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HomeMy WebLinkAboutA3729 - AMBAC CAPITAL WELLS FARGO MO 5836 ACFI dba AMBAC Capital Fundinc & Wells Fargo Bank Collaterized Investment Agr AGREEMENT #3729 Part 1 02 M05836, 11-6-96 COLLATERALIZED INVESTMENT AGREEMENT COLLATERALIZED INVESTMENT AGREEMENT dated as of November 26, 1996 by and betweenf AMBAC 'Capital Funding, Inc., a Delaware corporation ("ACFI") and Wells Fargo Bank, National Association, as (the "Trustee"), on behalf of the City of Palm Springs, California (the "City"). WHEREAS, pursuant to the terms of a Trust Agreement dated as of October 1, 1996 by and among the City of Palm Springs Financing Authority, the City and the Trustee (the "Trust Agreement"), the Trustee has executed and delivered 1996 Refunding Certificates of Participation (Multiple Capital Facilities Project) (the "Bonds"); and WHEREAS, the Trust Agreement establishes various trust funds and accounts for the receipt and disbursement of monies, all as more fully set out in the Trust Agreement; and WHEREAS, the City is authorized by the Trust Agreement to direct the investment of certain monies held by the Trustee, all as more fully set forth in the Trust Agreement and the City has directed the Trustee to invest moneys in the Reserve Fund (as hereinafter defined) with ACFI pursuant to this Agreement based in part on the approval of this Agreement by AMBAC (as hereinafter defined) for purposes of the definition of Permitted Investments contained in Exhibit A to the Trust Agreement; and WHEREAS, ACFI is willing, on the terms and conditions set forth in this Agreement, to accept the investment of Invested Monies (as hereinafter defined). NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and set forth, ACFI, the Trustee, and the City hereby agree as follows: SECTION 1. DEFINITIONS As used herein, the following terms have the following meanings: 1.1. "Agent" means The Bank of New York and its successors and assigns as agent under the Collateral Agency Agreement. 1.2. "Agreement" means this Collateralized Investment Agreement entered into by and among ACFI, the City and the Trustee. 1.3. "AMBAC" means AMBAC Indemnity Corporation, a Wisconsin-domiciled stock insurance corporation, as insurer of the Bonds. 1.4. "Approved Wire Time" means 2:00 P.M. Eastern Standard Time. 1.5. "Bonds" means the Bonds and any bonds or certificates issued on a parity therewith pursuant to the provisions of the Trust Agreement. 1.6. "Business Day" means any day which is not a Saturday or Sunday or a day on which banks located in the City of New York or the City of Los Angeles are not authorized or required by law to close. Any payment due hereunder on a day that is not a Business Day shall be due and payable on the next preceding Business Day. 1.7. "Collateral" means cash, direct obligations of the Department of Treasury of the United States of America ("Treasuries') and senior debt obligations of the Federal National Mortgage Association ("FNMAs"), Government National Mortgage Association ("GNMAs"), Federal Home Loan Mortgage Corporation ("FHLMCs") and Federal Home Loan Banks ("FHLBs"). 1.8. "Collateral Agency Agreement" means the Collateral Agency Agreement, dated as of the date hereof, among ACFI, the Trustee and the Agent. 1.9. "Collateral Requirement" means (i) in the case of cash, 100% of Invested Monies, (ii) in the case of Treasuries and GNMAs, 104% of Invested Monies and (iii) in the case of FNMAs, FHLMCs and FHLBs, 105% of Invested Monies. 1.10. "Downgrade" means any reduction of the Guarantor's claims-paying ability rating below the levels specified in Section 5.2 or a withdrawal or suspension of such rating. 1.11. "Earnings" means interest earned on the Invested Monies in accordance with the provisions of Section 2.2 hereof. 1.12. "Effective Date" means November 26, 1996. 1.13. "Event of Default" has the meaning given that term in Section 6.1 hereof. 1.14. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or(b) 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 the Trustee from three federal funds brokers of recognized standing selected by it. 1.15. "Guarantee" means the financial guaranty insurance policy of the Guarantor attached hereto as Exhibit B. 1.16. "Guarantor" means AMBAC Indemnity Corporation, a Wisconsin-domiciled stock insurance company. 1.17. "Interest Payment Date" means three (3) Business Days prior to each April 1 and October 1, commencing three (3) Business Days prior to April 1, 1997. 1.18. "Interest Payment Procedure" means that Earnings will be wire transferred in immediately available funds to the Trustee by the Approved Wire Time on each Interest Payment Date. 1.19. "Invested Monies" means the Reserve Fund Deposit or such portions thereof which are invested hereunder from time to time. 2 1.20. "Permitted Withdrawal 'Purpose" means (i) the payment of principal of and interest on the Bonds (including a mandatory sinking fund payment) pursuant to the terms of the Trust Agreement in the event of a deficiency in the Lease Payment Fund established under the Trust Agreement for that purpose, (ii) withdrawals in connection with the defeasance or redemption or refunding of the Bonds in part or in whole, (iii) any withdrawals in connection with a determination by nationally recognized bond counsel that the Invested Monies must be yield restricted in order to preserve the tax-exempt status of the Bonds, as evidenced by an opinion of such recognized bond counsel which is acceptable to ACFI; provided however, that only such portion of the Invested Monies which, if invested in zero yield securities, will preserve the tax-exempt status of the Bonds may be withdrawn from this Agreement, (iv) any scheduled withdrawal listed on Exhibit C attached hereto and (v) any withdrawal as permitted by the Trust Agreement if the amount on deposit in the Reserve Fund is in excess of the Reserve Requirement (as such term is defined in the Trust Agreement). Notwithstanding the foregoing, however, in no event shall a withdrawal in connection with the substitution of a letter of credit, surety bond or other similar instrument for cash in the Reserve Fund, or a withdrawal for the purpose of the Trustee's reinvesting Invested Monies in another investment constitute a "Permitted Withdrawal Purpose". 1.21. "Pro Rata Share" means, when used with respect to the Reserve Fund Deposit, a fraction, (i) the denominator of which is equal to the sum of (A) the Reserve Fund Deposit invested pursuant to this Agreement on a Withdrawal Date and (B) amounts on deposit in the Reserve Fund which are not invested pursuant to this Agreement at the time of the applicable withdrawal and (ii) the numerator of which is the Reserve Fund Deposit invested pursuant to this Agreement on a Withdrawal Date, multiplied by the totaV amount required by the Trustee to be expended for a Permitted Withdrawal Purpose within the time period specified in Section 2.3(b)(ii). 1.22. "Rate of Earnings" means 6.40% per annum, calculated on a 30/360 day count basis. 1.23. "Reserve Fund" means the Reserve Fund established pursuant to Section 6.01 of the Trust Agreement. 1.24. "Reserve Fund Deposit' means, initially, an amount equal to $1,729,998.75 (on deposit in the Reserve Fund)which is invested hereunder. 1.25. "Termination Date" means March 29, 2027 or on any date when all Invested Monies are withdrawn. 1.26. "Uniform Commercial Code" means the Uniform Commercial Code in effect in the State of New York. Unless otherwise defined herein, all terms defined in Article 8 or Article 9 of the Uniform Commercial Code are used herein as therein defined. 1.27. "Withdrawal Amount" means the amount specified by the Trustee in the notice delivered to ACFI by the Trustee pursuant to Section 2.3(b) hereof 3 s • 1.28. "Withdrawal Date" means (i) the dates specified in the notice delivered to ACFI by the Trustee pursuant to Section 2.3(b) hereof and (ii) any date on which the Invested Monies are withdrawn pursuant to Sections 5.2 and 6.2 hereof. SECTION 2. INVESTMENT OF FUNDS 2.1. Delivery of Funds . (a) On the Effective Date, the Trustee, at the written direction of the City, shall deliver the Invested Monies to ACFI for the credit of ACFI's account as specified in Exhibit A hereto and ACFI shall accept the Invested Monies from the Trustee. (b) Upon any withdrawal of the Reserve Fund Deposit, the City agrees to replenish the Pro Rata Share of such amounts (on a no less than pro rata basis with any other investment instruments in which amounts in the Reserve Fund are invested) within twelve (12) months of the applicable Withdrawal Date. The Trustee shall promptly deliver, and ACFI shall accept, additional deposits of amounts constituting replenishments to the Reserve Fund. In the event that any withdrawals of Invested Monies are not replenished within twelve (12) months, ACFI may, at its option, terminate the portion of this Agreement relating to such amount. 2.2. Interest. Interest on the outstanding balance of the Invested Monies shall accrue daily as of the close of business each day during the term of this Agreement from and including the date of delivery of such Invested Monies to ACFI to but excluding the date of withdrawal thereof pursuant to the terms of this Agreement at the Rate of Earnings. Earnings shall be payable in arrears by ACFI in accordance with the Interest Payment Procedures. 