Exhibit K-3
INSURANCE AND INDEMNITY AGREEMENT
between
AMBAC ASSURANCE CORPORATION
and
Special Value EXPANSION Fund, LLC
Dated as of November 17, 2004
PREFERRED SHARES
TABLE OF CONTENTS Page
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ARTICLE I. DEFINITIONS......................................................1
1.1. General Definitions...........................................1
1.2. Generic Terms.................................................8
ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS.......................8
2.1. Representations and Warranties of the Issuer..................8
2.2. Affirmative Covenants of the Issuer...........................9
2.3. Negative Covenants of the Issuer.............................13
ARTICLE III. CONDITIONS TO ISSUANCE OF THE PREFERRED SHARES
INSURANCE POLICY; CONDITIONS TO EXECUTION
OF INCREASE ENDORSEMENTS......................................17
3.1. Issuance of the Preferred Shares Insurance Policy............17
3.2. Payment of Fees..............................................17
3.3. Closing Documents............................................17
3.4. Certified Documents and Resolutions..........................17
3.5. Incumbency Certificate.......................................17
3.6. Representations and Warranties...............................17
3.7. Opinions of Counsel..........................................18
3.8. Approvals, etc...............................................18
3.9. No Litigation, etc...........................................18
3.10. Legality ..................................................18
3.11. Shadow Ratings...............................................18
3.12. Filings and Recording........................................18
3.13. No Default ..................................................18
3.14. Additional Items.............................................18
3.15. Conditions Precedent to the Effectiveness of
Increase Endorsements........................................19
ARTICLE IV. REIMBURSEMENT; INDEMNIFICATION.................................19
4.1. Policy Premium...............................................19
4.2. Reimbursement and Additional Payment Obligation..............19
4.3. Indemnification by Issuer....................................20
4.4. Conduct of Actions or Proceedings............................21
4.5. Contribution.................................................22
4.6. Payment Procedure............................................22
4.7. Foreseeable Damages..........................................23
4.8. Security for Claims..........................................23
ARTICLE V. FURTHER AGREEMENTS..............................................23
5.1. Effective Date; Term of Agreement............................23
5.2. Obligations Absolute.........................................23
5.3. Assignments; Reinsurance; Third-Party Rights.................25
5.4. Liability of Ambac...........................................26
ARTICLE VI. EVENTS OF DEFAULT; REMEDIES....................................26
6.1. Events of Default............................................26
6.2. Remedies; Waivers............................................28
ARTICLE VII. MISCELLANEOUS.................................................29
7.1. Amendments, etc..............................................29
7.2. Restructuring of the Issuer..................................29
7.3. Notices ...................................................30
7.4. Severability.................................................30
7.5. Governing Law................................................31
7.6. Consent to Jurisdiction......................................31
7.7. Consent of Ambac.............................................32
7.8. Counterparts.................................................32
7.9. Headings .................................................32
7.10. Trial by Jury Waived.........................................32
7.11. Limited Liability............................................32
7.12. Entire Agreement.............................................32
7.13. Limited Recourse.............................................32
7.14. No Bankruptcy Petition.......................................33
7.15. Location of Delivery, etc....................................33
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT, dated as of November 17, 2004 (as
may be amended, modified or supplemented from time to time, this "Agreement")
among Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance
corporation ("Ambac"), Special Value Expansion Fund, LLC, a limited liability
company incorporated under the laws of Delaware (the "Issuer").
INTRODUCTORY STATEMENTS
The Issuer may issue multiple series of Preferred Shares (as defined
herein) with an aggregate liquidation preference not to exceed $100,000,000
plus an amount equal to accumulated but unpaid dividends (whether or not earned
or declared) (including $35,000,000 of Series A Preferred Shares to be issued
on the date hereof) and with a mandatory final redemption date of September 1,
2014 (the "Final Redemption Date") pursuant to the Statement of Preferences (as
defined herein), and shall use the proceeds of the issuance of Preferred Shares
for the uses described in Offering Document (as defined herein) for the
Preferred Shares.
The Issuer has requested that Ambac, subject to the terms and
conditions set forth herein and in the Preferred Shares Insurance Policy (as
defined herein), issue its Preferred Shares Insurance Policy pursuant to which
Ambac will insure certain payments with respect to the Preferred Shares.
As consideration for Ambac issuing the Preferred Shares Insurance
Policy, the Issuer has agreed to pay Ambac a periodic premium, to reimburse
Ambac for any amounts paid by Ambac under the Preferred Shares Insurance Policy
and to indemnify or reimburse Ambac for certain liabilities, costs and
expenses, all as more fully set forth herein.
Accordingly, the parties hereto desire to specify the conditions
precedent to the issuance of the Preferred Shares Insurance Policy and any
Increase Endorsement (as defined herein) thereto by Ambac and to provide for
the indemnification of Ambac and certain other matters.
AGREEMENTS
THEREFORE, in consideration of the premises set forth herein and in
the Statement of Preferences, Ambac and the Issuer hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1. General Definitions. Capitalized terms used but not otherwise
defined herein shall have the meanings specified in the Statement of
Preferences. In addition, the following words and phrases shall have the
following meanings:
"Accrued Liabilities" has the meaning specified in Section 4.2 hereof.
"Accrued Liabilities Interest Rate" means, as of any date of
calculation, the per annum rate of interest equal to the Federal Funds
Effective Rate plus 3% (which amount of interest shall be calculated by Ambac
and evidenced by a certificate of Ambac delivered to the Issuer). The Accrued
Liabilities Interest Rate shall be computed on the basis of a year of 365 days
and the actual number of days elapsed. In no event shall the Accrued
Liabilities Interest Rate exceed the maximum rate permissible under any
applicable law limiting interest rates.
"Adjusted Contributed Company Capital" has the meaning set forth in
the Credit Agreement.
"Advance Amount" has the meaning set forth in the Credit Agreement.
"Advance Amount Cushion" has the meaning specified in Section 2.3(m)
hereof.
"Ambac Required Reserve Amount" has the meaning set forth in the
Premium Letter.
"Auction Agency Agreement" has the meaning set forth in the Statement
of Preferences.
"Board of Directors" means the Board of Directors of the Issuer or any
duly authorized designee thereof.
"Broker-Dealer" has the meaning set forth in the Statement of
Preferences.
"Certificate of Formation" means the Certificate of Formation of the
Issuer, filed with the Secretary of State of the State of Delaware on August
12, 2004, and any all amendments thereto and restatements thereof filed with
the Secretary of State of the State of Delaware.
"Closing Date" means November 17, 2004.
"Code" has the meaning set forth in the Credit Agreement.
"Collateral" has the meaning set forth in the Pledge and Intercreditor
Agreement.
"Collateral Documents" has the meaning set forth in the Credit
Agreement.
"Collateral Valuation Schedule" has the meaning set forth in the
Credit Agreement.
"Common Shares" has the meaning set forth in the Credit Agreement.
"Common Shareholder" has the meaning set forth in the Credit
Agreement.
"Common Shareholders' Escrow Account" has the meaning set forth in the
Custodial Agreement.
"Company Equity" has the meaning set forth in the Credit Agreement.
"Company Tax Distribution" has the meaning set forth in the Credit
Agreement.
"Contributed Company Capital" has the meaning set forth in the
applicable Collateral Valuation Schedule.
"Controlling Class" has the meaning set forth in the Credit Agreement
or the Pledge and Intercreditor Agreement, as applicable.
"Credit Agreement" means the Credit Agreement, dated as of the Closing
Date, among the Issuer, Union Bank of California, N.A., as administrative
agent, IXIS Financial Products Inc., as arranger, Ambac, as Insurer, and
various financial institutions, which are or may become party thereto as
lenders, as such Credit Agreement may be amended, supplemented or modified from
time to time with the consent of Ambac and in accordance with its terms
provided that if the Credit Agreement is terminated prior to the termination of
this Agreement, then for all purposes of this Agreement, references to the
Credit Agreement shall mean the Credit Agreement as in effect immediately prior
to its termination.
"Credit Document" has the meaning set forth in the Credit Agreement.
"Custodial Agreement" has the meaning set forth in the Credit
Agreement.
"Custodian" has the meaning set forth in the Credit Agreement.
"Date of Original Issue" with respect to shares of a series of
Preferred Shares, means the date on which the Issuer initially issued such
shares.
"Default" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.
"Distribution Agreement" means the Distribution Agreement, dated
November 16, 2004, between ▇▇▇▇▇▇ Brothers Inc., the Issuer and ▇▇▇▇▇▇▇▇▇▇
Capital Partners, LLC, as the same may be amended, supplemented, modified or
updated from time to time in accordance with its terms.
"Event of Default" has the meaning given that term in Section 6.1
hereof.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate equal for each day during such period 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 preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Ambac from three Federal funds brokers of recognized
standing selected by Ambac.
"Final Redemption Date" means September 1, 2014.
"Fund Investments" has the meaning assigned to such term in the
applicable Collateral Valuation Schedule.
"GAAP" has the meaning set forth in the Credit Agreement.
"Increase Endorsement" means an endorsement to the Preferred Shares
Insurance Policy in the form set forth as Exhibit B to the Preferred Shares
Insurance Policy.
"Indebtedness" means, with respect to any Person at any time: (a) any
indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, notes or other instruments, or for the deferred
purchase price of property or services (including trade obligations); (b) any
obligations of such Person as lessee under leases which should have been or
should be, in accordance with U.S. generally accepted accounting principles,
recorded as capital leases; (c) any obligations issued for or liabilities
incurred on the account of such Person; (d) any obligations or liabilities of
such Person arising under acceptance facilities; (e) any obligations of such
Person under any guarantees, endorsements (other than for collection or deposit
in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (f) any obligations of such
Person secured by any lien on property or assets of such Person; or (g) any
obligations of such Person under any interest rate or currency exchange
agreement.
"Insured Obligations" has the meaning assigned to such term in the
Preferred Shares Insurance Policy.
"Investment Company Act" has the meaning set forth in the Credit
Agreement.
