July 23, 1997
Confidential
------------
Xx. Xxxxx Xxxx
Pilgrim America Investments, Inc.
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000-0000
Dear Xx. Xxxx:
This letter agreement will confirm the understanding between
Pilgrim America Investments, Inc. (the "Manager") and Xxxxxxx Lynch, Pierce,
Xxxxxx & Xxxxx Incorporated ("MLPFSI") pursuant to which (a) MLPFSI or one or
more of its affiliates (collectively, "Xxxxxxx Xxxxx") agrees to act on an
exclusive basis as sole placement agent, on the terms and conditions set forth
herein, in connection with the structuring and placement of a private offering
(the "Offering") of senior secured notes or revolving loans ("Senior Notes" and
together with the Subordinated Notes (as defined below) issued in connection
with ML CLO Series 1997 - Pilgrim America-1, the "Notes") and (b) the Manager
agrees to serve as collateral manager for the Issuer (as defined below) pursuant
to a collateral management agreement in substantially the form of Exhibit B
hereto (the "Collateral Management Agreement"). The Notes will be issued by one
or more special purpose vehicles (individually and collectively, the "Issuer")
pursuant to an Indenture substantially in the form of Exhibit C hereto as
revised to reflect the requirements of the trustee, any rating agency rating any
of the Senior Notes and as otherwise revised by mutual agreement among the
Manager and Xxxxxxx Xxxxx prior to the closing date of the Offering (the
"Indenture") in as many as four classes consisting of up to three classes of
Senior Notes and one class of subordinated notes ("Subordinated Notes") and will
be collateralized primarily by a portfolio of bank loans and high yield bonds to
be acquired by the Manager or an affiliate of the Manager (the "Collateral") on
behalf of the Issuer.
1. Roles of Xxxxxxx Xxxxx and Manager. Xxxxxxx Xxxxx hereby
agrees (i) to act as sole advisor to the Manager and the Issuer in connection
with structuring the Offering of the Notes, (ii) to act as placement agent for
the Notes and to use all reasonable efforts to consummate the Offering and (iii)
to purchase (for retention or resale at Xxxxxxx Xxxxx'x sole discretion) any
Subordinated Notes not placed pursuant to clause (ii) hereof. The Manager hereby
agrees to act as collateral manager for the Issuer with respect to the
Collateral. The Manager agrees that it has not retained and will not retain any
other person, firm, corporation or other entity (any and all of which shall be
referred to herein as a "person") to assist the Manager or the Issuer with
respect to the underwriting, placement or sale of the Notes and will not,
directly or indirectly, offer any of the Notes for sale to, or solicit any
offers to buy from, or otherwise contact, approach or negotiate with respect
thereto with any person other xxxx Xxxxxxx Xxxxx. Notwithstanding the foregoing,
nothing herein shall prevent the Manager
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from retaining Tri-River Capital Group ("Tri-River"), at the Manager's expense,
as a financial adviser to the Manager in connection with the transactions
contemplated in this letter agreement.
Xxxxxxx Xxxxx'x obligations under clauses (ii) and (iii) of
the first sentence of this Section 1 shall be conditioned on and subject to (i)
no material adverse changes in market conditions from those existing on the date
hereof, (ii) unless otherwise agreed between the Manager and Xxxxxxx Xxxxx, a
structure for the Notes consistent with the requirements of the applicable
rating agencies and prior Xxxxxxx Xxxxx CBO and CLO transactions, and (iii) the
timely satisfaction by the Manager of all of its obligations under this letter
agreement.
The Manager hereby agrees that for a period of 6 months from
the issue date of the Notes (such issue date, the "Closing Date") or until
Xxxxxxx Xxxxx has resold all of the Subordinated Notes purchased by it on the
Closing Date, whichever shall be earlier, the Manager will not commence or
participate in any CBO or CLO.
2. Manager's Commitment. In order to achieve a transaction of
approximately $400 million, it will be necessary to issue approximately $33.5
million aggregate principal amount of Subordinated Notes (such amount, the "Base
Subordinated Note Amount"). Accordingly, the Manager hereby agrees to purchase
or cause an affiliate to purchase at least $5 million aggregate principal amount
of Subordinated Notes (such amount, the "Manager Subordinated Note Amount") at a
price of par on the Closing Date, such amount to be subject to change from time
to time as mutually agreed in writing between Xxxxxxx Xxxxx and the Manager.
3. Compensation. In payment for services being rendered
hereunder, the Manager agrees that Xxxxxxx Xxxxx shall be paid the following
fees from the proceeds of the Offering of the Notes (however, such fees are
separate and distinct from, and do not preclude the receipt of, origination fees
which may be payable to investors in the Senior Notes): (i) a structuring fee
equal to 1.0% of the aggregate par amount of the Notes and (ii) placement fees
determined in the manner described in Exhibit A hereto; provided, however, that
the placement fees described in clause (ii) shall not be payable with respect to
the Subordinated Notes purchased by the Manager or an affiliate pursuant to this
letter agreement. Such fees shall be payable in same day funds at the offices of
Xxxxxxx Xxxxx, Xxxxxxx Xxxxx World Headquarters, North Tower, World Financial
Center, New York, New York 10281-1317 out of the proceeds of the Offering on the
Closing Date.