2.3. Withdrawal. (a) The only withdrawals which will be permitted are withdrawals on Withdrawal Dates made for Permitted Withdrawal Purposes and withdrawals pursuant to the provisions of Sections 5.2 and 6.2 hereof. (b) With respect to withdrawals, the Trustee shall not require payment to be made by ACFI earlier than one (1) Business Day prior to the date on which such amounts are to be applied pursuant to the terms and conditions of the Trust Agreement nor require payment by ACFI in any amount greater than the amount to be so applied by the Trustee for Permitted Withdrawal Purposes. ACFI will only honor a request for a withdrawal if the Trustee delivers written notice via telecopy to ACFI five (5) Business Days prior to any such Withdrawal Date specifying the amount to be withdrawn and certifying that (i) the withdrawal is only being made for Permitted Withdrawal Purposes, (ii) the amount to be paid by ACFI is to be applied by the Trustee for such purpose within one (1) Business Day following the withdrawal, (iii) the amount to be withdrawn is not greater than the amount to be so applied by the Trustee and (iv) in the case of a withdrawal from the Reserve Fund Deposit, the amount being withdrawn does not exceed the Pro Rata Share. 2.4. Wire Transfers. Amounts to be transferred by the Trustee to ACFI hereunder shall be transferred by the Approved Wire Time by wire transfer of same day funds to ACFI's account as specified in Exhibit A hereto. Amounts to be transferred hereunder by ACFI to the Trustee shall be transferred by the Approved Wire Time by wire transfer of same day funds to 4 • the account designated by the Trustee in Exhibit A hereto or to such other account as the Trustee shall so designate, such designation to be made in writing not less than one (1) Business Day prior to the date of transfer. Any fees or costs associated with the transfer of funds hereunder shall be paid by the transferor of the funds. Any expenses incurred as a result of delays or errors in the wire transfer of funds shall be reimbursed to the prejudiced party pursuant to Section 9 hereof. 2.5 Required Notices. (a) In addition to all other notices required to be given under this Agreement, the Trustee shall give ACFI fifteen (15) days prior written notice of any current or advanced refunding or redemption of the Bonds. (b) In addition to all other notices required to be given under this Agreement, ACFI shall provide, on or before the 15th calendar day of each month, monthly account statements to the Trustee, the City and Fund Services Associates, Inc. showing collateral levels, principal balances and interest accruals. (c) ACFI hereby agrees to provide to the Trustee and the City telephonic notice of any Downgrade within 24 hours of such Downgrade and written notice of any Downgrade within five (5) Business Days of such Downgrade. ACFI also agrees to provide copies to AMBAC and Fund Services Associates, Inc. of any other notices and reports required to be delivered to the Trustee or the City pursuant to the terms of this Agreement. SECTION 3. GUARANTEE The Trustee, in entering into this Agreement, is and will be relying on the Guarantee of the Guarantor, a copy of which is attached hereto as Exhibit B. SECTION 4. COLLATERALIZATION On the Effective Date, ACFI shall deliver, and grant in favor of the Trustee a first and prior security interest under the Uniform Commercial Code in and to, Collateral held by the Agent, as custodian, which Collateral shall at all times have a fair market value (principal and accrued interest) at least equal to the Collateral Requirement. The Collateral shall be held and disposed of in accordance with the provisions of the Collateral Agency Agreement. SECTION 5. TERMINATION; DOWNGRADE 5.1. Termination. This Agreement shall terminate on the Termination Date. At such time, all Invested Monies, together with all accrued Earnings and Earnings deemed to have accrued pursuant to Section 2.2 hereof, as calculated as provided in this Agreement, shall be paid to the Trustee in immediately available funds. 5 0 i 5.2. Downgrade. (a) If the claims-paying ability of the Guarantor is at any time rated below "AA" or "Aa" by Standard and Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"), respectively, ACFI shall notify the Trustee and the City within the time periods set forth in Section 2.5(c) hereof and within ten (10) days of such written notice shall take one of the following actions: (i) provide additional Collateral so that the Collateral Requirement equals at least 107% of Invested Monies and grant to the Trustee a first and prior perfected security interest under the Uniform Commercial Code in and to such additional Collateral; or (ii) obtain a new guarantor acceptable to the City, which is rated at least "AA" and "Aa" by S&P and Moody's respectively. (b) If the claims-paying ability of the Guarantor is at any time reduced below "A" by S&P or Moody's, ACFI shall immediately notify the Trustee and the City, and, at the option and upon the direction of the Trustee or the City, within ten (10) days of receipt of such notice, return the remaining Invested Monies and Earnings to the Trustee at no penalty. In the event that ACFI provides additional Collateral pursuant to Section 5.2(a)(i) hereof, ACFI shall immediately notify the Agent that the Collateral Requirement has been revised in accordance therewith. SECTION 6. DEFAULT 6.1. Events of Default. The following events shall constitute events of default under this Agreement (each an Event of Default"): (a) Any failure by ACFI and the Guarantor on behalf of ACFI (i) to make any payment of Invested Monies or Earnings when due pursuant to the provisions of this Agreement and the Guarantee, respectively, or (ii) to deliver Collateral in an amount equal to the Collateral Requirement pursuant to the terms of the Collateral Agency Agreement if any such failure continues for one (i) Business Day after the Trustee gives ACFI and the Guarantor notice thereof. (b) If ACFI or the Guarantor commences a case in bankruptcy relating to it, is adjudicated an insolvent or bankrupt, petitions or applies for the appointment of any receiver or trustee for itself or any substantial part of its property or initiates any proceeding relating to it under any reorganization, arrangement., or dissolution under applicable bankruptcy laws; or, if any such proceeding is initiated against ACFI or the Guarantor and ACFI or the Guarantor, as the case may be, indicates in any manner its consent thereto or such proceeding is not dismissed within 60 days. (c) A failure by ACFI to perform or observe any of its material obligations under this Agreement (other than those described in Section 6.1 (a) hereof) when such failure continues for five (5) Business Days or more after written notice thereof is given by the Trustee to ACFI. 6 0 0 (d) The expiration, termination (other than pursuant to its terms), or repudiation of the Guarantee or any other event which causes the Guarantee to cease to be in full force and effect or any action by the Guarantor which challenges the validity of the Guarantee. 6.2. Rights and Obligations of Parties upon an Event of Default. Upon the occurrence of an Event of Default specified in Section 6.1(b) hereof, all Invested Monies and Earnings shall immediately become due and payable without notice or declaration or any other action on the part of a person, receipt of which is hereby waived by ACFI. Upon the occurrence and continuance of any other Event of Default specified in Section 6.1 hereof, the Trustee may, with the consent of AMBAC (other than with respect to an Event of Default by the Guarantor), and shall, at the direction of AMBAC (other than with respect to an Event of Default by the Guarantor), declare all Invested Monies and Earnings to be due and payable immediately. If, as a result of occurrence of an Event of Default specified in Section 6.1, all Invested Monies and Earnings are withdrawn, this Agreement shall be terminated on the date of such withdrawal as if such date were a Termination Date but without prejudice to the Trustee's rights to the Collateral. SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1. The Trustee represents .and warrants to ACFI that: (i) it is hereby advised and understands that neither the Agreement nor the Guarantee has been or will be registered under the Securities Act of 1933, as amended (the "Securities Act") or any other applicable securities law (including the Blue Sky laws of any state) and, except in connection with an assignment hereof to the Guarantor upon a payment by the Guarantor under the Guarantee, that neither the Agreement nor the Guarantee may be offered, sold, transferred, pledged, hypothecated or otherwise disposed of, unless either registered pursuant to, or exempt from registration under, the Securities Act and any other applicable securities laws; (ii) the legend set forth in Section 10.10 is hereby called to its attention; (iii) it is not executing this Agreement or accepting the Guarantee with a view to any distribution thereof in violation of the Securities Act; (iv) it is duly authorized to enter into this Agreement and the transactions contemplated hereby; (v) this Agreement constitutes a legal, valid and binding obligation of the Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject as to enforceability to general principles of equity in a proceeding at law or in equity; (vi) the execution, delivery and performance of this Agreement by the Trustee does not and will not result in a breach or violation of, or cause a default under, its charter or by-laws or any provision of any agreement, instrument, judgment, injunction or order applicable to or binding upon the Trustee or its assets; and (vii) it is authorized by the direction of the City and the consent of AMBAC pursuant to the Trust Agreement to make all investments contemplated by this Agreement on the terms hereunder. 