"Investment Holdings Subsidiary" has the meaning set forth in the
applicable Collateral Valuation Schedule.
"Investment Manager" has the meaning set forth in the Credit
Agreement.
"Investment Management Agreement" has the meaning set forth in the
Credit Agreement.
"Lien" has the meaning set forth in the Credit Agreement.
"Loans Insurance Agreement" means the Insurance and Indemnity
Agreement, dated as of the Closing Date, between Ambac and the Issuer relating
to the issuance of the Loans Insurance Policy.
"Loans Insurance Policy" means the Financial Guaranty Insurance Policy
No. AB0822BE relating to the Loans under the Credit Agreement.
"Loan" has the meaning set forth in the Credit Agreement.
"Losses" means an amount equal to (a) any actual out-of-pocket damages
incurred by the party entitled to indemnification or contribution hereunder,
plus (b) any actual out-of-pocket costs or expenses incurred by such party,
including reasonable fees or expenses of its counsel and other expenses
incurred in connection with investigating or defending any claim, action or
other proceeding which entitle such party to be indemnified hereunder (subject
to the limitations set forth in Section 4 hereof), to the extent not paid,
satisfied or reimbursed from funds provided by any other Person other than an
affiliate of such party (provided that the foregoing shall not create or imply
any obligation to pursue recourse against any such other Person), plus (c)
interest on the amount paid by the party entitled to indemnification or
contribution from the date of such payment to the date of payment by the party
who is obligated to indemnify or contribute hereunder at the statutory rate
applicable to judgments for breach of contract.
"Market Value" has the meaning set forth in the applicable Collateral
Valuation Schedule.
"Market Value Price" has the meaning set forth in the applicable
Collateral Valuation Schedule.
"Material Adverse Change" means, in respect of any Person, a material
adverse change in (i) the business, prospects, financial condition, results of
operations or properties of such Person and of its Subsidiaries taken as a
whole, or (ii) the ability of such Person to perform its obligations under the
Transaction Documents to which it is a party.
"Moody's" has the meaning set forth in the Credit Agreement.
"▇▇▇▇▇'▇ Advance Amount" has the meaning set forth in the ▇▇▇▇▇'▇
Collateral Valuation Schedule.
"▇▇▇▇▇'▇ Collateral Valuation Schedule" means the ▇▇▇▇▇'▇ Collateral
Valuation Schedule attached as Schedule 9 to the Credit Agreement, as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with the Credit Agreement and with the written consent of Ambac. If
the Credit Agreement shall for any reason terminate prior to the termination of
this Agreement, then the "▇▇▇▇▇'▇ Collateral Valuation Schedule" shall be the
▇▇▇▇▇'▇ Collateral Valuation Schedule in affect under the Credit Agreement
immediately prior to the termination thereof.
"Net Asset Value" has the meaning set forth in the Credit Agreement.
"Notice of Redemption" with respect to a series of Preferred Shares,
means any notice with respect to the redemption of such Preferred Shares
pursuant to the Statement of Preferences.
"Offering Document" means (i) with respect to the Preferred Shares,
the Confidential Private Placement Memorandum of the Issuer dated November 16,
2004 relating to the Preferred Shares, as such Confidential Private Placement
Memorandum may be amended, supplemented, modified or updated from time to time
in connection with the placement of additional series Preferred Shares and (ii)
with respect to the Common Shares, the Confidential Private Placement
Memorandum of the Issuer dated August 9, 2004 relating to the Common Shares of
the Issuer, in each case, as amended or supplemented through the date hereof.
"Operating Agreement" has the meaning set forth in the Credit
Agreement.
"Organic Documents" has the meaning set forth in the Credit Agreement.
"Over-Collateralization Test" has the meaning set forth in the Credit
Agreement.
"Paying Agent" means Deutsche Bank Trust Company Americas appointed
pursuant to Section 3.1 of the Auction Agency Agreement and any successor
thereto appointed in accordance with terms of the Auction Agency Agreement.
"Permitted Liens" has the meaning set forth in the Credit Agreement.
"Person" has the meaning set forth in the Credit Agreement.
"Pledge and Intercreditor Agreement" has the meaning set forth in the
Credit Agreement.
"Preferred Shares" means (i) the "Series A" money market cumulative
preferred shares issued pursuant to the Statement of Preferences on the Closing
Date and (ii) the money market cumulative preferred shares issued pursuant to
the Statement of Preferences and identified by series, Date of Original Issue
and amount in any Increase Endorsement to the Preferred Shares Insurance
Policy.
"Preferred Shares Basic Maintenance Amount" has the meaning specified
in the Statement of Preferences.
"Preferred Shares Basic Maintenance Report" means a report signed by
the President, Chief Financial Officer or Secretary of the Issuer or such other
Persons duly authorized by the Board of Directors of the Issuer which sets
forth, with respect to the Valuation Date coinciding with or next following the
date of determination or calculation thereof, (i) the assets of the Issuer,
(ii) the Market Value of the assets of the Issuer (seriatim and in the
aggregate), as determined by reference to (A) the Moody's Collateral Valuation
Schedule and (B) the S&P Collateral Valuation Schedule, (iii) the Advance
Amount (seriatim and in the aggregate), as determined by reference to (A) the
▇▇▇▇▇'▇ Collateral Valuation Schedule and (B) the S&P Collateral Valuation
Schedule, (iv) the Net Asset Value of the Issuer, and (v) the Preferred Shares
Basic Maintenance Amount.
"Preferred Shares Insurance Policy" means the Preferred Shares
Insurance Policy No. AB0823BE which guarantees the timely payment of dividends
on the Issuer's Preferred Shares and the payment of the Redemption Price on
such Preferred Shares no later than the Final Redemption Date.
"Premium" has the meaning set forth in the Premium Letter.
"Premium Letter" means the Premium Letter, dated as of the Closing
Date, between Ambac and the Issuer.
"Proceeding" means the making of a trust, mortgage or assignment for
the benefit of creditors involving all or substantially all of the assets of
the Issuer (other than Permitted Liens); the voluntary or involuntary
dissolution, winding up, total or partial liquidation, reorganization,
bankruptcy, insolvency, receivership or marshalling of assets or liabilities of
the Issuer; or any other statutory, common law or contractual proceeding or
arrangement for the postponement or adjustment of all or a substantial part of
the liabilities of the Issuer.
"Rating Agency Condition" has the meaning set forth in the Credit
Agreement.
"Redemption Payment Date" means (i) the Final Redemption Date and (ii)
if Ambac elects in its sole discretion to make payment in respect of an early
redemption of Preferred Shares, then each date upon which such payment is made.
"Redemption Price" means the product of (x) $50,000 and (y) the number
of Preferred Shares subject to the applicable redemption or on the Final
Redemption Date, all Preferred Shares that are outstanding, plus in each case,
the amount, if any, of all accumulated but unpaid dividends (whether or not
earned or declared) on such Preferred Shares to (but not including) the related
Redemption Payment Date.
"Reporting Date" has the meaning set forth in the Credit Agreement.
"Restricted Payment" means
(i) any payment or other distribution (including, without
limitation, dividends) to any Common Shareholder of the Issuer in
respect of Common Shares;
(ii) any payment or other distribution on account of the
purchase, redemption, retirement or acquisition of any Common Share or
other common equity interest in the Issuer; or
(iii) any payment in respect of any Subordinated Equity
Securities.
For the avoidance of doubt, payments on the Preferred Shares shall not
be treated as Restricted Payments under this Agreement and may be paid by the
Issuer at any time in accordance with the terms of the Operating Agreement.
"Secured Hedging Transaction" has the meaning assigned to such term in
the applicable Collateral Valuation Schedule.
"Secured Parties Representative" has the meaning set forth in the
Credit Agreement.
"Senior Indebtedness" means all Indebtedness and other payment
obligations (including, without limitation, interest that would accrue but for
the filing of a petition initiating a Proceeding, whether or not a claim for
such interest is allowed in the Proceeding) of the Issuer arising under or in
respect of the Credit Agreement, the Lender Notes or other Credit Documents,
the Secured Hedging Transactions, the Loans Insurance Agreement or this
Agreement, whether outstanding on the Closing Date or thereafter created or
incurred including obligations owing to the Custodian under the Custodial
Agreement, to the Administrative Agent under the Credit Agreement, to the
Secured Parties Representative under the Pledge and Intercreditor Agreement and
to Ambac under this Agreement and the Loans Insurance Agreement; provided,
however, that Senior Indebtedness shall not include any Indebtedness or such
other obligations incurred in violation of the Credit Agreement.
"S&P" has the meaning set forth in the Credit Agreement.
"S&P Advance Amount" has the meaning set forth in the S&P Collateral
Valuation Schedule.
"S&P Collateral Valuation Schedule" means Schedule 10 to the Credit
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the Credit Agreement and with the written
consent of Ambac. If the Credit Agreement shall for any reason terminate prior
to the termination of this Agreement, then the "S&P Collateral Valuation
Schedule" shall be the S&P Collateral Valuation Schedule in affect under the
Credit Agreement immediately prior to the termination thereof.
"Special Member" has the meaning set forth in the Credit Agreement.
"Statement of Preferences" means the Statement of Preferences of Money
Market Cumulative Preferred Shares of Special Value Expansion Fund, LLC, dated
November 16, 2004, as amended, modified or supplemented from time to time in
accordance with its terms.
"Structured Product Transaction" has the meaning assigned to such term
in the applicable Collateral Valuation Schedule.
"Subordinated Equity Securities" has the meaning set forth in the
Credit Agreement.
"Subsidiary" has the meaning set forth in the Credit Agreement.
"Term" has the meaning set forth in Section 5.1 of this Agreement.
"Transaction Documents" means the Credit Agreement, the Pledge and
Intercreditor Agreement, the Distribution Agreement, the Custodial Agreement,
the Investment Management Agreement, this Agreement, the Preferred Shares
Insurance Policy, the Auction Agency Agreement, the Lender Notes, the
Certificate of Formation, the Operating Agreement, the Loans Insurance
Agreement, the Loans Insurance Policy and the Statement of Preferences.
