentations to any rating
agencies which include references to the transactions contemplated hereby
without consulting with General American and receiving the prior approval of
General American. General American will not unreasonably withhold such
consent as long as ARM takes into account the reasonable requests of General
American relating to the language of the communication. If ARM determines,
on the advice of counsel, that it is required to make a public filing
relating to these matters, it will provide a copy of the proposed filing to
General American as far in advance as possible under the circumstances and
will consult
-8-
<PAGE>
with General American and take into account General American's requests for
changes prior to such filing.
Section 10.02 RESTRUCTURING OF PRODUCTS. General American
intends to make certain changes to the terms of the GICs of some of the
customers, on account of the termination of the Reinsurance Agreement and for
other reasons. These changes may include changes to the economic terms of
the GIC. ARM agrees for the period following the execution of this
Agreement until June 30, 2000, ARM will assist General American and cooperate
with General American in effecting such changes and, in particular, in
dealing with customers in explaining and implementing the changes in a manner
that will preserve the goodwill of General American with customers and the
market for GICs. All such discussions and other contacts would be under the
supervision of General American and under such guidelines as General American
may establish. These changes may be made by General American in its
discretion and without the need for any approval by ARM.
Section 10.03 NON-DISPARAGEMENT. Each of the Parties agree that
they will not disparage each other or the contracts sold by each Party.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01 NOTICES. Any notice required or permitted
hereunder shall be in writing and shall be delivered personally (by courier
or otherwise), telegraphed, telexed, sent by facsimile transmission or sent
by certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission or, if mailed, three days after the date of
deposit in the United States mails, as follows:
(1) If to ARM or Integrity to:
515 W. Market Street
Louisville, KY 40202
Attention: General Counsel
Telecopier No.: (502) 540-2830
(2) If to General American to:
700 Market Street
St. Louis, MO 63101
Attention: Matthew P. McCauley
Telecopier No.: (314) 444-0510
-9-
<PAGE>
Any Party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 11.02 AMENDMENT. This Agreement may not be amended,
modified, changed, discharged or terminated, except by an instrument in
writing signed by an authorized officer of each of the Parties.
Section 11.03 COUNTERPARTS. This Agreement may be executed by
the Parties in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 11.04 NO THIRD PARTY BENEFICIARIES. Except as otherwise
specifically provided for herein, nothing in this Agreement is intended or
shall be construed to give any Person, other than the Parties, their
successors and permitted assigns, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
Section 11.05 ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by any Party (in whole or in part) without
the prior written consent of the other Parties.
Section 11.06 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Missouri, without
giving effect to the principles of conflicts of laws thereof.
Section 11.07 ENTIRE AGREEMENT. This Agreement (including the
Ancillary Agreements) constitutes the entire agreement among the Parties
relating to the matters set forth herein and there are no other agreements
between the Parties hereto, either existing or contemplated, written or oral,
with respect thereto.
Section 11.08. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by each of the Parties or, in the case of a waiver,
by the Party waiving compliance. No delay on the part of any Party on
exercising any right, power or privilege hereunder shall operate as a waiver
thereof. Nor shall any waiver on the part of any Party of any right, power
or privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any Party may
otherwise have at law or in equity.
Section 11.09 EXHIBITS AND SCHEDULES. The Exhibits and the
Schedules to this Agreement are a part of this Agreement as if fully set
forth herein. All references herein to
-10-
<PAGE>
Articles, Sections, subsections, paragraphs, subparagraphs, clauses, Exhibits
and Schedules shall be deemed references to such parts of this Agreement,
unless the context shall otherwise require.
Section 11.10 HEADINGS. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
Section 11.11 SEVERABILITY. If any provisions hereof shall be
held invalid or unenforceable by any court of competent jurisdiction or as a
result of future legislative action, such holding or action shall be strictly
construed and shall not affect the validity or effect of any other provision
hereof; PROVIDED, HOWEVER, that the Parties shall use reasonable efforts,
including, but not limited to, the amendment of this Agreement, to ensure
that this Agreement shall reflect as closely as practicable the intent of the
Parties.
-11-
<PAGE>
IN WITNESS WHEREOF, ARM, Integrity, and General American have
executed this Agreement as of the date first above written.
ARM FINANCIAL GROUP, INC.
By /s/ John R. Lindholm
-------------------------------------------
Name: John R. Lindholm
Title: President, Retail Business Division
INTEGRITY LIFE INSURANCE COMPANY
By /s/ John R. Lindholm
-------------------------------------------
Name: John R. Lindholm
Title: President
GENERAL AMERICAN LIFE INSURANCE COMPANY
By /s/ David L. Herzog
-------------------------------------------
Name: David L. Herzog
Title: Vice President
-12-
<PAGE>
SCHEDULE 6.05
Credit agreement dated as of June 24, 1997, among ARM, the financial
institutions from time to time party thereto, and the Chase Manhattan Bank,
as agent for the Lenders, as amended.