7.2. (a) ACFI represents and warrants to the Trustee that: (i) it is duly authorized to enter into this Agreement and the transactions contemplated hereby; (ii) this Agreement constitutes a legal, valid and binding obligation of ACFI enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights 7 generally and subject as to enforceability to general principles of equity in a proceeding at law or in equity; and (iii) the execution, delivery and performance of this Agreement by ACFI does not and will not result in a breach or violation of or cause a default under, its charter or by-laws or any provision of any agreement, instrument, judgment, injunction or order applicable to or binding upon ACFI or its assets. (b) Notwithstanding anything in this Agreement to the contrary, ACFI makes no representation with respect to the effect of the negotiation, delivery and performance by ACFI of this Agreement on the tax-exempt status of the Bonds. ACFI hereby calls the Trustee's attention to the legend set forth in Section 10.10 hereof. SECTION 8. LIMITATION ON ACFI's OBLIGATIONS In performing its obligations hereunder, neither ACFI nor any of its directors, officers, employees, agents or representatives shall be liable or responsible for: (i) the payment of any amounts owing on or with respect to the Bonds; (ii) the use or application by the Trustee of any monies payable to the Trustee hereunder; (iii) any acts or omissions of the Trustee under or with respect to the Bonds or the Trust Agreement or any other agreement or instrument with respect thereto; (iv) the validity or enforceability of the Bonds or the Trust Agreement; or(v) the Trustee's performance of its obligations under this Agreement or the Trust Agreement or any other agreement or instrument with respect to the Bonds. Without limiting the foregoing, regardless of whether ACFI has reviewed the Trust Agreement or is generally familiar with the terms of trust agreements or indentures of a similar type, ACFI shall have no duty to comply with the terms of the Trust Agreement or to ascertain whether the Trustee is in compliance therewith. The Trustee recognizes that ACFI and the Guarantor may have other business relationships with the Trustee, the City or with other entities or persons party to other agreements or instruments with respect;to the Bonds. SECTION 9. REIMBURSEMENT Delays caused by errors or failures in transfers of funds hereunder shall be compensated by the party retaining the funds due to error and by the prompt payment of interest for the loss of availability of such funds shall be made to the party prejudiced thereby in accordance with the following formula: Interest= r(amount of funds lost) x (Federal Funds Rate)1 x (No. of days funds lost) 360; provided that any net compensation for the benefit of the Trustee or ACFI (after calculation of all costs and damages caused by the error or failure) shall not exceed an amount determined by application of the interest rate used in the definition of the term "Rate of Earnings" instead 8 of the Federal Funds Rate in the above formula; provided further, that should such a failure be the result of the Federal Reserve Bank's computer system being inoperative, the party transferring the funds will not be deemed to be in error for the purpose of this Section 9. In the event that the Trustee is obligated to make any payments under this Section 9, such payments shall be from monies held under the Trust Agreement other than the Invested Monies. SECTION 10. MISCELLANEOUS 10.1. No Waiver. No failure or delay on the part of ACFI or the Trustee in exercising any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right or remedy preclude any other right or remedy. The rights and remedies of ACFI and the Trustee hereunder are cumulative and are not exclusive of any rights or remedies provided by law or equity or in any other contract between the Trustee, ACFI or the Guarantor. None of the terms or provisions of this Agreement may be waived, modified or amended, except in writing duly signed by ACFI and the Trustee and consented to in writing by AMBAC. 10.2. Survival. All warranties and representations made by the Trustee or ACFI in this Agreement or in any of the instruments or documents delivered pursuant to this Agreement regardless of any investigation made shall be considered to have been relied upon by the other party hereto and shall survive the delivery of any instruments or documents. 10.3. Successors and Assigns. This Agreement and all obligations and rights arising hereunder shall inure to the benefit of and be binding upon the parties hereto and AMBAC and their respective successors, assigns and beneficiaries. Notwithstanding the foregoing, this Agreement, and the obligations and rights arising out of this Agreement or any part hereof, shall not be sold, pledged or assigned or otherwise transferred by ACFI or the Trustee without the prior written consent of the other parties hereto and AMBAC, and any such attempted sale, pledge, assignment or transfer shall be void ab initio; provided, however, that ACFI may transfer this Agreement or any of its interests or obligations hereunder to any subsidiary of AMBAC Inc. if from and after such transfer the obligations of the transferee hereunder shall be guaranteed by the Guarantor under terns at least as favorable as the terms of the Guarantee; and, provided further, that any successor to the Trustee under the Trust Agreement shall be considered a successor in interest to the Trustee with respect to this Agreement without the necessity of obtaining the prior written consent of ACFI or AMBAC. No consent shall be required for the transfer of this Agreement to any successor entity appointed in accordance with this Agreement. 10.4. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such State. 10.5 Severability of Provisions. If any one or more of the provisions contained in this Agreement is declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 9 10.6. Counterparts. This Agreement may be executed in several counterparts and, as so executed, shall constitute one agreement binding upon the parties hereto. 10.7. Integration of Terms. This Agreement and the Collateral Agency Agreement contain the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. 10.8. Interpretation. The headings of the articles and sections hereof are for convenience of reference only and shall not affect the meaning or construction of any provision hereof. 10.9. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given upon delivery if delivered by hand (against receipt), or as of the date of delivery shown on the receipt if mailed at a post office in the United States by registered or certified mail, postage prepaid, return receipt requested, or as of the date of acknowledgment if transmitted by telex, rapifax or other telecommunication equipment, in any ease addressed to the attention of the person listed on Exhibit A hereto, or at such other address or to the attention of such other person as such party shall have designated to the other parties hereto in a written notice. Any notices given by telex, rapifax or other telecommunication equipment shall be orally confirmed by the sender immediately after such notice is transmitted. 10.10. Legend. NEITHER THIS AGREEMENT NOR THE ATTACHED GUARANTEE HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT'), OR THE SECURITIES LAWS OF ANY STATE, AND, EXCEPT IN CONNECTION WITH AN ASSIGNMENT HEREOF TO THE GUARANTOR UPON A PAYMENT BY THE GUARANTOR UNDER THE GUARANTEE, THIS AGREEMENT AND THE GUARANTEE MAY BE SOLD, TRA14SFERRED OR ASSIGNED ONLY AS PERMITTED HEREUNDER AND ONLY IF REGISTERED PURSUANT TO THE SECURITIES ACT OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE. BY ITS EXECUTION OF THIS AGREEMENT, THE TRUSTEE AGREES THAT THE AGREEMENT AND THE GUARANTEE ARE BEING ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE PUBLIC DISTRIBUTION THEREOF. 10.11 Trustee. ACFI hereby acknowledges that the Trustee is entering into this Agreement solely in its capacity as Trustee under the Trust Agreement as directed by the City, and that the term 'Trustee" as used herein means only the Trustee acting in such capacity. The Trustee has been authorized and directed by the City to enter into the Collateral Agency Agreement. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly ex- ecuted and delivered as of the date first above written. AMBAC CAPITAL FUNDING, INC. By: (- 3 Title: an ng�F'7� ' By. Gti Title: ice President WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE By: Title: IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. AMBAC CAPITAL FUNDING, INC. By: Title: Managing Director By: Title: Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE A By: /! iY ��- Title: c:e Presides 11. � L J" e�0 fLl-_3 EXHIBIT A Notices and communications to the parties should be directed to: If to ACFI: If to AMBAC: AMBAC Capital Funding, Inc. AMBAC Indemnity Corporation 300 Nyala Farms Road One State Street Plaza Westport, Connecticut 06880 New York, New York 10004 Telephone No.: (203) 341-2300 Telephone No.: (212) 668-0340 Telecopier No.: (203) 341-2355 Telecopier No.: (212) 509-9190 Attention: John Tsigakos Attention: Public Finance Surveillance If to the City: If to Fund Services Associates: City of Palm Springs, California Fund Services Associates, Inc. 3200 E. Tahquitz-Canyon Way 11835 West Olympic Boulevard Suite 205 Palm Springs, California 92262 Los Angeles, California 90064 Telephone No.: (619) 323-8229 Telephone No.: (310) 996-2626 Telecopier No.: (619) 322-8320 Telecopier No.: (310) 996-2620 Attention: Director of Finance Attention: James W. O'Connor If to the Trustee: Wells Fargo Bank, National Association 707 Wilshire Blvd. MAC#2818-111 Corporate Trust WII-1 Los Angeles, California Attention: Corporate Trust Department Telephone No.: (213) 614-2368 Telecopier No.: (213) 614-2457 Wire Transfer Information - unless otherwise designated as provided herein, wire instructions and transfers shall be made as follows: If to ACFI: If to the Trustee: Bank of New York Wells Fargo Bank New York, NY ABA #121000248 ABA#021000018 Attention: WDDA #4068001460 Ben: GLA 111-569 GSCS TPC-A05 Trust Account#: TR 7919511-001 Attn: Vinnette Simpson FBO: Palm Springs 96 Mult Cap Reserve Fund Ref: City of Palm Springs CA 1996 COPS Attn: Eladia Burgos, (213) 614-2368 12 Financial Guaranty Insurance Policy AMBAC Indemnity Corporation One State Street Plaza New York, New York 10004 (212)668-0340 Collateralized Investment Agreement: Policy Number. FC0031 BE Collateralized Investment Agreement dated as of November 26, 1996 by and between AMBAC Capital Funding, Inc., and Wells Fargo Bank, National Association (the"Trustee'l. Premium: $3,114.00 AMBAC Indemnity Corporation (AMBAC) A Wisconsin Stock Insurance Company in consideration of the payment of the premium and subject to the terms of this Policy, hereby agrees to pay to the Trustee that portion of repayments of principal of and payments of interest on Invested Monies invested pursuant to the above-described investment agreement (the "Investment Agreement)which shall become Due For Payment but shall be unpaid by reason of Nonpayment AMBAC will make such payments to the Trustee within one business day following notification to AMBAC of Nonpayment. AMBAC shall disburse repayments of principal of Invested Monies and payments of interest on Invested Monies which are then Due for Payment but are unpaid to the Trustee only upon receipt of written notice from the Trustee setting forth the amount which is then Due for Payment. AMBAC shall, to the extent that it makes repayments of principal of or payments of interest on Invested Monies, become subrogated to the rights of the Trustee in accordance with the terms hereof, and to evidence such subrogation the Trustee shall execute such assignments or documents of transfer with respect to the Trustee's rights under the Investment Agreement as may be reasonably determined by AMBAC. To the extent that AMBAC makes payments under this Policy to the Trustee, the Trustee shall be deemed to have assigned to AMBAC its interests in the Investment Agreement and any collateral pledged thereunder to the extent of the payments so made. As used herein, the term "Trustee" shall have the meaning given that term in the Investment Agreement. "Due for Payment" shall mean, with respect to repayments of principal, that a "Withdrawal Date", as that term is defined in the Investment Agreement, has been reached and, with respect to payments of interest, shall mean that an "Interest Payment Date", as that term is defined in the Investment Agreement, has been reached, in each instance subject to the terms and conditions of the Investment Agreement "Invested Monies" shall have the meaning given that term F.No.:M8 14M1C(1IN4) • • in the Investment Agreement. "Nonpayment' shall mean the failure of the Trustee to have received repayments of principal of and/or payments of interest on Invested Monies from AMBAC Capital Funding, Inc. when such payments have become Due for Payment. "Bonds" shall have the meaning given that term in the Investment Agreement. In the event that any repayment of principal of or payment of interest on the Invested Monies has been deemed to be a voidable transfer under the provisions of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq., and theretofore been disgorged or recovered from the Trustee or the holders of the Bonds, AMBAC shall make payment to the Trustee of such amounts, if sufficient funds are not otherwise available for payment of such disgorgement or recovery. This Policy is noncancelable. The premium on this Policy is not refundable for any reason. This Policy does not insure against loss other than Nonpayment. In the event that AMBAC were to become insolvent, any claims arising under the Policy would be excluded from coverage by the Connecticut Insurance Guaranty Association. IN WITNESS WHEREOF,AMBAC has caused this Policy to be executed and attested on its behalf this 26th day of November, 1996. Attest: - " P " By: - Assistant Secretary Vice Preside t Effective Date: November 26, 1996 F.No.:26 14MIC(11/94) (ID EXHIBIT C City of Palm Springs Certificates of Participation 1996A Debt Service Reserve Fund - Scheduled Withdrawals Year Ending DSRF Requirement DSRF Draw 04/01/97 1,729,998.75 0.00 04/01/98 1,729,998.75 0.00 04/01/99 1,729,998.75 0.00 04/01/00 1,729,998.75 0.00 04/01/01 1,729,998.75 0.00 04/01/02 11,729,998.75 0.00 04/01/03 11,729,998.75 0.00 04/01/04 1,729,998.75 311.25 04/01/05 1,729,687.50 0.00 04/01/06 1,729,687.50 0.00 04/01/07 1,729,687.50 0.00 04/01/08 -1,729,687.50 0.00 04/01/09 -1,729,687.50 0.00 04/01/10 1,729,687.50 0.00 04/01/11 1,729,687.50 250.00 04/01/12 "1,729,437.50 0.00 04/01/13 11,729,437.50 174,162.50 04/01/14 1,565,275.00 0.00 04/01/15 1,555,275.00 0.00 04/01/16 1,555,275.00 0.00 04/01/17 1,555,275.00 0.00 04/01/18 1,555,275.00 225.00 04/01/19 1,555,050.00 0.00 04/01/20 1,555,050.00 525.00 04/01/21 1,554,525.00 0.00 04/01/22 1,554,525.00 0.00 04/01/23 '1,554,525.00 0.00 04/01/24 1,554,525.00 0.00 04/01/25 1,554,525.00 0.00 04/01/26 1,554,525.00 0.00 04/01/27 1,554,525.00 1,554,525.00 Total = 1,729,998.75 AMBAC. 0 0 AMBAC Indemnity Corporation One State Street Plaza Stephen D. Cooke New York, New York 10004 Senior Vice President and (212)208-3482 Fax. (212)344-5297 General Counsel November 26, 1996 Wells Fargo Bank, National Association 707 Wilshire Blvd. MAC#2818-111 Corporate Trust WII-1 Attention: Corporate Trust Department Los Angeles, California Ladies and Gentlemen: This opinion has been requested of the undersigned, Senior Vice President and General Counsel of AMBAC Indemnity Corporation, a Wisconsin stock insurance company ("AMBAC Indemnity'), in connection with the issuance by AMBAC Indemnity of a certain Financial Guaranty Insurance Policy, effective as of the date hereof (the "Policy"), insuring the payment obligations of AMBAC Capital Funding, Inc. ("ACFI") pursuant to a Collateralized Investment Agreement dated as of the date hereof (the "Investment Agreement') by and between ACFI, and Wells Fargo Bank, National Association. In connection with my opinion herein, I have examined the Policy, such statutes, documents and proceedings as I have considered necessary or appropriate in the circumstances to render the following opinion, including, without limiting the generality of the foregoing, the Investment Agreement. Based upon the foregoing and having regard to legal considerations I deem relevant, I am of the opinion that: 1. AMBAC Indemnity is a stock insurance company duly organized and validly existing under the laws of the State of Wisconsin and duly qualified to conduct an insurance business in the State of Connecticut. 2. AMBAC Indemnity has full corporate power and authority to execute and deliver the Policy and the Policy has been duly authorized, executed and delivered by AMBAC Indemnity and constitutes a legal, valid and binding obligation of AMBAC Indemnity enforceable in accordance with its terms except to the extent that the enforceability (but not the validity) of such obligation may be limited by any applicable bankruptcy, insolvency, liquidation, rehabilitation or other similar law or enactment now or hereafter enacted affecting the enforcement of creditors' rights. 3. The execution and delivery by AMBAC Indemnity of the Policy will not, and the consummation of the transactions contemplated thereby and the satisfaction of the terms thereof will not, conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or By-Laws of AMBAC Indemnity, or any restriction contained 0 i* in any contract, agreement or instrument to which AMBAC Indemnity is a party or by which it is bound or constitute a default under any of the foregoing. 4. Proceedings legally required for the issuance of the Policy have been taken by AMBAC Indemnity and licenses, orders, consents or other authorizations or approvals of any governmental boards or bodies legally required for the enforceability of the Policy have been obtained; any proceedings not taken and any licenses, authorizations or approvals not obtained are not material to the enforceability of the Policy. 