"Transactions" means the transactions contemplated by the Transaction
Documents.
"Valuation Date" has the meaning set forth in the Statement of
Preferences.
"Valuation Statement" has the meaning set forth in the Credit
Agreement.
1.2. Generic Terms. The term "hereof" or "herein" unless otherwise
modified by more specific reference, shall refer to this Agreement. Unless
otherwise specified, the term "Article" or "Section" shall refer to an Article
or Section of this Agreement.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. Representations and Warranties of the Issuer. The Issuer hereby
represents and warrants as follows as of the date hereof and as of each date
upon which any series of Preferred Shares is issued pursuant to the Statement
of Preferences or, if earlier, as of the date specified in the representation
or warranty set forth below or incorporated herein:
(a) Transaction Documents. The representations and warranties of the
Issuer set forth in the Transaction Documents are true and correct and are
incorporated herein for the benefit of Ambac as if set forth in full herein.
(b) Compliance with Laws. The Issuer has no notice nor any reasonable
basis to believe that any practice, procedure or policy employed or proposed to
be employed by it in the conduct of its business or which it expects to employ
in the conduct of its business violates any law, rule, regulation, judgment or
agreement applicable to it which, if enforced, would (i) result in a Material
Adverse Change with respect to it or impair in any material respect the
security interest created by the Pledge and Intercreditor Agreement in the
Collateral or (ii) constitute grounds for the revocation of any license,
charter, permit or registration which could reasonably be expected to result in
a Material Adverse Change; provided that this representation set forth in
Section 2.1(b) shall not be deemed violated as a result of the Issuer's failure
to comply with Section 18 of the Investment Company Act or any successor
provision thereto, or any applicable "asset coverage" requirement set forth
therein, in each case unless such failure shall have continued for (90) ninety
days following the Valuation Date upon which such failure to comply commenced.
2.2. Affirmative Covenants of the Issuer. Except as otherwise provided
below, the Issuer hereby agrees that while the Preferred Shares are outstanding
or any amounts are owing under this Agreement, unless Ambac shall otherwise
expressly consent in writing:
(a) Corporate Existence. The Issuer shall (i) do or cause to be done
all things necessary to preserve and keep in full force and effect its valid
limited liability company existence under the laws of the jurisdiction of its
organization, (ii) continue to be duly qualified and duly authorized to do
business in each jurisdiction in which such qualification is necessary to the
conduct of its business or to protect the validity and enforceability of the
Transaction Documents and the security interest in the Collateral created in
favor of the Secured Parties Representative pursuant to the Pledge and
Intercreditor Agreement and (iii) conduct its business in accordance with the
terms of the Organic Documents and the representation contained in Section 5.17
of the Credit Agreement.
(b) Compliance With Applicable Laws. The Issuer shall comply with all
applicable statutes, rules, regulations, orders and restrictions of any
governmental authority, department, commission, board, regulatory authority,
bureau, agency and instrumentality, in each respect of the conduct of its
business and the ownership of its properties, except such as are being
contested in good faith and by appropriate proceedings in a manner such as not
to cause a Material Adverse Change, and except for such non-compliance as shall
not, individually or in the aggregate, cause a Material Adverse Change. Without
limiting the foregoing, the Issuer shall comply with Section 18 of the
Investment Company Act or any successor provision thereto, and any applicable
"asset coverage" requirement set forth therein; provided that this covenant set
forth in Section 2.2(b) shall not be deemed violated with respect the Issuer's
failure to comply with Section 18 of the Investment Company Act or any
successor provision thereto, or any applicable "asset coverage" requirement set
forth therein, in each case unless such failure shall have continued for (90)
ninety days following the Valuation Date upon which such failure to comply
commenced.
(c) Maintenance of Licenses. The Issuer shall maintain all licenses,
permits, charters and registrations which, if not maintained, could reasonably
be expected to result in a Material Adverse Change.
(d) Maintenance of Insurance. The Issuer shall maintain insurance
(including directors and officers insurance and errors and omissions insurance)
consistent with the type and amount of insurance carried by Persons engaging in
similarly situated businesses.
(e) Compliance with Transaction Documents. The Issuer shall comply in
all material respects with the terms and conditions of, and perform in all
material respects its obligations and enforce in all material respects its
rights under, the Investment Management Agreement, the Operating Agreement, the
Credit Agreement, the Statement of Preferences, the Loans Insurance Agreement
and each other Transaction Document to which it is a party.
(f) Collateral Valuation. The rights of Ambac set forth in Section
6.1.1(e) of the Credit Agreement shall survive the termination of the Credit
Agreement and shall be deemed set forth herein in full.
(g) Preferred Shares Basic Maintenance Amount. The Issuer shall manage
its assets so that on each Valuation Date the sum of the Preferred Shares Basic
Maintenance Amount and the Ambac Required Reserved Amount is less than or equal
to the lesser of (i) the Moody's Advance Amount calculated using the ▇▇▇▇▇'▇
Advance Rate as of such Valuation Date (if ▇▇▇▇▇'▇ is then rating the Preferred
Shares at the request of the Issuer) and (ii) the S&P Advance Amount calculated
using the S&P Advance Rate as of such Business Day (if S&P is then rating the
Preferred Shares at the request of the Issuer); provided that this covenant set
forth in Section 2.2(g) shall not be deemed violated unless such default shall
have continued for (30) thirty days following the Valuation Date upon which the
conditions set forth herein were not satisfied.
(h) Notice of Material Events. The Issuer will, in addition to any
other notices, certificates or information provided pursuant to this Agreement,
inform Ambac in writing of the occurrence of any of the following, promptly
upon becoming aware thereof:
(i) the commencement or threat of any rule-making or disciplinary
proceeding or the promulgation of any proposed or final rule (other than a
rule or proceeding which has general applicability to Persons including
the Issuer) which could result in a Material Adverse Change with respect
to the Issuer or impair in any material respect the security interest
created by the Pledge and Intercreditor Agreement in the Collateral; and
(ii) the commencement of any proceedings by or against it in any court
of competent jurisdiction or before any governmental body or agency, or
before any arbitration board, or the threat of any such proceedings, which
either (i) involves an amount in dispute in excess of $11,000,000 (or,
during the 18 months following the date hereof, $6,500,000) with the
Issuer or (ii) if adversely determined, could result in a Material Adverse
Change with respect to the Issuer or impair in any material respect the
security interest created by the Pledge and Intercreditor Agreement in the
Collateral;
(iii) the receipt of notice from any agency or governmental body
having authority over the conduct of its business that (A) it is being
placed under regulatory supervision, (B) any license, permit, charter,
membership or registration material to the conduct of its business is to
be suspended or revoked, or (C) it is to cease and desist any practice,
procedure or policy employed by it in the conduct of its business, and
such cessation could result in a Material Adverse Change with respect to
the Issuer or impair in any material respect the security interest created
by the Pledge and Intercreditor Agreement in the Collateral;
(iv) any change in the location of Issuer's jurisdiction of
organization or any change in the location of the Issuer's books and
records;
(v) the occurrence of any Default or Event of Default;
(vi) the commencement of any proceedings by or against the Issuer
under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver, liquidator, conservator, trustee
or similar official shall have been, or may be, appointed or requested for
the Issuer or any of its assets;
(vii) the annual renewal (with a copy) of, and any material change to,
the insurance maintained pursuant to Section 2.2(d) hereof; and
(viii) the receipt of notice of any claim or order by any taxing
authority that material taxes are owed by the Issuer.
(i) Disclosure Document. Each Offering Document, as of its respective
date, did not, and as of the Closing Date and each date it is delivered by or
on behalf of the Issuer to investors does not, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided that the
Issuer makes no representation or warranty as to the information contained in
or omitted from the Offering Document in reliance upon and in conformity with
the written information relating to Ambac, the Preferred Shares Insurance
Policy and the Loans Insurance Policy.
(j) Audits; Recordkeeping.
(i) The Issuer shall allow Ambac to conduct physical audits at the
Issuer's expense, using Ambac's own personnel and/or agents employed on
Ambac's behalf, of the assets of the Issuer as often as Ambac may
reasonably deem necessary or desirable; provided, that, at any time prior
to the occurrence of a Default, Ambac shall conduct not more than one
physical audit in any one fiscal year of the Issuer; and provided,
further, that upon the occurrence and during the continuance of a Default,
Ambac may engage in any number of physical audits which Ambac deems
necessary or desirable.
(ii) The Issuer shall keep proper books and records reflecting all of
its business affairs and transactions in accordance with GAAP and permit
Ambac, on reasonable notice and at reasonable times and intervals during
ordinary business hours, to visit all of its offices and to discuss its
financial matters with officers of the Issuer and its independent public
accountants. The Issuer shall permit Ambac on reasonable notice and at
reasonable times and intervals during ordinary business hours, to examine
and make copies of any of the books or other records of the Issuer. In
addition to the foregoing, the Issuer shall pay any reasonable fees of any
independent public accountants or otherwise incurred in connection with
the exercise by Ambac of its rights pursuant to this Section 2.2(i).
(k) Further Assurances.
(i) The Issuer shall at its own expense promptly take, or cause to be
taken, such actions as may be necessary or desirable, in the reasonable
judgment and at the request of Ambac, (A) to create and maintain the Lien
of the Pledge and Intercreditor Agreement as a valid and perfected
security interest of first-priority covering the Collateral and (B) to
preserve and protect fully the perfected security interest of the Secured
Parties Representative in, and all rights of the Secured Parties
Representative with respect to, the Collateral, including, without
limitation, the execution and filing of all necessary instruments,
necessary to be kept and filed in such manner and in such places as may be
required by law to preserve, protect and perfect fully the security
interest of the Secured Parties Representative with respect to the
Collateral.
(ii) The Issuer shall, upon the reasonable request of Ambac, from time
to time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, within a reasonable period of such request,
such amendments or supplements hereto or to the other Transaction
Documents, subject to the terms thereof, and such further instruments and
take such further action as (in each case) may be reasonably necessary to
effect the intention, performance and provisions of the Transaction
Documents or to protect the interest of the Secured Parties Representative
in the Collateral, free and clear of all Liens other than Permitted Liens.