SCHEDULE 6.06
Consent of the lenders under the Credit Agreement described in Schedule 6.05.
-13-
<PAGE>
COMMUTATION AGREEMENT
COMMUTATION AGREEMENT, dated as of August 3, 1999 (this "Commutation
Agreement"), between INTEGRITY LIFE INSURANCE COMPANY, a stock insurance company
domiciled in Ohio ("Integrity"), and GENERAL AMERICAN LIFE INSURANCE COMPANY, a
stock insurance company domiciled in Missouri ("General American").
WHEREAS, the parties hereto (the "Parties") entered into the
Reinsurance Agreement, dated as of March 28, 1996, relating to certain
guaranteed investment contracts and funding agreements issued by General
American (the "Reinsurance Agreement"); and
WHEREAS, the Parties, along with Fleet National Bank, entered into the
Trust Agreement, effective as of April 1, 1996, as amended (the "Trust
Agreement"), whereby Integrity established a trust fund (the "Trust Fund") for
the benefit of General American in order to secure its obligations to General
American under the Reinsurance Agreement; and
WHEREAS, the Parties, along with ARM Financial Group, Inc., entered
into the Termination Master Agreement, dated as of July 26, 1999, pursuant to
which this Commutation Agreement is being entered into by the Parties;
WHEREAS, the Parties desire to settle and commute their obligations
and liabilities under the Reinsurance Agreement, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the Parties hereby agree as follows:
1. COMMUTATION OF REINSURANCE AGREEMENT. On the terms and subject to
the conditions set forth herein, the Reinsurance Agreement shall be commuted,
effective as of close of business on July 26, 1999 (the "Commutation Date").
2. COMMUTATION AMOUNT. Concurrent with the execution of this
Commutation Agreement, the Parties are delivering to the Trustee irrevocable
instructions to transfer to General American, subject to the terms of the
Termination Master Agreement referred to above, ownership and possession of each
asset held in the Trust Fund, free and clear of any claims of Integrity, the
Trustee or any other party. General American shall accept the payment of such
amount as a full and final settlement of any and all amounts due from Integrity
under the Reinsurance Agreement, except as provided in the Termination Master
Agreement.
3. RELEASE BY THE PARTIES. Effective as of the Commutation Date,
but subject to the receipt in full by General American of the assets in the
Trust Fund, the Parties hereby release and discharge each other, their
respective predecessors, parents, affiliates, agents, officers, directors and
shareholders and assigns from any and all present and future payment
obligations, adjustments, executions, offsets, actions, causes of action,
suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants,
contracts, controversies, agreements,
C-1
<PAGE>
promises, damages, judgments, claims, demands, liabilities and/or
losses whatsoever, whether known or unknown, which they, and their respective
successors and assigns ever had, now have, or hereafter may have, whether
grounded in law or equity, in contract or in tort, against the other Party by
reason of any matter whatsoever arising out of the Reinsurance Agreement, it
being the intention of the Parties that this release operate as a full and final
settlement of each of the current and future liabilities of the Parties to each
other under the Reinsurance Agreement.
4. EXECUTION OF INSTRUMENTS. The Parties hereby agree to execute
promptly any and all supplemental agreements, releases, affidavits, waivers
and other documents of any nature or kind which the other Party may
reasonably require in order to implement the provisions or objectives of this
Commutation Agreement.
5. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the
United States mails, as follows:
(1) If to Integrity to:
515 W. Market Street
Louisville, KY 40202
Attention: General Counsel
Telecopier No.: (502) 540-2830
(2) If to General American to:
700 Market Street
St. Louis MO 63101
Attention: Matthew P. McCauley
Telecopier No.: (314) 444-0510
Any Party may, by notice given in accordance with this Commutation
Agreement to the other party, designate another address or person for receipt
of notices hereunder.
6. AMENDMENT. This Commutation Agreement may not be amended, modified,
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the Parties.
7. COUNTERPARTS. This Commutation Agreement may be executed by the
Parties in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
8. NO THIRD PARTY BENEFICIARIES. Except as otherwise specifically
provided for herein, nothing in this Commutation Agreement is intended or shall
be construed to give any Person, other than the Parties, their successors and
permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Commutation Agreement or any provision contained herein.