4Very truly/yours, / SteonD. Cooke ACFI dba AMBAC Capital Fundinc • & Wells Fargo Bank Collateral Agency Agr AGREEMENT #3729 Part 2 of M05836, 11-6-96 2 COLLATERAL AGENCY AGREEMENT COLLATERAL AGENCY AGREEMENT dated as of November 26, 1996 by and among AMBAC Capital Funding, Inc., a Delaware corporation ("ACFI"), Wells Fargo Bank, National Association, as trustee (the "Trustee"), and The Bank of New York, as collateral agent for the Trustee (the "Agent"). WHEREAS, ACFI and the Trustee (on behalf of the City of Palm Springs, California (the "City")) have entered into a Collateralized Investment Agreement, dated as of the date hereof (the "Investment Agreement"), pursuant to which ACFI has agreed to accept the Invested Monies (as hereinafter defined) and to pay a specified rate of interest on such Invested Monies and to repay the principal of the Invested Monies, all in accordance with the Investment Agreement; and WHEREAS, the payment obligations of ACFI under the Investment Agreement are insured by AMBAC Indemnity Corporation pursuant to its financial guaranty insurance policy; and WHEREAS, ',ACFI, the Trustee and the Agent desire to enter into this Agreement for the purpose of securing and providing security for the obligations of ACFI under the Investment Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and set forth, ACFI, the Trustee and the Agent hereby agree as follows: SECTION 1. DEFINITIONS As used herein, the following terms have the following meanings: 1.1. "Account" means, with respect to the Invested Monies, the collateral account maintained by the Agent for the benefit of the Trustee pursuant to Section 2 hereof for the deposit of Eligible Collateral, to be designated "The Bank of New York, as collateral agent for Wells Fargo Bank, National Association, as Trustee, as secured party, City of Palm Springs, California". 1.2. "Agreement" means this Collateral Agency Agreement entered into among ACFI, the Trustee and the Agent as the same may be amended, modified or supplemented and in effect from time to time. 1.3. "Book-Entry System" shall mean the book-entry system for government securities maintained at The Federal Reserve Bank of New York and the book entry systems for securities maintained at The Participants Trust Company and the Depository Trust Company. 1.4. "Business Day", for purposes of this Agreement, shall mean any day of the year on which banks located in the City of New York are not authorized or required by law to remain closed. Any payment due hereunder on a day that is not a Business Day shall be due and payable on the next preceding Business Day. 1.5. "Collateral" has the meaning set forth in Section 3.1 hereof. 1.6. "Collateral Requirement" means (1) in the case of cash, 100% of Invested Monies, (ii) in the case of Treasuries and GNMAs, 104% of Invested Monies and (iii) in the case of FNMAs, FHLMCs and FHLBs, 105% of Invested Monies. 1.7. "Delivery" means delivery of Collateral, free and dear of all liens, claims and interests (other than the lien created by this Agreement) (i) in the case of Collateral the ownership of which is transferred by possession of a physical certificate, to the Agent, for deposit by the Agent in the Account for the benefit of the Trustee, in suitable form for delivery and transfer, accompanied by duly executed instruments of transfer or assignment in blank and accompanied by any required transfer tax stamps, (ii) in the case of Collateral the ownership of which is recorded in book-entry form by The Depository Trust Company, the Participants Trust Company and any other clearing corporation within the meaning of Section 8-102(3) of the Uniform Commercial Code (as herein- after defined), to an account of the Agent:, for deposit by the Agent in the Account for the benefit of the Trustee in the clearing system established by The Depository Trust Company, the Participants Trust Company and any other clearing corporation within the meaning of Section 8-102(3) of the Uniform Commercial Code or (iii) in the case of Collateral the ownership of which is recorded in book-entry form by The Federal Reserve Bank of New York, (A) delivery of Collateral, free and dear of all liens, claims and interests (other than the lien created by this Agreement) to an account of the Agent maintained by the Agent with The Federal Reserve Bank of New York, for deposit by the Agent in the Account for the benefit of the Trustee and (B) notification from The Federal Reserve Bank of New York that it holds such Collateral for the account of and in the name of the Agent. The term "Deliver"used as a verb has a corresponding meaning. 1.8. "Deposit in the Account" means that the delivered Collateral (i) is shown on the pertinent books and records of the Agent as being held as follows: "The Bank of New York, as collateral agent for Wells Fargo Bank, National Association, as Trustee, as secured party, City of Palm Springs, California" and (ii) the Agent has sent to the Trustee a written confirmation of such delivery (whether by deposit, transfer, issuance, registration or book-entry) clearly identifying the Delivered Collateral by type, issuers, numbers, amounts, maturities and other descriptions customary in the banking industry. Such statement as described in (ii) above shall be forwarded to the Trustee within one (1) Business Day of the deposit to the Account of Collateral Delivered to the Agent. 1.9 "Downgrade" means if the claims-paying ability rating of the Guarantor is at any time rated below "AA" or "Aa" by Standard and Poor's Corporation or Moody's Investors Service, Inc., respectively, or if there is a withdrawal or suspension of such rating. 1.10. "Eligible Collateral" means cash, direct obligations of the Department of Treasury of the United States of America ("Treasuries") and senior debt obligations of the Federal National Mortgage Association ("FNMAs'), Government National Mortgage Association ("GNMAs"), Federal Home Loan Mortgage Corporation ("FHLMCs") and Federal Home Loan Banks ("FHLBs"). 2 0 1.11. "Equivalent Collateral" means, with respect to any security constituting Eligible Collateral, securities of the same issuer, series, maturity, mortgage pool (if applicable), and principal amount. 1.12. "Event of Default" has the meaning given that term in the Investment Agreement. 1.13. "Guarantor" means AMBAC Indemnity Corporation, a Wisconsin-domiciled stock insurance company. 1.14. "Invested Monies" has the meaning given that term in the Investment Agreement. 1.15. "Market Value" means, on any Valuation Date or any date on which Collateral is withdrawn or substituted pursuant to Section 3.2 hereof, (i) with respect to securities constituting Eligible Collateral other than cash, the closing bid price for such securities as quoted by Interactive Data Systems, Inc. or another nationally recognized pricing service, plus accrued interest through the Valuation Date, and (ii) with respect to cash and cash proceeds of Eligible Collateral, the amount thereof; provided that if the requisite quotes are not available as aforementioned or if any party reasonably disputes such quotes, the other parties will attempt to agree with any revisions. In the event that the Agent is unable to obtain the price of any Eligible Collateral from such pricing services on any Valuation Date, the Market Value shall be as determined by the Agent in the reasonable exercise of its discretion based on information furnished to the Agent by one or more brokers (excluding ACFI) in such Collateral or the Agent may price such Collateral using a formula utilized by the Agent for such purpose in the ordinary course of its business. 1.16. "Secured Amounts" means all amounts at anytime payable by ACFI pursuant to the Investment Agreement and/or this Agreement. 1.17. "Substitute Collateral" means any security which upon Delivery to the Agent pursuant to the provisions of this Agreement and the Investment Agreement would constitute Eligible Collateral. 1.18. "Uniform Commercial Code" means the Uniform Commercial Code in effect in the State of New York. Unless otherwise defined herein, all terms defined in Article 8 or Article 9 of the Uniform Commercial Code are used herein as therein defined. 1.19. "Valuation Date" shall mean at least one (1) Business Day weekly. SECTION 2. APPOINTMENT 01:AGENT 2.1. Appointment of Agent. ACFI hereby appoints the Agent as collateral agent with respect to the Collateral at any time delivered to the Agent for deposit in the Account established pursuant hereto for the purposes set forth in this Agreement. The Agent shall hold 3 the Account and the Collateral therein for the purpose of perfecting the Trustee's security interest in the Collateral and shall dispose of the Collateral only in accordance with the terms and conditions of this Agreement; provided, however, that, except for the performance of its duties hereunder, the Agent shall have no responsibility with respect to the validity or the perfection of the security interest. The Trustee is not liable for any acts or omissions of the Agent hereunder. The Trustee acknowledges the appointment of the Agent hereunder to hold the Collateral on behalf of the Trustee. 