(iii) The Issuer shall cooperate with S&P and Moody's in connection
with any review of the transactions contemplated by Transaction Documents
which may be undertaken by S&P and Moody's after the Closing Date, in each
case so long as Moody's or S&P, as applicable, is rating the credit risk
underlying the Preferred Shares Insurance Policy.
(iv) The Issuer will not use, or distribute to any Person for use, or
permit the use of any Offering Document in connection with the offer and
sale of the Preferred Shares unless such Offering Document includes or
incorporates by reference such information as has been expressly furnished
by Ambac for inclusion therein and the information therein or incorporated
by reference therein concerning Ambac has been approved by Ambac in
writing.
(l) Additional Information. In addition to the information required to
be delivered by the Issuer to Ambac pursuant to the terms of the Statement of
Preferences, the Issuer shall (i) forward or cause to be forwarded to Ambac all
notices and reports which are required to be delivered to Moody's or S&P
pursuant to the Transaction Documents, (ii) furnish to Ambac any such
information that Ambac may reasonably request from time to time relating to the
Issuer's business or the Collateral, (iii) deliver a Preferred Shares Basic
Maintenance Report to Ambac, Moody's and the Broker-Dealer as of any Valuation
Date, in each case on or before the third Business Day after such Valuation
Date; (v) in the event the Credit Agreement is terminated in accordance with
the terms thereof, deliver a report containing the information set forth in
Section 6.1.1(b) of the Credit Agreement within ten (10) Business Days after
the end of each Reporting Date to Moody's, S&P and Ambac; and (vi) furnish to
Ambac on a monthly basis, or as otherwise set forth below, the following
information with respect to the Collateral:
(1) Ambac Required Reserve Amount;
(2) the identity of each Fund Investment by name and the method
of acquisition (i.e., originated or purchased in the secondary market);
provided that with respect to any Fund Investment in the process of being
accumulated by the Issuer, the Issuer may elect to provide a code name for such
Fund Investment and, upon request from Ambac, orally identify such Fund
Investment to Ambac by telephone;
(3) the Market Value Price of such Fund Investment;
(4) if applicable, the par value and number of units of such Fund
Investment; and
(5) the classification of such Fund Investment by Asset Category
(as defined in each Collateral Valuation Schedule) and by any classification
set forth as a Portfolio Limitation (as defined in the applicable Collateral
Valuation Schedule); provided that, at any time, if Moody's or S&P is no longer
rating the Preferred Shares or the credit risk of the Preferred Shares
Insurance Policy, then the Issuer shall no longer be required to deliver any
information set forth in this Section 2.2 above to Moody's or S&P, as
applicable.
2.3. Negative Covenants of the Issuer. The Issuer hereby agrees that
while the Preferred Shares are outstanding or any amounts are owing under this
Agreement, unless Ambac shall otherwise expressly consent in writing:
(a) Preservation of Collateral. The Issuer shall not take any action,
or fail to take any action, if such action or failure to take action could
reasonably be expected to materially interfere with the enforcement of any
rights under the Transaction Documents, including (but not limited to) any
amendment of, or consent to any amendment of, the Investment Management
Agreement, the Credit Agreement, the Pledge and Intercreditor Agreement, the
Statement of Preferences or any consent to any waiver of rights or to any other
action under or in respect of the Collateral, that change, amend or modify the
rights, benefits or obligations of Ambac under any Transaction Document.
(b) Issuance of Shares. The Issuer shall not issue any shares or
rights, warrants or options in respect of capital shares or securities
convertible into or exchangeable for shares, other than as issued or committed
to be placed on the date hereof or, contemplated or expressly permitted by the
Transaction Documents.
(c) Impairment of Rights. The Issuer shall not permit the validity or
effectiveness of the Preferred Shares, or any Transaction Document (or the
security interest created by the Pledge and Intercreditor Agreement) to be
impaired in any material respect.
(d) Limitation on Contractual Obligations.
(i) The Issuer shall not enter any Secured Hedging Transactions unless
the contracts governing such Secured Hedging Transactions provide that
Ambac shall have the explicit right to act on behalf of the Issuer
thereunder to the extent permitted by applicable law and as approved by
counsel for the Issuer regarding all terms and conditions pertaining to
any such Secured Hedging Transactions.
(ii) The Issuer shall not acquire any Structured Product Transactions
unless the contracts governing the acquisition of such Structured Product
Transactions provide that Ambac shall have the explicit right to act on
behalf of the Issuer thereunder to the extent permitted by applicable law
and as approved by counsel for the Issuer regarding all terms and
conditions pertaining to any such Structured Product Transactions.
(e) Waivers or Amendments. Subject to Ambac's obligations set forth in
Section 7.2 hereof, the Issuer shall not, except as expressly consented to by
Ambac in writing or otherwise waive, modify or amend, or consent to any waiver,
modification or amendment of any provisions of the Transaction Documents, which
could reasonably be expected to be adverse in any material respect to the
interests of Ambac. The Issuer shall notify Ambac and Moody's (so long as
▇▇▇▇▇'▇ is rating the risk securing Ambac's obligations under the Loan
Insurance Policy and the Preferred Shares Insurance Policy) five (5) Business
Days prior to the effectiveness of any proposed amendment for which the consent
of Ambac has not been sought.
(f) Enforcement. Except as set forth in the Transaction Documents, the
Issuer shall not take any action, or fail to take any action, if such action or
inaction would materially interfere with the enforcement of any rights of Ambac
or the Secured Parties Representative under any of the Transaction Documents.
(g) Taxes. The Issuer shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, all taxes, assessments or
other governmental charges levied or imposed upon the Issuer or upon any of its
income, profits or property; provided, that the Issuer shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment or
charge, (i) the amount, applicability or validity of which is being contested
in good faith by appropriate proceedings and for which disputed amounts
adequate reserves in accordance with generally accepted accounting principles
in the United States have been made or (ii) the failure of which to pay or
discharge could not result in a Material Adverse Change or a material adverse
effect on the Collateral.
(h) Limitation on Indebtedness. The Issuer shall not create, incur or
suffer to exist any Indebtedness other than as expressly permitted under
Section 6.2.2 of the Credit Agreement.
(i) Restriction on Business. The Issuer shall not engage in any
business or activity other than those described in Section 5.17 of the Credit
Agreement.
(j) Mergers. Subject to Ambac's obligations set forth in Section 7.2,
the Issuer shall not consolidate with or merge with or into any other Person or
entity or convey or transfer its properties and assets substantially as an
entirety to any Person or entity.
(k) Liquidation; Insolvency. The Issuer shall not, prior to the date
that is one year and one day after payment in full of all Senior Indebtedness
and Preferred Shares and any of its obligations to Ambac, institute proceedings
to be adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition seeking or
consenting to reorganization or relief under any applicable law relating to
bankruptcy or insolvency, or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of it
or a substantial part of its property, or make any assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts generally
as they become due, or take any corporate action in furtherance of any such or
any similar action; provided, that the foregoing shall not prohibit any
liquidation of the Issuer's assets in accordance with the terms of the
Operating Agreement or the Pledge and Intercreditor Agreement or which results
in (1) the payment in full of all Senior Indebtedness, the Preferred Shares and
all obligations due and owing to Ambac under the Insurance Agreements and (2)
the cancellation and surrender of the Insurance Policies.
(l) Compliance With Organic Documents. The Issuer shall abide by the
restrictions contained in the Organic Documents unless any failure could not
reasonably be expected to be adverse in any material respect to the interests
of Ambac.
(m) Limitations on Restricted Payments. The Issuer shall not make any
Restricted Payment; provided, that the Issuer may, at any time, make
distributions (including dividends) to the Common Shareholders or repurchase,
or make payments or distributions on account of the purchase, redemption,
retirement or acquisition of, the Common Shares in the Issuer pursuant to and
in accordance with the Operating Agreement so long as, immediately after such
payments, distributions or repurchases (x) no Default, Event of Default,
violation of Section 6.1.18 of the Credit Agreement (without giving effect to
the grace periods provided for therein) or default or event of default under
the Credit Agreement shall have occurred and be continuing, (y) all
representations and warranties in Article II hereof are true and correct in all
material respects as of the date made, and (z) (1) Company Equity (after giving
effect to any Subordinated Equity Security) shall be equal to or greater than
Adjusted Contributed Company Capital, or (2) in the case of Company Tax
Distributions, the Advance Amount exceeds 105% of the sum of the aggregate
outstanding principal amount of Senior Indebtedness and the aggregate
outstanding liquidation preference of the Preferred Shares (such excess amount,
at any date of determination, the "Advance Amount Cushion"), provided that if,
within 30 days from the date of any such Company Tax Distribution, the Advance
Amount Cushion becomes less than zero following the acquisition by the Issuer
of any loan, bond or other investment that is of the same tranche as any loan,
bond or other investment sold by the Issuer within 30 days prior to such
Company Tax Distribution, the Issuer shall not make any Company Tax
Distribution under Section 6.2.5 of the Credit Agreement for a period of 180
days commencing from the date of such Company Tax Distribution; provided,
further that the Issuer may, in connection with the issuance of any
Subordinated Equity Securities, make distributions to its Common Shareholders
and the holders of Subordinated Equity Securities in an amount which does not
exceed the net proceeds to the Issuer of such issuance of Subordinated Equity
Securities. Distributions (including dividends) or other payments or
distributions on account of the purchase, redemption, retirement or acquisition
of any Subordinated Equity Security may be made at any time only so long as (x)
all representations and warranties in Article II hereof are true and correct in
all material respects as of the date made and (y) immediately after giving
effect thereto, no Default, Event of Default, violation of Section 6.1.18 of
the Credit Agreement (without giving effect to the grace periods provided for
therein) or default of event of default under the Credit Agreement shall have
occurred or be continuing under the Credit Agreement.