C-2
<PAGE>
9. ASSIGNMENT. This Commutation Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors, permitted
assigns and legal representatives. Neither this Commutation Agreement, nor any
right hereunder, may be assigned by any Party (in whole or in part) without the
prior written consent of the other Party.
10. GOVERNING LAW. THIS COMMUTATION AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
11. ENTIRE AGREEMENT. This Commutation Agreement constitutes the
entire agreement among the Parties relating to the matters set forth herein and
there are no other agreements between the Parties hereto, either existing or
contemplated, written or oral, with respect thereto.
12. WAIVERS AND AMENDMENTS: NON-CONTRACTUAL REMEDIES: PRESERVATION
OF REMEDIES. This Commutation Agreement may be amended, superseded, canceled,
renewed or extended, and the terms thereof may be waived, only by a written
instrument signed by each of the Parties or, in the case of a waiver, by the
Party waiving compliance. No delay on the part of any Party on exercising any
right, power or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any Party of any right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such
right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any Party may
otherwise have at law or in equity.
13. HEADINGS. The headings in this Commutation Agreement are for
reference only, and shall not affect the interpretation of this Commutation
Agreement.
14. SEVERABILITY. If any provisions hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly contrued and shall
not affect the validity or effect of any other provision hereof; PROVIDED,
HOWEVER, that the Parties shall use reasonable efforts, including, but not
limited to, the amendment of this Commutation Agreement, to ensure that this
Commutation Agreement shall reflect as closely as practicable the intent of the
Parties.
IN WITNESS WHEREOF, the parties hereto have caused this Commutation
Agreement to be duly executed as of the date first above written.
INTEGRITY LIFE INSURANCE COMPANY
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: President
C-3
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
By: /s/ David L. Herzog
--------------------
Name: David L. Herzog
Title: Vice President
C-4
<PAGE>
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is dated as of
August 3, 1999 by and between GENERAL AMERICAN LIFE INSURANCE COMPANY, a
stock insurance company domiciled in Missouri ("General American"), and ARM
FINANCIAL GROUP, INC., a Delaware corporation ("ARM").
WHEREAS, the parties hereto (the "Parties") entered into an
Engagement Agreement dated as of March 12, 1993, as amended, (the "Engagement
Agreement") pursuant to which ARM provides services to General American
relating to certain guaranteed investment contracts and funding agreements
issued by General American (the "GICs"); and
WHEREAS, effective June 1, 1999, General American terminated the
Engagement Agreement, however, certain rights and obligations of the Parties
under the Engagement Agreement continue to remain following such termination;
and
WHEREAS, the Parties, along with Integrity Life Insurance Company,
an indirect wholly-owned subsidiary of ARM ("Integrity"), entered into the
Termination Master Agreement dated as of July 26, 1999 pursuant to which this
Agreement is being entered into by the Parties; and
WHEREAS, General American and Integrity entered into a Reinsurance
Agreement, dated as of March 28, 1996 (the "Reinsurance Agreement"), and
amended the Engagement Agreement ("Amendment #2") to provide for certain
coinsurance benefits to Integrity pursuant to the Reinsurance Agreement in
lieu of any corresponding fee otherwise due to ARM under the Engagement
Agreement; and
WHEREAS, General American desires to recapture the business
coinsured under the Reinsurance Agreement, and to terminate all of its
liabilities under either the Reinsurance Agreement or the Engagement
Agreement, and has agreed to payment of a Recapture Fee (defined below) to
ARM, in connection with such recapture from Integrity, pursuant to the terms
of the Engagement Agreement; and
WHEREAS, the Parties wish to settle and terminate all ongoing
rights and obligations of the Parties under the Engagement Agreement on the
terms and conditions set forth below;
NOW THEREFORE, in consideration of the above premises and other
good and valuable consideration, the Parties agree as follows:
1. TERMINATION. The Parties mutually agree that it is their
intent to settle and terminate all ongoing rights and obligations of the
Parties under the Engagement Agreement, and, subject to the payment by
General American to ARM of the Recapture Fee (defined below),
T-1-
<PAGE>
all ongoing rights and obligations under the Engagement Agreement are hereby
settled and terminated, effective as of July 26, 1999.
2. RECAPTURE FEE. As consideration for the settlement and
termination of all obligations of General American under the Engagement
Agreement as set forth herein, General American hereby agrees to pay ARM the
sum of $51.5 million (the "Recapture Fee"). The Recapture Fee shall be
payable by wire transfer in immediately available funds to a bank account
designated by ARM.
3. MUTUAL RELEASE. Subject to the payment by General American to
ARM of the Recapture Fee in accordance with the terms and provisions of this
Agreement, each Party hereby releases the other Party from any and all
further liability and obligation under, and agrees to relinquish any and all
claims that such Party may have against the other Party in any way related
to, and in any way arising out of, the Engagement Agreement.