2.2. Acceptance of Appointment and Establishment of Account. The Agent hereby accepts appointment as collateral agent and agrees to establish and maintain the Account in the name of the Trustee in which it will hold Collateral as provided hereunder. 2.3. Crediting of Collateral. (a) ACFI and the Agent agree that certain Collateral, other than cash to be delivered to the Agent for deposit in the Account, if authorized by ACFI and the Trustee, may be in the form of credits to the account of the Agent on the Book-Entry System. In such case, ACFI and the Trustee shall authorize and instruct the Agent to deposit in the Book-Entry System on a continuous and ongoing basis all Collateral credited to the Account and to utilize the Book-entry System to the extent possible in connection with its performance hereunder, including without limitation, in connection with settlements of purchases and sales of Collateral. (b) In the event that the Collateral is in the form of cash, the Agent shall place such cash in a corresponding demand deposit account. The Agent shall not pledge, repledge, hypothecate, rehypothecate, lend, relend or commingle the Collateral with other collateral or with its own assets. SECTION 3. GRANT OF SECURITY INTEREST; INITIAL DELIVERY 3.1. Security Interest. As security for the prompt and complete repayment when due of the Invested Monies and interest thereon in accordance with the terms and conditions of the Investment Agreement, ACFI hereby pledges, assigns, conveys and transfers to the Trustee, and hereby grants to the Trustee, a first and prior perfected security interest under the Uniform Commercial Code or other applicable law in and to, and general first lien upon and right of set off against, all of ACFI's right, title and interest in and to (i) Eligible Collateral which is received by the Agent, for the benefit of the Trustee which shall be maintained in the Account, as security pursuant to and in accordance with the provisions of this Agreement and the Investment Agreement, (ii) all certificates, instruments and any bank accounts from time to time created representing or evidencing any and all principal, interest and payments and distributions of cash or other property and proceeds from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any Eligible Collateral (whether such proceeds arise before or after the commencement of any proceeding under any applicable bankruptcy, insolvency or other similar law, by or against ACFI, with respect to ACFI) and (iii) all powers and rights of ACFI now or hereafter acquired by ACFI, including rights of enforcement, under any or all of the foregoing (collectively, the "Collateral"). 4 3.2. Required Collateral (a) Delivery. Upon delivery of the Invested Monies by the Trustee to ACFI, ACFI shall (i) provide to the Agent written notice of the Collateral Requirement and (ii) Deliver to the Agent, for the benefit of the Trustee, Collateral in an amount at least equal to the Collateral Requirement. Throughout the term of this Agreement, ACFI shall provide written notice to the Agent of Each withdrawal or deposit of Invested Monies, and the corresponding change in the Collateral Requirement, immediately upon any such withdrawal or deposit. On each Valuation Date, the Agent shall determine the Market Value of the Collateral and promptly provide written notice to ACFI and the Trustee if the Market Value of the Collateral is less than the Collateral Requirement. Upon receipt of any such notice, ACFI shall, within one (1) Business Day of receipt of notice of such determination, deliver Eligible Collateral in an amount such that, following Delivery, the amount of Collateral then held by the Agent has a Market Value which is at least equal to the Collateral Requirement. ACFI shall immediately notify the Agent of a Downgrade and within fifteen(15) days of such written notice the Trustee and ACFI shall notify the Agent of any change in the Collateral Requirement. Written notice from the Trustee and ACFI must be provided to the Agent whenever there is a change in the Collateral Requirement. The Agent and ACFI shall comply with the procedures set forth in this Section with respect to all Collateral received by the Agent pursuant to this Agreement, provided however, that failure to so comply shall not be construed to affect or limit the security interest granted in this Agreement by ACFI to the Trustee or to render such security interest unperfected if such security interest is perfected under applicable law. Upon Delivery to and receipt by the Agent of the Collateral for deposit in the Account, the Agent shall make a proper notation on its books and records to credit the Account and identify the Collateral as being held in the Account by the Agent in its representative capacity as collateral agent for and on behalf of the Trustee and shall execute and deliver to the Trustee, an appropriate confirmation, identifying the Collateral by type, issuer, number, amount, maturity and such other description customary in the banking industry. Upon the request of the City in conjunction with an annual audit of the City, the Agent will confirm in writing to the City the amount of Collateral held by it under this Agreement and its Market Value as of the date requested in the City's confirmation request. (b) Withdrawal. If the Market Value of all Eligible Collateral held by the Agent for the benefit of the Trustee on any Business Day exceeds the Collateral Requirement, the Agent shall, unless an Event of Default has occurred and is continuing, return to ACFI within one Business Day pursuant to ACFI's instructions Eligible Collateral having a Market Value as nearly as possible equal to (but not exceeding) the excess of the Market Value of the Eligible Collateral over the Collateral Requirement. c) Substitution. ACFI may, on any Business Day, substitute for all or part of the Collateral, Substitute Collateral, provided that (i) the Market Value of all Eligible Collateral held by the Agent for the benefit of the Trustee is at least equal to the Collateral Requirement, (ii) no Event of Default shall have occurred and be continuing and (iii) the Market Value of such Substitute Collateral is at least equal to that of the Collateral being substituted (the "Prior Collateral"). If the foregoing conditions are met, the Agent shall, pursuant to ACFI's instructions, release the Prior Collateral from the lien of this Agreement and return such Prior Collateral to ACFI against Delivery of Substitute Collateral to the Agent, to be deposited by the Agent in the Account for the benefit of the Trustee of the Substitute Collateral. 5 (d) Notification. Substitutions or withdrawals of Collateral as provided in this Section 3.2 shall be made unless the Agent has been notified by the Trustee that an Event of Default has occurred and is continuing. 3.3. Rights with Respect to Collateral. (a) Payments. Unless an Event of Default shall have occurred and be continuing, ACFI shall be entitled to receive all payments of principal of, premium, if any, on and interest on the Collateral if after giving effect to such receipt the Market Value of the Eligible Collateral held by the Agent, for the benefit of the Trustee, on the date on which such amounts are proposed to be paid to ACFI is at least equal to the Collateral Requirement as of such Business Day. The Agent shall promptly remit to ACFI any such payment received by the Agent which ACFI is entitled to receive hereunder. (b) Remedies. If any Event of Default shall occur and be continuing, the Trustee may, to the extent permitted by law, exercises any of the rights and remedies of a secured party with respect to the Collateral, including any such rights and remedies under the Uniform Commercial Code, and, in addition, the Trustee or the Agent, with the Trustee's consent, may, to the extent permitted by applicable law, without demand of performance and without notice to ACFI except as provided below, take either or both of the following actions: (1) sell the Collateral or any part thereof, in one lot or in separate parcels, for cash or on credit or for future delivery, at the option of the Trustee, at any public or private sale, and at such price or prices as the Trustee may deem appropriate, upon two (2) Business Days' prior notice to ACFI of its intention to sell and of the time and place of sale. If the purchaser fails to take up and pay for the Collateral so sold, such Collateral may be again similarly sold. The Trustee may be the purchaser of any or all of the Collateral sold and thereafter shall hold such Collateral free from any right of redemption, stay or appraisal; provided however that in the sale of securities the Trustee shall not be entitled to purchase any of the Collateral at any private sale for less than the market value of such securities; or (2) give ACFI written notice of the Trustee's proposal that the Trustee will retain the Collateral in satisfaction of all the outstanding payment obligations of ACFI under this Agreement and the Investment Agreement, and if ACFI does not give the Trustee notice of objection on or before the twenty second Business Day after the Trustee gives such notice of its proposal to retain such Collateral, the Trustee will retain the Collateral free from any claim or right of any nature whatsoever of ACFI including any rights in equity or right of redemption, which rights, if any, are hereby expressly waived. If ACFI provides notices of objection, the Trustee will be obligated to take the actions specified in Section 3.3 (b)(1) above. (c) Application of Proceeds. The proceeds of any sale of all or any part of the Collateral pursuant to this Section 3.3 (less the costs and expenses incurred in selling such Collateral) shall be applied by the Trustee in accordance with the provisions of the Indenture (as such Term is defined in the Investment Agreement). ACFI shall remain liable for any such obligations remaining unpaid from the foregoing proceeds and shall be entitled to any surplus after any application of such proceeds. 