Notwithstanding the foregoing, in the event that any payment or other
distribution (including, without limitation, any dividend) in respect of the
Issuer's Common Shares would be required to be made in order to preserve the
U.S. federal income tax status of the Issuer as a regulated investment company
or to avoid the imposition of the excise tax under Section 4882 of the Code
(e.g., because the requisite consents from the Common Shareholders for a
"consent dividend" (as defined in Section 565 of the Code) for U.S. federal
income tax purposes have not been obtained by the Issuer in accordance with the
terms of the Operating Agreement), such payment or distribution may be
distributed for the benefit of the Common Shareholders and deposited into the
Common Shareholders' Escrow Account established pursuant to the Custodial
Agreement. Funds deposited in the Common Shareholders' Escrow Account shall not
be released to the Common Shareholders unless and until the Issuer complies
with the restrictions set forth in the preceding paragraph. If the requisite
consents from the Common Shareholders for a "consent dividend" have been
obtained, the Issuer shall be permitted to pay any U.S. withholding taxes
arising in respect of such "consent dividend".
(n) Investment Holding Subsidiary Documentation. The Issuer shall
provide Ambac prompt notice of the creation of an Investment Holding Subsidiary
and deliver with such notice a copy of the organizational documents of such
Investment Holding Subsidiary.
(o) Manager-Owned Securities.
(i) The Issuer shall not issue any Indebtedness or membership
interests to the Investment Manager and/or any affiliate of the Investment
Manager under any contract or agreement that would permit the Investment
Manager to vote or direct any action related to the removal or replacement
of the Investment Manager.
(ii) The Issuer shall not purchase any securities issued by issuers of
structured finance securities which are managed by the Investment Manager.
ARTICLE III.
CONDITIONS TO ISSUANCE OF THE PREFERRED SHARES INSURANCE POLICY;
CONDITIONS TO EXECUTION OF INCREASE ENDORSEMENTS
3.1. Issuance of the Preferred Shares Insurance Policy. Ambac agrees
to issue the Preferred Shares Insurance Policy and each Increase Endorsement,
(a) subject to the Statement of Preferences being in effect on the Closing Date
and (b) further subject to satisfaction of the conditions precedent set forth
below in this Article III as of the date hereof and each Date of Original
Issue.
3.2. Payment of Fees. (a) The Issuer shall have paid or provided for
the payment of all fees and expenses incurred in connection with its formation
and maintenance in Delaware and (b) pursuant to the letter governing Ambac's
engagement, the Premium Letter, and this Agreement the Issuer shall have paid
or shall have arranged for the payment of (i) the fees of Ambac's counsel (plus
disbursements) in connection with the Transactions, (ii) all initial rating
agency fees of S&P and Moody's and (iii) Ambac's out-of-pocket expenses,
including, but not limited to, travel costs in the case of clauses (a) and (b)
through such date.
3.3. Closing Documents. (a) Ambac shall have confirmed to its
satisfaction that all conditions to be satisfied by the Issuer on or prior to
the Closing Date or Date of Original Issue, as the case may be, under each
Transaction Document (i) with respect to the Preferred Shares Insurance
Agreement, have been satisfied on or prior to the Closing Date, and (ii) with
respect to the execution of an Increase Endorsement, have been satisfied on or
prior to the Date of Original Issue with respect to the related Preferred
Shares, and (b) simultaneously with the execution of this Agreement, Ambac
shall have received an executed copy of each Transaction Document, in form and
substance reasonably satisfactory to Ambac.
3.4. Certified Documents and Resolutions. Ambac shall have received a
copy of (i) the Organic Documents and the Statement of Preferences in effect
(as amended in accordance with the terms hereof and thereof through the date of
delivery), and (ii) the resolutions of the Issuer's Board of Directors
authorizing the execution, delivery and performance by the Issuer of each of
the Transaction Documents, including the Statement of Preferences in effect (as
amended in accordance with the terms hereof and thereof through the date of
delivery), and the performance by the Issuer of the Transactions, certified by
an authorized representative of the Issuer (which certificate shall state that
such Organic Documents, resolutions and the Transaction Documents are in full
force and effect without modification on the Closing Date).
3.5. Incumbency Certificate. Ambac shall have received a certificate
of the Secretary or an Assistant Secretary or a Director of the Issuer
certifying the names and signatures of the authorized representatives of the
Issuer authorized to execute and deliver each Transaction Document to which it
is a party and certifying that shareholder consent to the execution and
delivery of such documents has been obtained or is not necessary.
3.6. Representations and Warranties. The representations and
warranties of the Issuer in this Agreement shall be true and correct in all
material respects as of the date hereof or, if earlier, such other date so
specified in such representation or warranty, and Ambac shall have received a
certificate of an Authorized Officer of the Issuer to that effect.
3.7. Opinions of Counsel. As of each Date of Original Issue, Ambac
shall have received all opinions of counsel addressed to Ambac in respect of
the Issuer, the Collateral, the Transaction Documents, certain corporate,
security and securities law matters, certain matters relating to the other
parties to the Transaction Documents and the Transactions, each addressing such
matters as Ambac may reasonably request, and all such legal opinions shall be
in form and substance reasonably satisfactory to Ambac.
3.8. Approvals, etc. Ambac shall have received true and correct copies
of all approvals, licenses and consents, if any, required to be obtained by the
Issuer in connection with the Transactions.
3.9. No Litigation, etc. There is no pending or, to the best knowledge
of the Issuer, threatened, litigation, action, proceeding, order, investigation
or claim, at law or in equity before any governmental authority effecting the
Issuer or the Investment Manager or any of their respective properties, assets
or revenues which could reasonably be expected to result in Material Adverse
Change to the Issuer.
3.10. Legality. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the Transactions or the
Transaction Documents illegal or otherwise prevent the consummation thereof.
3.11. Shadow Ratings. Ambac shall have received confirmation,
satisfactory to it, that the risk secured by the Preferred Shares Insurance
Policy constitutes an "AA" risk by S&P and the risk securing Ambac's
obligations under the Loans Insurance Policy and the Preferred Shares Insurance
Policy, collectively, constitutes an "Aa2" risk by Moody's.
3.12. Filings and Recording. Ambac shall have received evidence
reasonably satisfactory to it of the filing and/or recording in all necessary
jurisdictions (or such filing and/or recording having been provided for in a
manner reasonably satisfactory to Ambac) of all documents and such appropriate
instruments, in form and substance reasonably satisfactory to Ambac, as may be
necessary in the reasonable opinion of Ambac to perfect the security interests
created by the Pledge and Intercreditor Agreement, and all taxes, fees and
other charges payable in connection with such execution, delivery, recording
and filing shall have been paid. The Issuer shall be, as of the Closing Date,
in compliance with the terms of the Transaction Documents to which it is a
party.
3.13. No Default. No Default or Event of Default shall have occurred
hereunder (as defined herein) or "default" or "event of default" under any
Transaction Document (in each case, as defined therein) shall have occurred
thereunder.
3.14. Additional Items. Ambac shall have received such other
documents, instruments, approvals or opinions requested by Ambac as may be
reasonably necessary to effect the Transactions, including but not limited to
evidence satisfactory to Ambac that the conditions precedent, if any, in the
Transaction Documents have been satisfied or waived in writing.
3.15. Conditions Precedent to the Effectiveness of Increase
Endorsements. Notwithstanding any other provision of this Agreement, without
duplication of any conditions precedent required to be satisfied or waived in
writing pursuant to Sections 3.1 through 3.14 hereof, the obligations of Ambac
to execute and deliver any Increase Endorsements shall be subject to the
satisfaction or waiver in writing of each of the conditions precedent set forth
in this Section 3.15. Both immediately before and after giving effect to each
Increase Endorsement:
(a) the representations and warranties set forth in Article V of the
Credit Agreement and Article II of this Agreement shall be true and correct in
all material respects with the same effect as if then made (unless stated to
relate expressly to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date); and
(b) all representations and warranties set forth in each of the
Collateral Documents shall be true and correct in all material respects with
the same effect as if then made (unless stated to relate expressly to an
earlier date, in which case such representations and warranties shall be true
and correct as of such earlier date).
ARTICLE IV.
REIMBURSEMENT; INDEMNIFICATION
4.1. Policy Premium. The Issuer shall pay to Ambac the Premium payable
at the times and in the amounts specified in the Premium Letter.
4.2. Reimbursement and Additional Payment Obligation. (a) The Issuer
shall pay to or on behalf of Ambac (in accordance with the instructions of
Ambac, and subject to the terms of the Credit Agreement) the following
(together with amounts payable under Section 4.2(b) below, collectively, the
"Accrued Liabilities")
(i) all amounts paid by Ambac under the Preferred Shares Insurance
Policy for the benefit of the holders of the Preferred Shares (unless such
amounts have previously been repaid to Ambac);
(ii) all amounts advanced or paid by Ambac (but not in the form of a
payment under the Preferred Shares Insurance Policy) under the Transaction
Documents or any substitute therefor; and
(iii) all reasonable out-of-pocket costs and expenses incurred in
connection with the Transactions by Ambac, including, but not limited to,
(A) rating agency fees and (B) attorneys' and accountants' fees and
expenses in connection with (i) any accounts established to facilitate
payments under the Preferred Shares Insurance Policy, this Agreement or
the Statement of Preferences, (ii) the administration, enforcement,
defense or preservation of any rights in respect of the Transaction
Documents or the Preferred Shares Insurance Policy, (iii) the foreclosure
against or sale or other disposition of any Collateral or pursuit of any
other remedies under any of the Pledge and Intercreditor Agreement or the
other Transaction Documents (to the extent such costs and expenses are not
recovered from such foreclosure, sale or other disposition of the
Collateral), or (iv) any amendment, waiver or modification or consent with
respect to or related to the Preferred Shares or the Statement of
Preferences or the other Transaction Documents, to the extent not
initiated by Ambac, whether or not executed or completed.