3. NOTICES. Any notice required or permitted hereunder shall be
in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the
United States mails, as follows:
(1) If to ARM:
515 W. Market Street
Louisville, KY 40202
Attention: General Counsel
Telecopier No.: (502) 540-2830
(2) If to General American to:
700 Market Street
St. Louis, MO 63101
Attention: Matthew P. McCauley
Telecopier No.: (314) 444-0510
Any Party may, by notice given in accordance with this Agreement to
the other Parties, designate another address or person for receipt of notices
hereunder.
4. AMENDMENT. This Agreement may not be amended, modified, changed,
discharged or terminated, except by an instrument in writing signed by an
authorized officer of each of the Parties.
T-2-
<PAGE>
5. COUNTERPARTS. This Agreement may be executed by the Parties in
separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.
6. NO THIRD PARTY BENEFICIARIES. Except as otherwise specifically
provided for herein, nothing in this Agreement is intended or shall be
construed to give any Person, other than the Parties, their successors and
permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
7. ASSIGNMENT. This Agreement shall be binding upon and insure to
the benefit of the Parties and their respective successors, permitted assigns
and legal representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either Party (in whole or in part) without the prior
written consent of the other Parties hereto.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF KENTUCKY, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties relating to the matters set forth herein and there are no
other agreements between the Parties hereto, either existing or contemplated,
written or oral, with respect thereto.
10. WAIVERS AND AMENDMENTS: NON-CONTRACTUAL REMEDIES: PRESERVATION OF
REMEDIES. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by each of the Parties or, in the case of a waiver, by the Party
waiving compliance. No delay on the part of any Party on exercising any
right, power or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any Party of any right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such
right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any Party may
otherwise have at law or in equity.
11. HEADINGS. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
12. SEVERABILITY. If any provisions hereof shall be held invalid
or unenforceable by any court of competent jurisdiction or as a result of
future legislative action, such holding or action shall be strictly construed
and shall not affect the validity or effect of any other provision hereof;
PROVIDED, HOWEVER, that the parties shall use reasonable efforts, including,
but not limited to, the amendment of this Agreement, to ensure that this
Agreement shall reflect as closely as practicable the intent of the parties
hereto.
T-3-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Termination
Agreement to be duly executed and effective as of the date first above written.
GENERAL AMERICAN LIFE INSURANCE COMPANY
By: /s/ David L. Herzog
--------------------
Name: David L. Herzog
Title: Vice President
ARM FINANCIAL GROUP, INC.
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: President, Retail Business Division
T-4-
<PAGE>
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (hereafter "Agreement") dated as of August 3,
1999 between ARM Financial Group, Inc., a Delaware corporation, headquartered
at 515 West Market Street, Louisville, Kentucky 40202 (hereinafter the
"Company"), and GenAmerica Corporation, a Missouri corporation, headquartered
at 700 Market Street, St. Louis, MO 63101 (hereinafter the "Lender").
The Company and the Lender agree as follows:
Article I
Amount and Terms of Loan
1. Subject to the terms and conditions herein set forth, the Lender shall
lend to the Company and the Company shall borrow the sum of thirty-eight
million dollars ($38,000,000).
2. The borrowing shall be evidenced by a promissory note to the order of the
Lender in the form of "Exhibit 1" (the "Note") attached hereto, which
shall be dated the closing date of this Agreement, duly executed by the
Company with blanks suitably filled in conformity herewith and in the
principal amount of $38,000,000. The Note shall mature on the later of
(a) the 90th day after the date of this Agreement or (b) if a definitive
agreement prior to said 90th day, involving any merger, consolidation or
sale transferring control of the stock or substantially all of the assets
of the Company, Integrity Life Insurance Company, or National Integrity
Life Insurance Company, is executed on or before said 90th day, then the
closing date of such transaction (the Maturity Date), at which time the
unpaid principal together with all accrued interest thereon shall be due
and payable, unless the parties agree in writing to extend such date.
3. The Note shall bear interest before the Maturity Date, including any
extensions thereof, at a rate equivalent to 200 basis points in excess
of the Interest Reference Rate, which interest rate will change when and
as such Interest Reference Rate shall change on the last day of each
calendar month. Interest on the unpaid principal balance shall be
payable to the Lender in full on the Maturity Date.
Article II
Right to Prepay Note
The Company shall have the right, at any time and from time to time, to
prepay without penalty all or any part of the Note.