6 0 3.4. Certain Rights of the Agent. The Agent may, on behalf of and upon written direction of the Trustee, exercise all or any of the powers with respect to all or any of the Collateral as the Trustee is permitted to exercise pursuant to Section 3.3(b) hereof. The Agent may fully rely without further inquiry on such written direction. The Agent shall give notice to ACFI of any action taken under this Section 3.4 on the day such action is taken. 3.5. Other Provisions Regarding the Collateral. (a) Further Assurances. ACFI covenants and agrees that it will at its own expense execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable in order to create, preserve, perfect or validate any security interests granted to the Trustee hereunder or to enable the Trustee and the Agent to exercise and enforce any rights under this Agreement with respect to any of the Collateral. (b) Notice of Actions. ACFI will give notice to the Agent and the Trustee of, and defend the Collateral against, any suit, action or proceeding against the Collateral or which could adversely affect the security interests granted hereunder. (c) Return of Collateral to ACFI. Whenever the Agent is obligated to return Collateral to ACFI under this Agreement, the Agent may deliver Equivalent Collateral. SECTION 4. TERMINATION This Agreement shall terminate upon the later of (1) expiration of the Investment Agreement without any Event of Default or (2) repayment by ACFI of all amounts due under the Investment Agreement. After such expirations and repayment, the Trustee shall, upon the request of ACFI, give written notice of any such termination to the Agent instructing the Agent that all Collateral then held by the Agent hereunder shall be returned to ACFI. SECTION 5. REPRESENTATIONS AND WARRANTIES 5.1. Representations and Warranties of ACFI . ACFI represents and warrants to the Agent and the Trustee that: (i) it is duly authorized to enter into the Investment Agreement and this Agreement and the transactions contemplated thereby and hereby; (ii) the Investment Agreement and this Agreement constitute legal, valid and binding obligations of ACFI enforceable against it in accordance with their respective terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject as to enforceability to general principles of equity and the application of judicial discretion in a proceeding at law or in equity; and (iii) the execution, delivery and performance of the Investment Agreement and this Agreement by ACFI does not and will not result in a breach or violation of or cause a default under, its charter or by-laws or any provision of any 7 0 agreement, instrument, judgment, injunction or order applicable to or binding upon ACFI or its assets. 5.2. Additional Representations and Warranties of ACFI. ACFI represents and warrants to the Trustee and the Agent as follows: (a) Immediately prior to the transfer and delivery of the Collateral to the Agent, (i) ACFI is and will have good and marketable title to all Collateral, free and clear of all liens and adverse claims other than the lien and security interest granted pursuant hereto and under the Investment Agreement and (ii) ACFI has, and will have on the date of each delivery to the Agent of the Collateral, full power, authority and legal right to pledge all of its right, title and interest in and to the Collateral pursuant hereto. (b) ACFI has not previously created any security interest in the Collateral (or, if any such interest or participation has been granted or assigned, it has been released). 5.3. Representations and Warranties of the Trustee and the Agent. Each of the Trustee and the Agent represents and warrants to ACFI that (i) it is duly authorized to enter into this Agreement and the transactions contemplated hereby; (ii) this Agreement constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject as to enforceability to general principles of equity and the application of judicial discretion in a proceeding at law or in equity; and (iii) the execution, delivery and performance of this Agreement by it does not and will not result in a breach or violation of, or cause a default under its charter or bylaws or any provision of any instrument, judgment, injunction or order applicable to or binding upon it or,its assets. SECTION 6. LIMITATION ON ACFI's OBLIGATIONS Neither ACFI nor any of its directors, officers, employees, agents or representatives shall be liable or responsible for: (i) the use or application by the Agent of any Collateral received by the Agent hereunder or(ii) the Trustee's or Agent's performance of their respective obligations under this Agreement. SECTION 7. THE AGENT 7.1. The Agent shall not be liable for any loss or damage, including counsel fees, resulting from its actions or omission to act or otherwise, except for any such loss or damage arising out of its own gross negligence or willful misconduct. The Agent shall have no obligation hereunder for costs, expenses, damages, liabilities or claims, including attorney's fees, which are sustained or incurred by reason of any action or inaction by the Book-Entry System, or a clearing system or their respective successors or nominees. In no event shall the 8 0 0 Agent be liable to ACFI, the Trustee or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. The Agent may, with respect to questions of law, apply for and obtain the advice and opinion of counsel, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. ACFI agrees to indemnify the Agent and to hold it harmless against any and all costs, expenses, damages, liabilities or claims, including reasonable fees and expenses of counsel, which the Agent may sustain or incur or which may be asserted against the Agent by reason of or as a result of any action taken or omitted by the Agent in connection with operating under this Agreement (including use of any nationally recognized pricing service in ascertaining the Market Value of Eligible Collateral) or incurred by the Agent in a successful defense of claims by ACFI except those costs, expenses, damages, liabilities or claims arising out of the gross negligence or willful misconduct of the Agent or any of its employees. It is expressly understood and agreed that the Agent's right to indemnification hereunder shall be enforceable against ACFI directly, without any obligation to first proceed against any third party for whom ACFI may act, and irrespective of any rights or recourse that ACFI may have against any such third party. This indemnity shall be a continuing obligation of ACFI notwithstanding the termination of this Agreement. 7.2. Without limiting the generality of the foregoing, the Agent shall be under no obligation to inquire into, and shall not be liable for the title, validity or genuineness of the issue of any Collateral, the legality of the purchase or sale thereof or the propriety of the amount paid or received therefor, and the due authority of any person to act on behalf of ACFI or the Trustee with respect to Collateral held in the account. 7.3. The Agent shall not be Viable for any Collateral received by it on behalf of the Trustee until such Collateral is actually (Delivered. 7.4. The Agent shall not be under any duty or obligation to take action to effect collection of any amount if the Collateral upon which such amount is payable is in default, or if payment is refused after due demand or presentation, unless and until (i) it shall be directed to take such action by ACFI or, upon the occurrence and continuance of an Event of Default, by the Trustee and (ii) it shall be assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action. 7.5. The Agent shall not be under any duty or obligation to ascertain whether any Collateral at any time delivered to or held by it hereunder are such as properly may be held by ACFI or the Trustee or any entities for which either acts. 7.6. The Agent shall be entitled to receive, and ACFI agrees to pay to the Agent, all out-of-pocket expenses and such compensation as may be agreed upon from time to time between the Agent and ACFI. Notwithstanding the foregoing, however, the Agent hereby waives any right of setoff, bankers lien or counterclaim with respect to the Collateral and the Account. It is understood that the Trustee is not liable for any fees or expenses of the Agent. 