(b) The Issuer shall pay to or at the direction of Ambac, the amounts
owed under Section 4.2(a) above, together with interest accrued thereon at the
Accrued Liabilities Interest Rate for the period from, (A) in the case of
amounts due under Section 4.2(a)(i), the date Ambac paid or advanced such
amounts and (B) in the case of amounts due under any other provision of Section
4.2(a), three (3) Business Days after the earlier of (i) the date of Ambac's
delivery of notice to the Issuer that such amounts are payable and (ii) the
date the Issuer knew of such payment, until, in either case, the date such
amounts are paid in full. Such amounts shall be paid to or at the direction of
Ambac, on or prior to the third Business Day after the Issuer's receipt of
notice from Ambac that such amounts are payable, out of funds available under
the Pledge and Intercreditor Agreement.
4.3. Indemnification by Issuer. (a) The Issuer agrees to pay, and to
protect, indemnify and save harmless, Ambac and its officers, directors,
shareholders, employees, agents and each Person, if any, who controls Ambac
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against all Losses incurred by reason of:
(i) any statement, omission or action (other than of or by Ambac) in
connection with the offering, issuance, sale or delivery of the Lender
Notes, the Preferred Shares or the Common Shares;
(ii) the negligence, bad faith, willful misconduct, misfeasance,
malfeasance or theft committed by any director, officer, employee, agent
or advisor of the Issuer in connection with any Transaction Document;
(iii) the violation by the Issuer of any domestic or foreign law, rule
or regulation, including, but not limited to, any securities or banking
law, rule or regulation in connection with any issuance, offer and sale of
the Lender Notes, the Preferred Shares or the Common Shares, or any
judgment, order or decree applicable to it;
(iv) the breach by the Issuer of any representation, warranty or
covenant under any of the Transaction Documents or any agreement,
certificate or instrument executed in connection therewith or any event of
default under any Transaction Document or any agreement, certificate or
instrument executed in connection therewith or any event which, with the
giving of notice or the lapse of time or both, would constitute an event
of default thereunder; or
(v) any untrue statement or alleged untrue statement of a material
fact contained in the Offering Document or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except insofar as such claims
arise out of or are based upon any untrue statement or omission in
information included in the Offering Document furnished by Ambac expressly
for use therein (all such information so furnished being referred to
herein as "Ambac Information").
(b) Ambac agrees to pay, and to protect, indemnify, and save harmless,
the Issuer, any officer, director, member, shareholder, employee or agent of
the Issuer or any Person controlling the Issuer from and against all Losses
incurred by reason of any untrue statement or alleged untrue statement of
material fact contained in the section entitled "Capitalization of the
Company--Ambac" of the Offering Document for the Preferred Shares or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.4. Conduct of Actions or Proceedings. In the event that any action
or regulatory proceeding shall be commenced or claim asserted which either (i)
may entitle Ambac, any officer, director, shareholder, employee or agent of
Ambac or any Person controlling Ambac or (ii) may entitle the Issuer, any
officer, director, manager, shareholder, employee or agent of the Issuer or any
Person controlling the Issuer (each Person identified in either clause (i) or
(ii), an "Indemnified Party" and, collectively, the "Indemnified Parties") to
be indemnified under this Agreement, such party shall give the Issuer, in the
case of an Indemnified Party identified in clause (i), or Ambac, in the case of
any Indemnified Party identified in clause (ii), (the "Indemnifying Party")
written or telegraphic notice of such action or claim reasonably promptly after
receipt of written notice thereof; provided, however, that the failure to
notify the Indemnifying Party shall not relieve it from any liability it may
have to an Indemnified Party otherwise than under this Section 4.4. If any such
action or claim shall be brought against an Indemnified Party, and it shall
notify the Indemnifying Party thereof, the Indemnifying Party, upon the request
of the Indemnified Party, shall retain counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party and shall pay the
reasonable fees and disbursements of such counsel related to such proceeding.
The Indemnified Party shall have the right to employ its own counsel in any
such action in addition to the counsel retained by the Indemnifying Party for
the benefit of the Indemnified Party, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party, unless (a) the employment of
counsel by the Indemnified Party at the Indemnifying Party's expense has been
authorized in writing by the Indemnifying Party, (b) the Indemnifying Party has
not in fact employed counsel reasonably satisfactory to the Indemnified Party
within a reasonable time after receiving notice of the commencement of the
action, or (c) the named parties to any such action or proceeding (including
any impleaded parties) include both the Indemnifying Party and one or more
Indemnified Parties, and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them (it being understood, however, that the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys in addition to
local counsel at any time for all Indemnified Parties), which firm shall be
designated in writing by the Indemnified Parties) in which cases the reasonable
fees and expenses of counsel shall be at the expense of the Indemnifying Party
and all such fees and expenses shall be reimbursed promptly as they are
incurred. The Indemnifying Party shall not be liable for any settlement of any
such claim or action unless the Indemnifying Party shall have consented thereto
or be in default in its obligations hereunder. Any failure by an Indemnified
Party to comply with the provisions of this Section shall relieve the
Indemnifying Party of liability only if such failure is prejudicial to the
position of the Indemnifying Party and then only to the extent of such
prejudice. The Indemnified Party may assume the defense of any such action or
claim in reasonable cooperation with, and with the reasonable cooperation of,
the Indemnifying Party.
4.5. Contribution. (a) To provide for just and equitable contribution
if the indemnification provided by any Indemnifying Party is determined to be
unavailable or insufficient (other than due to the application of Section 4.4)
to hold harmless any Indemnified Party in respect of any Losses referred to in
this Article IV, such Indemnifying Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses (i) in such
proportion as shall be appropriate to reflect the relative fault of the
Indemnifying Party, on the one hand, and the Indemnified Party, on the other
hand, with respect to the matter that resulted in such Losses or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative fault
referred to in clause (i) above but also the relative benefits received by each
of such parties from the Transactions; provided, however, that an Indemnifying
Party shall in no event be required to contribute to all Indemnified Parties an
aggregate amount in excess of the Losses incurred by such Indemnified Parties
resulting from the breach of representations, warranties or agreements
contained in this Agreement.
(b) The relative fault of each Indemnifying Party, on the one hand,
and of each Indemnified Party, on the other, shall be determined by reference
to, among other things, whether the breach of, or alleged breach of, any
representations, warranties or agreements contained in this Agreement relates
to information supplied by, or action within the control of, the Indemnifying
Party or the Indemnified Party and the parties' relative intent, knowledge,
access to information and Opportunities to correct or prevent such breach. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this Section 4.5 were to be determined by pro rata allocation or by
any other method of allocation that does not take into account the equitable
considerations referred to herein.
(c) The parties agree that Ambac shall be solely responsible for the
Ambac Information included in any Offering Document and that the remainder of
each Offering Document shall be the responsibility of the Issuer and/or the
respective underwriter or placement agent.
(d) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Upon the incurrence of any Losses entitled to contribution
hereunder, the contributor shall reimburse the party entitled to contribution
promptly upon establishment by the party entitled to contribution to the
contributor of the Losses incurred.
4.6. Payment Procedure. All payments to be made to Ambac under this
Agreement shall be paid to Ambac in lawful currency of the United States of
America in immediately available funds on the date when due (in accordance with
the terms of the Pledge and Intercreditor Agreement) to the account specified
in the Premium Letter or as Ambac shall otherwise direct by written notice to
the other parties hereto. In the event that the date of any payment to Ambac or
the expiration of any time period hereunder occurs on a day which is not a
Business Day, then such payment or expiration of time period shall be made or
occur on the next succeeding Business Day with the same force and effect as if
such payment was made or time period expired on the scheduled date of payment
or expiration date.
4.7. Foreseeable Damages. Each of the parties hereto agrees and
acknowledges that Ambac is relying on each of the Issuer's covenants contained
herein, including, but not limited to, the covenant set forth in Section
2.2(g), in issuing the Preferred Shares Insurance Policy and that the breach of
any such covenant, may result in foreseeable damages to Ambac including causing
Ambac to be required to make payments under the Preferred Shares Insurance
Policy. The Issuer shall be liable for any such foreseeable damages suffered by
Ambac relating to any breach by the Issuer of the covenants set forth herein in
an amount not to exceed the amounts that would be payable pursuant to Article
IV of this Agreement.
4.8. Security for Claims. The Issuer shall pledge the Collateral for
the benefit of certain parties, including Ambac, under the Pledge and
Intercreditor Agreement. The parties intend that all amounts due and payable to
Ambac at any time hereunder shall have the benefit of the Pledge and
Intercreditor Agreement, and the Issuer shall not contest Ambac's right to seek
payment from the Secured Parties Representative in accordance with the Pledge
and Intercreditor Agreement for any and all amounts owing hereunder.
ARTICLE V.
FURTHER AGREEMENTS
5.1. Effective Date; Term of Agreement. (a) This Agreement shall be in
effect for the period (the "Term") from the Closing Date until the later of (i)
such time as Ambac is no longer subject to a claim under the Preferred Shares
Insurance Policy and the Preferred Shares Insurance Policy shall have been
surrendered to Ambac for cancellation and (ii) such date as all amounts payable
to Ambac under this Agreement shall have been paid in full; provided, however,
that the provisions of Article IV hereof shall survive any termination of this
Agreement.
(b) The Issuer shall have the right, upon ten (10) Business Days'
notice to Ambac to pay any and all amounts due and payable to Ambac hereunder
in full or in part. Upon any such payment, Ambac shall, to the extent permitted
under the Preferred Shares Insurance Policy and applicable law, at the Issuer's
expense cooperate with the Issuer to seek the surrender and cancellation of the
Preferred Shares Insurance Policy; provided that nothing set forth in this
sentence shall be deemed to, or construed in any manner to purport to, alter or
modify the Preferred Shares Insurance Policy in any respect.