Article III
Representations and Warranties
TL 1
<PAGE>
The Company represents and warrants that as of the date hereof:
1. There are no suits or proceedings pending against or affecting the
Company or any subsidiary which, in the opinion of counsel for the
Company, will have a material adverse effect on the financial
condition or business of the Company and its subsidiaries;
2. The Company's risk based capital ratio on June 30, 1999 was and as of
the date hereof is not less than 150.
3. The Company has full power and authority to execute and perform the terms
and provisions of this Agreement and to borrow hereunder.
Article IV
Affirmative Covenants
1. The Company covenants and agrees that until all indebtedness incurred
hereunder has been paid in full, it will:
(a) Furnish to the Lender, not later than 90 days after the end of each
fiscal year, a consolidated profit and loss statement and statement
of surplus of the Company and its subsidiaries for such year and a
consolidated balance sheet of the Company and its subsidiaries as of
the last day of such fiscal year, all in reasonable detail and
satisfactory in scope to the Lender and all certified by independent
public accountants satisfactory to the Lender;
(b) Furnish to the Lender, not later than 45 days after the close of each
quarter-annual period (except the last quarter-annual period of each
year), a consolidated profit and loss and surplus statement of the
Company and its subsidiaries for the current fiscal year to and
including the period then ending and a consolidated balance sheet of
the Company as of the last day of such period, which statements and
balance sheets shall be in reasonable detail and certified by an
appropriate officer of the Company;
(c) From time to time furnish to the Lender all financial information,
including proxy statements, furnished by the Company to its
shareholders;
(d) With reasonable promptness, furnish to the Lender such additional
financial statements and such data and information concerning the
financial condition of the Company and its subsidiaries as may
reasonably be requested by the Lender; provided, however, that none
of the provisions of this Article IV, Section 1 shall require the
Company to give the Lender any information which it is prohibited
from giving the Lender by any governmental regulation;
(e) At all times keep its property insured against loss or damage to the
extent and against the risks that similar property is usually insured
by other companies engaged in the same business, and will cause its
subsidiaries so to do;
TL 2
<PAGE>
Promptly pay and discharge, and cause its subsidiaries to pay and discharge,
all taxes and assessments levied and assessed or imposed upon its property or
upon its income as well as all claims which, if unpaid, might by law become a
lien or charge upon its property; provided, however, that nothing herein
contained shall require the Company or any subsidiary to pay any such taxes,
assessments or claims so long as the Company or any subsidiary shall in good
faith contest the validity and stay the execution and enforcement thereof.
Article V
Events of Default
If any of the following events shall occur and be continuing: If the Company
defaults in the payment of any principal of the Note when the same shall
become due, either by terms thereof or otherwise as herein provided; or if
the Company defaults in the payment of any interest on the Note for more than
ten days after the date due; or if the Company or any subsidiary makes an
assignment for the benefit of creditors; or if the Company or any subsidiary
petitions or applies to any tribunal for the appointment of a trustee or
receiver of the Company or any subsidiary, or of any substantial part of the
assets of the Company or any subsidiary, or commences any proceedings
relating to the Company or any subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect; or
if any such petition or application is filed, or any such proceedings are
commenced, against the Company or any subsidiary, and the Company or such
subsidiary by any act indicates its approval thereof, consent thereto, or
acquiescence therein, or an order is entered appointing any such trustee or
receiver, or adjudicating the Company or any subsidiary bankrupt or
insolvent, or approving the petition in any such proceedings, and such order
remains in effect for more than 60 days; or if any order is entered in any
proceedings against the Company decreeing the dissolution or split-up of the
Company, and such order remains in effect for more than 60 days; the Lender,
upon being directed by the holder or holders of any of the notes outstanding,
shall, by notice in writing to the Company, declare all of the Note to be,
and the Note shall thereupon be and become, forthwith due and payable,
together with interest accrued thereon.
Article VI
Definitions
For the purpose of this Agreement, the following terms shall have the
following meanings:
1. "Person" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated organization and a government
or any department or agency thereof;
2. "Subsidiary" shall mean any corporation organized under the laws of any
state of the United States of America, or foreign country, a majority
of the voting stock of which shall, at the time as of which any
determination is being made, be owned by the Company either directly or
through subsidiaries;
TL 3
<PAGE>
3. "Event of default" shall mean any of the events specified in Article V,
provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the
happening of any further condition, event or act, and "default" shall mean
any of such events, whether or not any such requirement has been satisfied;
TL4
<PAGE>
4. "Interest Reference Rate" shall mean the rate per month equal to the
offered rates for deposits in U.S. Dollars for a 1 month period which
appears on the LIBO page of the Reuters Monitor Money Rates Service.
5. "Note" shall mean the promissory note.