7.7. The Agent shall be entitled to rely upon any certificate, written instruction or oral instruction received by the Agent and reasonably believed by the Agent to be duly authorized 9 • • and delivered. ACFI and the Trustee agree to forward to the Agent written instructions confirming any and all oral instructions. Written instructions confirming oral instructions shall be forwarded in such manner so that such written instructions are received by the Agent, whether by hand delivery, telecopier or other similar device, or otherwise, by the close of business of the same day that such oral instructions are given to the Agent. ACFI and the Trustee agree that the fact that such confirming written instructions are received by the Agent shall in no way affect the validity of enforceability of the transactions previously authorized. 7.8. ACFI and the Trustee, eir their authorized representatives, shall have access to the Agent's books and records maintained with respect to the Collateral during the Agent's normal business hours. Upon the reasonable request of ACFI or the Trustee, copies of any such books and records shall be provided by the Agent to ACFI or the Trustee and/or their authorized representatives, as the case may be, at the expense of such requesting party. 7.9. The Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God, earthquakes, fires, floods, wars, civil or military disturbances, sabotage, epidemics, riots, interruptions, loss or malfunctions of utilities, transportation, computer (hardware or software) or communications service, accidents, labor disputes, acts of civil or military authority, governmental actions or inability to obtain labor, material, equipment or transportation. 7.10. The Agent shall have no duties or responsibilities except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against the Agent. 7.11. Resignation or Removal of Agent. (a) Subject to the further provisions of this Section 7.11, the Agent may resign at any time as Agent hereunder by its delivery to ACFI and the Trustee of not less than 30 days' prior written notice of resignation. In addition (i), upon any material breach of its duties hereunder by the Agent, the Trustee may, on 30 days' prior written notice to the Agent and ACFI, remove the Agent from its position as agent hereunder, and (ii) so long as no Event of Default shall have occurred and be continuing hereunder or under the Investment Agreement, ACFI may on 30 days' prior written notice to the Agent and the Trustee, remove the Agent from its position as agent hereunder. Upon any such resignation or removal, ACFI and the Trustee shall appoint a successor Agent. Until such time as a successor Agent is appointed, the Agent shall continue to serve as collateral agent hereunder and the provisions hereof shall remain in full force and effect. (b) Upon acceptance by a qualified successor Agent of its appointment hereunder, the Agent shall deliver to such successor all Collateral in its possession. (c) It is expressly agreed and acknowledged by ACFI and the Trustee that the Agent is not guaranteeing performance of or assuming any liability for the obligations of ACFI or the Trustee hereunder nor is it assuming any credit risk associated with transactions hereunder, which liabilities and risks are the responsibility of ACFI and the Trustee; further, it is expressly agreed that the Agent is not undertaking to make credit available to the Trustee or ACFI to enable it to complete transactions hereunder. 10 • • SECTION 8. MISCELLANEOUS 8.1. No Waiver: Cumulative (Remedies. No failure or delay on the part of ACFI, the Trustee or the Agent in exercising any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right or remedy preclude any other right or remedy. The rights and remedies of ACFI, the Trustee or the Agent hereunder are cumulative and are not exclusive of any rights or remedies provided by law or equity or in any other contract between such parties. None of the terms or provisions of this Agreement may be waived, modified or amended, excerpt in writing duly signed by ACFI, the Trustee and the Agent. 8.2. Survival. All warranties and representations made by ACFI, the Trustee or the Agent, as the case may be, in this Agreement or in any of the instruments or documents delivered pursuant to this Agreement regardless of any investigation made shall be considered to have been relied upon by the other party hereto and shall survive the delivery of any instruments or documents. 8.3. Successors and Assigns;. This Agreement and all obligations and rights arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their respective successors, assigns and beneficiaries. Notwithstanding the foregoing, this Agreement, and the obligations and rights arising out of this Agreement or any part hereof, shall not be sold, pledged or assigned or otherwise transferred by ACFI, the Trustee or the Agent without the prior written consent of the other parties hereto and any such attempted sale, pledge, assignment or transfer shall be void ab initio.; provided, however, that ACFI may appoint a successor collateral agent without the prior consent of the Trustee or the Agent (but upon 30 days' prior written notice to the Trustee); and provided further, however, that, upon thirty (30) days' prior written notice to the Trustee and the Agent and with the consent of the Agent, which consent shall not be unreasonably withheld, ACFI may transfer this Agreement or any of its interests of obligations hereunder to any subsidiary of AMBAC Inc., if from and after such transfer the obligations of the transferee hereunder shall be guaranteed by the Guarantor under terms at least as favorable as the: terms of the Guarantee. 8.4. Applicable Law/Jurisdiation/Waiver of Immunity. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. The parties irrevocably consent to the non-exclusive jurisdiction and venue of a state or federal court situated in the Borough of Manhattan, New York City, New York with respect to any legal proceeding where the Agent is a named party and irrevocably waive the right to object to the venue of any such court on the ground of inconvenient forum. To the extent that in any jurisdiction any party may now or hereafter claim or be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) cir other legal process, each party irrevocably agrees not to claim, and it hereby waives, such immunity in connection with this Agreement. 11 • • 8.5. Severability of Provisions. If any one or more of the provisions contained in this Agreement is declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 8.6. Counterparts. This Agreement may be executed in several counterparts and, as so executed, shall constitute one agreement binding upon the parties hereto. 8.7. Integration of Terms. This Agreement and the Investment Agreement contain the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. 8.8. Interpretation. The headings of the articles and sections hereof are for convenience of reference only and shall not affect the meaning or construction of any provision hereof. 8.9. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given upon delivery if delivered by hand (against receipt), or as of the date of delivery shown on the receipt if mailed at a post office in the United States by registered or certified mail, postage prepaid, return receipt requested, or as of the date of acknowledgment if transmitted by telex, rapifax or other telecommunication equipment (with the original sent promptly by the sender, if possible), in any case addressed to the attention of the person listed on Exhibit A hereto, or at such other address or to the attention of such other person as such party shall have designated to the other party hereto in a written notice. 8.10 Concerning the Trustee. The Trustee is entering into this Agreement solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity, as directed by the City in accordance with the provisions of the Investment Agreement and the Trust Agreement. 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly ex- ecuted and delivered as of the date first above written. AMBAC CAPITAL FUNDING, INC. By: ( 2 PQ , ( LSS Title: anaging Director B : 4a Y Title. Vice Pre i ent WELLS FARGO BANK, NATIONAL ASSOCIATION,AS TRUSTEE By: Title: Authorized Officer THE BANK OF NEW YORK, AS CUSTODIAN By: Title: Senior Vice President IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. AMBAC CAPITAL FUNDING, INC. By: Title: Managing Director By: Title: Vice President WELLS FA GO BANK, NATIONAL ASSOCIATION, AS TRUSTEE Title: Aut;onzed Officer THE BANK OF NEW YORK, AS CUSTODIAN By: Title: Senior Vice President 13 0 0 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. AMBAC CAPITAL FUNDING, INC. By: Title: Managing Director By: Title: Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE By: Title: Authorized Officer THE BANKS OF NEW YORK, AS CUSTODIAN By: t�-.a _:� z� Title: Senior Vice President I>EN RINDOS SENIOR VICE PRESIDENT Lj 13 EXHIBIT A Notices and communications to the parties should be directed to: If to ACFI: AMBAC Capital Funding, Inc. 300 Nyala Farms Road Westport, Connecticut 06880 Attention: John Tsigakos Telephone No.: (203) 341-2302 Telecopier No.: (203) 341-2355 If to the Trustee : Wells Fargo Bank, National Association 707 Wilshire Blvd. MAC #2818-111 Corporate Trust WII-1 Los Angeles, California Attention: Corporate Trust Department Telephone No.: (213) 614-2368 Telecopier No.: (213) 614-2457 If to the Agent: The Bank of New York One Wall Street New York, New York 10286 Attention: Steven Bryce, Government Securities Clearance Services Telephone No.: (212) 635-4857 Telecopier No.: (212) 635-1190 14