5.2. Obligations Absolute. (a) The obligations of the Issuer hereunder
and under each Transaction Document to which it is a party (subject to the
limitations in each such Transaction Document) shall be absolute and
unconditional, and shall be paid or performed strictly in accordance with this
Agreement or the relevant Transaction Document, as applicable, irrespective of:
(i) (A) any lack of validity or enforceability of, or any amendment or
other modifications of, or waiver with respect to, any of the Transaction
Documents or (B) any amendment, endorsement or other modifications of, or
waiver with respect to, the Preferred Shares Insurance Policy;
(ii) any exchange or release of any obligations hereunder;
(iii) the existence of any claim, set-off, defense (other than the
defense of payment in full), reduction, abatement or other right which the
Issuer may have at any time against Ambac or any other Person;
(iv) any document presented in connection with the Preferred Shares
Insurance Policy proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect, provided that such document is reasonably believed by Ambac to be
genuine;
(v) any payment by Ambac under the Preferred Shares Insurance Policy
against presentation of a certificate or other document which does not
strictly comply with terms of the Preferred Shares Insurance Policy,
provided that it complies with the same in all material respects;
(vi) any failure of the Issuer to receive the proceeds from the issue
of the Preferred Shares;
(vii) any breach by the Issuer of any representation, warranty or
covenant contained in any Transaction Document to which it is a party; or
(viii) any other circumstances, other than payment in full, which
might otherwise constitute a defense available to, or discharge of, the
Issuer in respect of any Transaction Document.
(b) The Issuer agrees to the extent permitted by law to be bound by
this Agreement and:
(i) to the extent permitted by law, to waive and renounce any and all
redemption and exemption rights and the benefit of all valuation and
appraisement privileges in respect of indebtedness, obligations and
security evidenced by any Transaction Document or by any extension or
renewal thereof;
(ii) except as specifically provided for in the Transaction Documents,
to waive presentment and demand for payment, notices of nonpayment and
dishonor, protest of dishonor and notice of protest;
(iii) to waive all notices in connection with the delivery and
acceptance hereof and all other notices in connection with the
performance, default or enforcement of any payment hereunder except as
required by the Transaction Documents provided that failure to provide a
notice does not reduce the duration of any cure period applicable
hereunder;
(iv) to waive all rights of abatement, diminution, postponement or
deduction, or to any defense other than payment, or to any right of
set-off or recoupment arising out of any breach under any of the
Transaction Documents, by any party thereto or any beneficiary thereof, or
out of any obligation at any time owing to the Issuer;
(v) that its liabilities hereunder shall be unconditional and without
regard to any set-off, counterclaim or the liability of any other Person
for the payment hereof;
(vi) that any consent, waiver or forbearance hereunder with respect to
an event shall operate only for such event and not for any subsequent
event;
(vii) to consent to any and all extensions of time that may be granted
by Ambac with respect to any payment hereunder or other provisions hereof
and to the release of any security at any time given for any payment
hereunder, or any part thereof, with or without substitution, and to the
release of any Person or entity liable for any such payment; and
(viii) to consent to the addition of any and all other makers,
endorsers, guarantors and other obligors for any payment hereunder, and to
the acceptance of any and all other security for any payment hereunder,
and agree that the addition of any such obligors or security shall not
affect the liability of the parties hereto for any payment hereunder.
(c) Nothing herein shall be construed as prohibiting the Issuer from
pursuing any rights or remedies it may have against any other Person in a
separate legal proceeding.
5.3. Assignments; Reinsurance; Third-Party Rights. (a) This Agreement
shall be a continuing obligation of the parties hereto and shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The Issuer may not assign its rights under
this Agreement, or delegate any of its duties hereunder, without the prior
express written consent of Ambac, except to the extent provided in the
Transaction Documents. Any assignment of this Agreement by the Issuer without
the prior express written consent of Ambac shall be null and void.
(b) Ambac shall have the right to grant participations in its rights
under this Agreement and to enter into contracts of reinsurance with respect to
the Preferred Shares Insurance Policy upon such terms and conditions as Ambac
may determine in its sole discretion; provided, however, that no such
participation or reinsurance agreement or arrangement shall relieve Ambac of
any of its obligations hereunder or under the Preferred Shares Insurance
Policy.
(c) In addition, Ambac shall be entitled to assign or pledge to any
bank or other lender providing liquidity or credit with respect to the
Transactions or the obligations of Ambac in connection therewith, any rights of
Ambac under the Transaction Documents or with respect to any real or personal
property or other interests pledged to Ambac or in which Ambac has a security
interest, in connection with the Transactions, subject in each case to the
Liens granted pursuant to the Transaction Documents, provided that no such bank
or other lender shall thereby obtain any direct right against the Issuer and
further provided that no such assignment or pledge shall give any assignee the
right to exercise any discretionary authority that the Transaction Documents
provide shall be exercisable by Ambac and further provided that no such
assignment shall relieve Ambac of any of its obligations hereunder or under the
Preferred Shares Insurance Policy.
(d) Except as provided herein with respect to participants, reinsurers
and Indemnified Parties, nothing in this Agreement shall confer any right,
remedy or claim, express or implied, upon any Person, including, particularly,
any Lender, other than Ambac, against the Issuer, and all the terms, covenants,
conditions, promises and agreements contained herein shall be for the sole and
exclusive benefit of the parties hereto and their successors and permitted
assigns. No Person other than Ambac shall have any right to payment from any
premiums paid or payable hereunder or from any other amounts paid by the Issuer
pursuant to Article IV.
5.4. Liability of Ambac. Neither Ambac nor any of its officers,
directors or employees shall be liable or responsible for:
(a) the use which may be made of the Preferred Shares Insurance Policy
by the Paying Agent or for any acts or omissions of the Paying Agent in
connection therewith;
(b) the validity, sufficiency, accuracy or genuineness of documents
delivered to Ambac in connection with any claim under the Preferred Shares
Insurance Policy, or of any signatures thereon, even if such documents or
signatures should in fact prove to be in any or all respects invalid,
inaccurate, insufficient, fraudulent or forged (unless Ambac shall have actual
knowledge thereof), provided that such document is reasonably believed by Ambac
to be genuine; or
(c) any acts or omissions of any Broker-Dealer, the Auction Agent, the
Investment Manager or the Issuer in connection with the Collateral other than
such acts or omissions that are at the written direction (which shall include
any direction sent electronically or by facsimile) of Ambac.
In furtherance and not in limitation of the foregoing, Ambac may
accept documents that reasonably appear on their face to be in order, without
responsibility for further investigation.
ARTICLE VI.
EVENTS OF DEFAULT; REMEDIES
6.1. Events of Default. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
(a) the occurrence of "event of default" under any of the Transaction
Documents, including, but not limited to, an "Event of Default" under the
Credit Agreement;
(b) any demand for payment shall be made under and in accordance with
the terms of the Preferred Shares Insurance Policy;
(c) any representation or warranty made by the Issuer under any
Transaction Document to which it is a party, or in any certificate or report
furnished under any such Transaction Document, shall prove to have been untrue
or incorrect in any material respect when made or deemed made, and the Issuer,
as applicable, shall fail to cure such breach of representation or warranty
within the time period specified in such Transaction Document;
(d) (i) the Issuer shall fail to pay when due any material amount
payable by it under any Transaction Document to which it is a party in
accordance with the terms thereof, including, without limitation, any grace
period thereunder; (ii) the Issuer shall have asserted that any of the
Transaction Documents to which it is a party is not valid and binding on any
party thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents or any
property thereof shall find or rule that any material provision of any of the
Transaction Documents is not valid and binding on any of the parties thereto
(other than Ambac);
(e) the Issuer shall fail to perform or observe in any material
respect any other covenant or agreement to be performed or observed by it
hereunder or under any Transaction Document to which it is a party (except for
the obligations described under clause (c) or (d) above) and such failure shall
continue for a period of 30 days or more after the earlier of (x) notice
thereof having been given to the Issuer by Ambac or (y) the first date on which
a portfolio manager, senior accounting officer or controller of the Issuer had
actual knowledge of such default;
(f) an aggregate principal amount of any Indebtedness of the Issuer or
any subsidiary of the Issuer equal to or exceeding 0.80% of the Net Asset Value
shall become due and payable (whether at maturity, by acceleration or
otherwise) and not be paid or satisfied in full, or the holder of such
Indebtedness shall be entitled to require the Issuer or any such subsidiary to
repay, repurchase, redeem, defease or otherwise retire for value such
Indebtedness, in whole or in part, prior to its scheduled payment date (in each
case, after giving effect to any grace periods applicable thereto);
(g) any default by the Issuer in the payment when due (whether at
stated maturity or by acceleration, mandatory prepayment or otherwise) of any
amount in excess of 3.0% of the Net Asset Value (after giving effect to any
grace periods applicable thereto) required to be paid by it under any Secured
Hedging Transaction (other than any such amount that is being contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on the Issuer's books), and such default
shall continue unremedied for a period of ten (10) Business Days or more;
(h) any final judgments or orders (not subject to appeal) by one or
more courts of competent jurisdiction for the payment of money in an aggregate
amount in excess of 1.5% of the Net Asset Value (after giving effect to
insurance, if any, available with respect thereto) shall be rendered against
the Issuer, and the same shall remain unsatisfied, unvacated, unbonded or
unstayed for a period of thirty (30) days after the date on which the right to
appeal has expired;
(i) the Issuer shall become (i) insolvent or generally fail to pay, or
admit in writing its inability to pay, Indebtedness as it becomes due; (ii)
apply for, consent to, or acquiesce in, the appointment of a trustee, receiver,
sequestrator or other custodian for the Issuer or any property of any thereof,
or make a general assignment for the benefit of creditors; (iii) in the absence
of such application, consent or acquiescence, permit or suffer to exist the
appointment of a trustee, receiver, sequestrator or other custodian for the
Issuer or for a substantial part of the property of any thereof, and such
trustee, receiver, sequestrator or other custodian shall not be discharged
within sixty (60) days; (iv) permit or suffer to exist the commencement of any
bankruptcy, reorganization, Indebtedness arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution, winding
up or liquidation proceeding, in respect of the Issuer and, if such case or
proceeding is not commenced by the Issuer, such case or proceeding shall be
consented to or acquiesced in by the Issuer or shall result in the entry of an
order for relief or shall remain for sixty (60) days undismissed; or (v) take
any action authorizing, or in furtherance of, any of the foregoing;
(j) any Lien on any Collateral granted shall, at any time after
delivery of the respective Collateral Documents, cease to be fully valid and
perfected as a first-priority Lien, except (i) for Permitted Liens, (ii) Liens
on Fund Investments the Market Value of which if excluded from the Collateral
would not cause a violation of the Over-Collateralization Test (in each case,
without giving effect to any applicable grace period) or (iii) as otherwise
expressly permitted hereunder or under such Collateral Documents;
(k) the Issuer ceases to be a registered "investment company" under
the Investment Company Act for more than ninety (90) days;
(l) the Issuer shall be dissolved or terminated, and not reconstituted
substantially simultaneously therewith (and in no event later than the same
day) in accordance with the Operating Agreement;
(m) the Investment Manager is removed or terminated pursuant to the
Investment Management Agreement or is otherwise no longer the investment
advisor to the Issuer and Ambac has not approved the new Investment Manager
within thirty (30) days; provided, however, it shall not be an Event of Default
under this Agreement if, at any point in time, there fails to be an Investment
Management Agreement in place and such failure is due to the fact that such
Investment Management Agreement could not timely be renewed for a period of
less than twenty (20) Business Days because of (i) the death of a Director or
other person necessary for renewal, (ii) an act of terrorism, war, civil
disturbance or other hostility, (iii) a breakdown in mass communication or (iv)
any force majeure, or any other cause not within the control of any party to
this Agreement or the Investment Management Agreement; and
(n) the Issuer shall fail to comply with the covenant set forth in
Section 2.2(g) after giving effect to the cure period set forth therein.