Article VII
Miscellaneous
1. This Agreement may be amended, and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by
it, if the Company shall obtain the written consent of the Lender to such
amendment, action or omission to act.
2. All representations and warranties contained herein or made in writing by
the Company in connection herewith shall survive the execution and
delivery of this Agreement and of the notes.
3. All covenants and agreements in this Agreement contained by or on
behalf of either of the parties hereto shall bind and inure to the
benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
4. All communications provided for hereunder shall be sent by first
class mail and, if to the Lender, to its offices at 700 Market Street,
St. Louis, MO 63101, to the attention of M.P. McCauley and if to the
Company, to its offices at 515 West Market Street, Louisville, Kentucky
40202, to the attention of the General Counsel, or to such other address
with respect to any party as such party shall notify the others in
writing.
5. No delay on the part of the Lender in exercising any right, power or
privilege granted hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof. The rights and remedies
herein expressly specified are cumulative and not exclusive of any
other rights and remedies which the Lender would otherwise have.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Missouri, without giving effect to the
principles of conflicts of laws thereof.
7. This Agreement shall terminate when the unpaid principal and
interest has been paid in full.
8. This Agreement may be executed in any number of copies and by the
parties hereto on separate counterparts. Complete sets of counterparts
executed by all of the parties hereto shall be lodged with the Company
and the Lender.
TL5
<PAGE>
The parties hereto have caused this Agreement to be duly executed by their
respective duly authorized officers as of the day and year first above
written.
ARM Financial Group, Inc. GENAMERICA CORPORATION
(the "Company") (the "Lender")
BY: /s/ John R Lindholm BY: /s/ David L. Herzog
---------------------------- ----------------------------
John R Lindholm Name: David L. Herzog
President Retail Business Division Title: CFO
ATTEST: [ILLEGIBLE] ATTEST: /s/ Matthew P. McCauley
------------------------ ------------------------
Name:
TL6
<PAGE>
Exhibit 1
Promissory Note
$38,000,000
ARM Financial Group, Inc., a Delaware corporation, for value received, hereby
promises to pay to the order of GenAmerica Corporation, a Missouri
corporation, the principal sum of $38,000,000 on the Maturity Date which is
the later of (a) the 90th day after the date of this promissory note or (b)
if a definitive agreement, involving any merger, consolidation or sale
transferring control of the stock or of substantially all of the assets of
the Company, Integrity Life Insurance Company, or National Integrity Life
Insurance Company is executed on or before said 90th day, then the closing
date of such transaction. At the Maturity Date, the unpaid principal
together with all accrued interest thereon shall be due and payable. The
Company shall have the right, at any time and from time to time, to prepay
without penalty all or any part of the Note.
Interest on the unpaid principal amount hereof is payable on the Maturity
Date, and if the Maturity Date is extended, thereafter, from time to time, at
a rate equivalent to 200 basis points in excess of the thirty day LIBOR rate
as it published on the LIBO page of the Reuters Monitor Money Rates Service,
which interest rate shall change when and as such LIBOR rate shall change on
the last day of each month until such unpaid principal balance shall be due
and payable. Payments of principal and interest are payable at the main
office of the payee hereof in lawful money of the United States.
Each payment shall be credited to accrued interest then due and the remainder
to principal, and interest thereupon shall cease upon the principal so
credited. If default be made in the payment of principal or interest, or
portions thereof, and such default is not cured within five (5) days from the
date such amount became due, the holder of this Note may, at its option,
either: (i) assess a late fee equal to three percent (3%) of principal and
interest then due; or (ii) charge interest on the entire unpaid principal
balance of this Note from the date of such default at an interest rate which
is three percentage points per annum in excess of the interest rate then
otherwise attaching hereunder, while such default continues. In the event of
a default under the terms of this Note or the Term Loan Agreement dated as of
August 3, 1999 which is not cured within any applicable cure period, the
holder hereof may, at its option and without notice, declare all of the
unpaid principal balance of this Note, together with interest accrued
thereon, immediately due and payable and the holder hereof shall be entitled
to exercise any and all remedies available to it at law or in equity. Interest
accruing hereunder shall be calculated based on a 30/360-day year basis. If
any payment date hereunder falls on Saturday, Sunday, or legal holiday, then
such payment shall be due on the next business day.
The makers, endorsers, guarantors, sureties and all other parties liable for
the payment of any sums or sums due or to become due under the terms of this
Note waive presentment for payment, protest and demand, notice of protest,
demand and of dishonor and nonpayment of this Note, and consent that the
owner hereof shall have the right, without notice, to deal in any way at any
time
TL7
<PAGE>
with any party hereto, or to grant any extension of time for payment of any
of said indebtedness or any other indulgences or forbearances whatsoever, or
may release any of the security for this Note without in any way affecting
the liability of any party for the payment of this Note.
In the event default is made in the prompt payment of this Note, when due or
declared due, and it is placed in the hands of an attorney for collection or
suit is brought on same or it is collected through any probate, bankruptcy or
other judicial proceedings whatever, then all parties liable for payment
hereof agree and promise to pay all costs of said collection, including a
reasonable attorney's fee.
This Note is issued pursuant to a Term Loan Agreement between the
undersigned, the payee hereof, and other Lender dated as of August 3, 1999 to
which Term Loan Agreement reference is hereby made for a description of the
right of the maker to anticipate payment hereof, the conditions upon which
the maturity hereof may be accelerated by the holder, and other terms and
conditions upon which this Note is issued.
ARM Financial Group, Inc. (the "Company")
BY:
--------------------------------
ATTEST:
----------------------------
TL8
<PAGE>
WAIVER, RELEASE AND TERMINATION AGREEMENT dated as of
August 3, 1999 (this "Agreement"), to the Credit Agreement
dated as of June 24, 1997, as amended by the Release and
Amendment dated as of December 15, 1997, the Amendment dated as
of April 20, 1998, the Amendment dated as of October 23, 1998,
the Amendment dated as of October 30, 1998 and the Amendment
dated as of January 6, 1999 (the "Credit Agreement"), among ARM
FINANCIAL GROUP, INC., a Delaware corporation (the "Borrower"),
the financial institutions from time to time party thereto (the
"Lenders") and THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
WHEREAS, pursuant to the Credit Agreement, the Lenders have
extended and agreed to extend credit to the Borrower subject to the terms and
conditions set forth therein;
WHEREAS, the Borrower is, simultaneously with the execution of this
Agreement, paying in full the principal of and interest accrued on all the
Loans (all such Obligations being called the "Designated Obligations");
WHEREAS, the amount of the Designated Obligations owed to each
Lender, and the aggregate amount of the Designated Obligations, are set forth
in Schedule I hereto;
WHEREAS, capitalized terms used and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement.
NOW, THEREFORE, in consideration of and effective upon the payment
in full of the Designated Obligations simultaneously with the execution and
delivery of this Agreement;
1. The parties hereto hereby agree that all obligations,
liabilities, covenants and agreements of the Borrower, the Lenders and the
Administrative Agent under or in connection with the Credit Agreement and the
other Loan Documents are hereby terminated and canceled and are of no further
force or effect (other than any such obligations and agreements that by their
terms survive the termination of the Credit Agreement).
2. The Lenders hereby waive the applicability of Section 2.14 to
the prepayment of Loans on the date hereof.
3. The Lenders hereby waive any notice of termination of
commitments required by Section 2.09 of the Credit Agreement and any notice
of prepayment required by Section 2.11 of the Credit Agreement.
<PAGE>
2
4. Notwithstanding the foregoing provisions, the obligations under
Section 2.12, 2.18 and 9.05 of the Credit Agreement will survive the
repayment of the Loans and the termination of the commitments.
5. This Agreement shall become effective (a) upon the execution
and delivery of counterparts hereof by the Borrower and The Chase Manhattan
Bank (individually and as Administrative Agent under the Credit Agreement)
and acknowledged and agreed to by each Lender and are in the possession of
the Administrative Agent and (b) the Administrative Agent has received by
wire transfer of immediately available funds the aggregate amount of the
Designated Obligations, as set forth in Schedule I hereto.
6. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
7. This Agreement may be executed in any number of counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement. Delivery of an executed counterpart
of a signature page of this Agreement shall be effective as delivery of a
manually executed counterpart of this Agreement.
8. This Agreement shall be binding upon and inure to the benefit
of the Borrower, the Lenders, The Chase Manhattan Bank (individually and as
Administrative Agent) and their respective successors and assigns.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
ARM FINANCIAL GROUP, INC.