6.2. Remedies; Waivers.
(a) Upon the occurrence and during the continuance of an Event of
Default, Ambac may exercise any one or more of the rights and remedies set
forth below:
(i) cause the Issuer to redeem the Preferred Shares in accordance with
the terms of the Pledge and Intercreditor Agreement and the Statement of
Preferences;
(ii) exercise any rights and remedies available to Ambac under the
Transaction Documents in its own capacity or in its capacity as
Controlling Class under the Pledge and Intercreditor Agreement; and
(iii) subject to the provisions of the Transaction Documents, take
whatever action at law or in equity as may appear necessary or desirable
in its judgment to collect the amounts then due and thereafter to become
due under the Transaction Documents or to enforce performance of any
obligation of the Issuer under any Transaction Document to which it is a
party.
(b) Unless otherwise expressly provided, whether or not an Event of
Default is continuing, no remedy herein conferred upon or reserved to Ambac is
intended to be exclusive of any other available remedy, but each remedy shall
be cumulative and shall be in addition to other remedies given under the
Transaction Documents or existing at law or in equity. No delay or failure to
exercise any right or power occurring under any Transaction Document upon the
occurrence of any Event of Default or otherwise shall impair any such right or
power or shall be construed to be a waiver thereof, but any such right or power
may be exercised from time to time and as often as may be deemed expedient.
(c) If any proceeding has been commenced to enforce any right or
remedy under this Agreement, and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to Ambac, then and
in every such case the parties hereto shall, subject to any determination in
such proceeding, be restored to their respective former positions hereunder,
and, thereafter, all rights and remedies of Ambac shall continue as though no
such proceeding had been instituted.
(d) Without prejudice to the rights of the other parties to the
Transaction Documents, Ambac shall have the right, to be exercised in its sole
discretion, to waive any covenant, Default or Event of Default by a writing
setting forth the terms, conditions and extent of such waiver signed by Ambac
and delivered to the Issuer. Any such waiver may only be affected in writing
duly executed by Ambac, and no other course of conduct shall constitute a
waiver of any provision hereof. Unless such writing expressly provides to the
contrary, any waiver so granted shall extend only to the specific event or
occurrence so waived and not to any other similar event or occurrence which
occurs subsequent to the date of such waiver.
ARTICLE VII.
MISCELLANEOUS
7.1. Amendments, etc. This Agreement may be amended, modified or
terminated only by written instrument or written instruments signed by the
parties hereto. No act or course of dealing shall be deemed to constitute an
amendment, modification or termination hereof.
7.2. Restructuring of the Issuer. .Ambac hereby acknowledges that in
order to preserve the economics of the Carried Interest (as defined in the
Operating Agreement) payable to the Special Member, the Issuer may desire to
establish a partnership, limited liability company or other business entity
through which it would conduct substantially all its investment activities, and
in order to achieve that desired objective, Ambac agrees to reasonably
cooperate with the Issuer, at the sole expense of the Issuer, to amend,
supplement or otherwise modify the terms and provisions of the Credit
Agreement, the Loans Insurance Agreement, this Agreement, the Preferred Shares
Auction Agency Agreement and the Preferred Shares Broker-Dealer Agreement or
any of the Collateral Documents, in each case in a manner that would not result
in a Material Adverse Change; provided that upon any such amendment, supplement
or modification, the Rating Agency Condition shall be satisfied.
7.3. Notices. All demands, notices and other communications to be
given hereunder shall be in writing (except as otherwise specifically provided
herein) and shall be mailed by registered mail, electronic mail or personally
delivered or telecopied to the recipient as follows:
(a) To Ambac:
Ambac Assurance Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Risk Management, Structured Finance
and Credit Derivatives
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
(in each case in which notice or other communication to Ambac refers to an
Event of Default, a claim on the Preferred Shares Insurance Policy or any
other event with respect to which failure on the part of Ambac to respond
shall be deemed to constitute consent or acceptance, then a copy of such
notice or other communication should also be sent to the attention of the
General Counsel and shall be marked to indicate "URGENT MATERIAL
ENCLOSED.")
(b) To the Issuer:
Special Value Expansion Fund, LLC
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
A party may specify an additional or different address or addresses by
writing mailed or delivered to the other parties as aforesaid. All such notices
and other communications shall be effective upon receipt.
7.4. Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
the parties hereto agree that such holding shall not invalidate or make
unenforceable any other provision hereof. The parties hereto further agree that
the holding by any court of competent jurisdiction that any remedy pursued by
any party hereto is unavailable or unenforceable shall not affect in any way
the ability of such party to pursue any other remedy available to it.
7.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICTS OF LAWS PROVISIONS.
7.6. Consent to Jurisdiction. (a) THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK
LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT WHICH HEARS
APPEALS FROM ANY COURT THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREUNDER OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD OR
DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN
SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH
ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY
NOT BE LITIGATED IN OR BY SUCH COURTS.
(b) To the extent permitted by applicable law, the parties hereto
shall not seek and hereby waive the right to any review of the judgment of any
such court by any court of any other nation or jurisdiction which may be called
upon to grant an enforcement of such judgment.
The Issuer shall appoint and designate an agent for acceptance of
service of legal process in the City of New York. The Issuer agrees that
service of such process upon such Person shall constitute personal service of
such process upon it. The name and address of such process agent is:
CT Corporation
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(c) Nothing contained in the Agreement shall limit or affect Ambac's
right to serve process in any other manner permitted by law or to start legal
proceedings relating to any of the Transaction Documents against the Issuer or
their property in the courts of any jurisdiction.
7.7. Consent of Ambac. In the event that Ambac's consent is required
under any of the Transaction Documents, the determination whether to grant or
withhold such consent shall be made by Ambac in its sole discretion, except as
otherwise expressly provided therein without any implied duty towards any other
Person.
7.8. Counterparts. This Agreement may be executed in counterparts by
the parties hereto, and all such counterparts shall constitute one and the same
instrument.
7.9. Headings. The headings of articles and sections and the table of
contents contained in this Agreement are provided for convenience only. They
form no part of this Agreement and shall not affect its construction or
interpretation.
7.10. Trial by Jury Waived. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH
ANY OF THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREUNDER. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.
7.11. Limited Liability. No recourse under this Agreement or any other
Transaction Document shall be had against, and no personal liability shall
attach to, any officer, employee, director, affiliate, advisor or
securityholder of any party hereto, by the enforcement of any assessment or by
any legal or equitable proceeding, by virtue of any statute or otherwise in
respect of any of the Transaction Documents or the Preferred Shares Insurance
Policy, it being expressly agreed and understood that each Transaction Document
is solely a corporate obligation of each party hereto (but only to the extent
such party is a party to such Transaction Document), and that any and all
personal liability, either at common law or in equity, or by statute or
constitution, of every such officer, employee, director, affiliate, advisor or
securityholder for breaches by any party hereto of any obligations under the
Agreement or any other Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Agreement.
7.12. Entire Agreement. This Agreement, the Preferred Shares Insurance
Policy and the Premium Letter sets forth the entire agreement between the
parties with respect to the subject matter thereof, and this Agreement, the
Preferred Shares Insurance Policy, and the Premium Letter supersede and replace
any agreement or understanding that may have existed between the parties prior
to the date hereof in respect of such subject matter.
7.13. Limited Recourse. Notwithstanding any other provision hereof,
the obligations of the Issuer hereunder are limited recourse obligations
payable solely from the Issuer's assets in accordance with the Pledge and
Intercreditor Agreement and with the subordination provisions of the Pledge and
Intercreditor Agreement, and following the exhaustion of the Issuer's assets,
any unsatisfied claims shall be extinguished and shall not thereafter revive.
7.14. No Bankruptcy Petition. Ambac covenants and agrees that, prior
to the date which is one year and one day or, if longer, the applicable
preference period then in effect, after the payment in full of all Senior
Indebtedness and Preferred Shares, it will not institute against, or join any
other Person in instituting against, the Issuer any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other proceedings under
any bankruptcy, insolvency, reorganization or similar law.
7.15. Location of Delivery, etc. The parties hereto acknowledge that
this Agreement has been executed by Ambac, that this Agreement has been
delivered by the parties hereto and that the Preferred Shares Insurance Policy
have been issued and delivery received, all in the State of New York.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Insurance and Indemnity Agreement as of the day and year first
above written.
AMBAC ASSURANCE CORPORATION
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Title:
SPECIAL VALUE EXPANSION FUND, LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President and Secretary