by /s/ Peter S. Resnik
--------------------
Name: Peter S. Resnik
Title: Treasurer
by /s/ William Panning
--------------------
Name: William Panning
Title: EVP Chief Investment Officer
THE CHASE MANHATTAN BANK,
individually, as Administrative
Agent, and as Representative,
by
--------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by
--------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by
--------------------
Name:
Title:
by
--------------------
Name:
Title:
<PAGE>
4
DRESDNER BANK AG, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH,
by
--------------------
Name:
Title:
by
--------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO,
by
--------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
by
--------------------
Name:
Title:
PNC BANK, N.A.,
by
--------------------
Name:
Title:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION,
by
--------------------
Name:
Title:
<PAGE>
STATE OF OHIO
DEPARTMENT OF INSURANCE
IN THE MATTER OF: CONFIDENTIAL SUPERVISION
ORDER PURSUANT TO OHIO
INTEGRITY LIFE INSURANCE COMPANY REVISED CODE SECTION 3903.11
Pursuant to Ohio Revised Code Section 3903.09(B), the Superintendent
has made the determination to supervise Integrity Life Insurance Company (the
"Company"), an Ohio life insurance legal reserve corporation. The determination
is based upon the Superintendent's reasonable belief that the Company is in such
condition as to render the continuance of its business hazardous to its
subscribers, certificate holders, or to the public.
IT IS THEREFORE ORDERED:
1. By copy of this Supervision Order, Integrity Life Insurance
Company (the "Company") is hereby notified of the Superintendent's
determination to place it under supervision.
2. The Superintendent's requirement to abate the determination and
thereby be released from Supervision is that the Company shall
attain sufficient liquidity, surplus, and reserves necessary to
exceed and maintain Company Action Level RBC, as defined in O.R.C.
3903.81
3. During the period of this Supervision, the Superintendent
appoints Michael F. Motil, Assistant Chief Examiner, Office of
Financial Regulation, as Supervisor of the Company. The
Supervisor is directed to enforce additional orders issued under
R.C. 3903.09(A) or (B). During the period of supervision, the
Company is hereby ordered and shall not, without the prior written
consent or the Superintendent or the Supervisor:
a) Dispose of, convey or encumber any of its assets;
b) withdraw from any of its bank accounts, except for death
benefits, previously scheduled systematic withdrawals,
previously scheduled immediate annuity payments, and agent
commission payments;
c) lend any of its funds;
d) invest any of its funds except in investments expressly
permitted by O.R.C. Section 3907.14;
e) transfer any of its property;
f) incur any debt, obligation, or liability;
g) merge or consolidate with any other person;
h) enter into any new, modify, amend or cancel any existing
reinsurance contract or treaty; or
i) implement any action ratified at any meeting of the board of
directors, executive committee, or any other committee of the
Company.
4. The Company shall immediately report any material changes to its
operations to the Department of Insurance.
5. The Company board of Directors shall provide a certified
resolution within ten (10) business days to the Department stating
that is has received a copy of this Supervision Order.
<PAGE>
6. This Supervision Order shall remain in effect for 60 days. Unless
the Superintendent begins proceedings under the O.R.C. 3903.12 or
3903.17 for the appointment of a rehabilitator or liquidator,
this Supervision Order shall be extended for successive 60-day
periods automatically until written notice from the Superintendent
is given to the Company ending this Supervision.
7. The Company may, within 30 days of the date of service of this
Order, request a hearing to review this Order. If requested, such
hearing will be held in Franklin County, Ohio, and will be held
privately unless the Company requests a public hearing. At any
such hearing, the Company may appear via its officers or through
counsel or other person authorized to practice before the
Department of Insurance, and may present evidence and examine
witness appearing before and against it.
A copy of this Supervision Order shall be served upon John R.
Lindholm, President, Integrity Life Insurance Company, 515 West
Market Street, Louisville, Kentucky 40202
Date: August 20, 1999 By: /S/ J. Lee Covington II
--------------------- -------------------------------
J. Lee Covington II
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true copy of the foregoing Confidential
Supervision Order was sent this 20th day of August, 1999, by certified mail,
return receipt requested, to John R. Lindholm, President, Integrity Life
Insurance Company, 515 West Market Street, Louisville, Kentucky 40202
Certified Mail No.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AND
STATEMENT OF INCOME OF ARM FINANCIAL GROUP, INC.'S FORM 10-Q FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 6,264,509
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 37,213
<MORTGAGE> 13,395
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,870,723
<CASH> 393,786
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 158,089
<TOTAL-ASSETS> 10,371,076
<POLICY-LOSSES> 7,032,054
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 38,000
0
75,000
<COMMON> 238
<OTHER-SE> 32,778
<TOTAL-LIABILITY-AND-EQUITY> 10,371,076
0
<INVESTMENT-INCOME> 278,162
<INVESTMENT-GAINS> (181,148)
<OTHER-INCOME> 13,890
<BENEFITS> 216,116
<UNDERWRITING-AMORTIZATION> 9,180
<UNDERWRITING-OTHER> 22,484
<INCOME-PRETAX> (139,080)
<INCOME-TAX> 20,399
<INCOME-CONTINUING> (159,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (159,479)
<EPS-BASIC> (6.78)
<EPS-DILUTED> (6.78)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