The Manager agrees that the Collateral Management Fee that
will be payable pursuant to the Collateral Management Agreement and the
Indenture will consist of (capitalized terms not defined in this paragraph shall
have the definitions ascribed to them in the Collateral Management Agreement and
the Indenture) (a) a "Base Collateral Management Fee" payable in arrears on each
Distribution Date pursuant to Section 8 of the Collateral Management Agreement
and Section 11.1 of the Indenture, in an amount (as certified by the Manager to
the Trustee) equal to 0.35% per annum of the sum of the Aggregate Principal
Amount outstanding on the first day of the Due Period preceding such
Distribution Date, (b) a "Subordinated Collateral Management Fee" payable in
arrears on each Distribution Date pursuant to Section 8 of the Collateral
Management Agreement and Section 11.1 of the Indenture, in an amount (as
certified by the Manager to the Trustee) equal to 0.15% per annum of the sum of
the Aggregate Principal Amount outstanding on the first day of the Due Period
preceding such Distribution Date, and (c) a "Contingent Collateral Management
Fee" payable in arrears on each Distribution Date pursuant to Section 8 of the
Collateral Management Agreement and Section 11.1 of the Indenture, equal to
0.25% per annum of the Aggregate Principal Amount outstanding on the first day
of the Due Period preceding such Distribution Date and as provided in the
Indenture; provided, however, that the Contingent Collateral Management Fee will
be payable on each Distribution Date only to the extent that (after taking into
account any distributions to be made to the Subordinated Notes on such
Distribution Date) the holders of the Subordinated Notes have received an
internal rate of return of 10% per annum on the amount of the initial principal
amount of the Subordinated Notes for the period from the Closing Date to such
Distribution
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Date, to the extent of funds available for such purpose in accordance with the
priorities of payment described under Section 11.1 of the Indenture.
4. No Unauthorized Use of Advice from Xxxxxxx Xxxxx. Subject
to Section 9, (i) no advice rendered by Xxxxxxx Xxxxx in connection with the
services performed by Xxxxxxx Xxxxx pursuant to this letter agreement will be
quoted, nor will any such advice or the name of Xxxxxxx Xxxxx be referred to, in
any report, document, release or other written communication (including, without
limitation, any offering document relating to the Senior Notes or the
Subordinated Notes) and (ii) no advice rendered by Xxxxxxx Xxxxx in connection
with the services performed by Xxxxxxx Xxxxx pursuant to this letter agreement
will be quoted, nor will any such advice be referred to in any oral
communication; in either case (i) or (ii) whether prepared, issued or
transmitted by the Manager, the Issuer (to the extent acting at the direction of
the Manager), or any person or corporation controlling, controlled by or under
common control with the Manager or the Issuer (to the extent acting at the
direction of the Manager), or any director, officer, employee, agent or
representative of any of the foregoing, to any unaffiliated third party, without
Xxxxxxx Xxxxx'x prior written authorization. The Manager shall not make any
public announcement concerning the issuance of the Notes, the Manager's role
hereunder or any other aspects of the transactions contemplated by this
agreement and the Indenture except: (i) as required by federal and state
securities laws or (ii) with the consent of Xxxxxxx Xxxxx provided that such
announcement does not violate federal and state securities laws.
5. Termination Generally. This letter agreement shall
terminate twelve months after the date of signing by the Manager and Xxxxxxx
Xxxxx, unless (i) the Manager and Xxxxxxx Xxxxx mutually agree in writing to
extend or shorten its term, (ii) in the absence of any mutual agreement, the
Manager elects to terminate this agreement by notifying Xxxxxxx Xxxxx in writing
and Xxxxxxx Xxxxx consents to such termination, which consent shall not be
unreasonably withheld; or (iii) in the absence of any mutual agreement, the
Xxxxxxx Xxxxx elects to terminate this agreement by notifying the Manager in
writing and the Manager consents to such termination, which consent shall not be
unreasonably withheld; provided, however, that Sections 3, 4, 5 and 9 of this
letter agreement will survive any termination of this agreement and provided
further that any early termination pursuant to subsection (ii) above shall
constitute a breach by the Manager for purposes of the provisions under
"Termination Not Upon Closing of the Transaction" below and any early
termination pursuant to subsection (iii) above shall constitute a breach by
Xxxxxxx Xxxxx for purposes of the provisions under "Termination Not Upon Closing
of the Transaction" below. If the Offering is not executed during the term of
this letter agreement and the Manager or an affiliate enters into a transaction
similar to that described above (regardless of the number of classes of
securities issued) with a firm other xxxx Xxxxxxx Xxxxx within six months of the
termination of this letter agreement, the structuring and placement fees
heretofore agreed (calculated based on the corresponding classes of securities
issued) shall be promptly paid by the Manager to Xxxxxxx Xxxxx.
Termination Upon Closing of the Transaction. If the Notes are
issued on the Closing Date, any positive Gross Carry remaining after payment of
the Origination Fee (each as defined below) shall be ratably shared between the
Manager and Xxxxxxx Xxxxx based upon the Share Ratio (as defined below) and any
negative Gross Carry shall be treated as an additional expense of the Offering
to be paid from the proceeds of the Offering.
"Share Ratio" shall mean the ratio obtained by dividing (x)
the Manager Subordinated Note Amount by (y) the Base Subordinated Note Amount.
The Share Ratio shall initially be 5/33.5 (thus, 14.9% with respect to the
Manager and 85.1% with respect to Xxxxxxx Xxxxx). Such ratio is subject to
change from time to time as mutually agreed in writing between Xxxxxxx Xxxxx and
the Manager and, if the Notes are issued, shall be automatically deemed changed
to equal the ratio of the aggregate principal amount of Subordinated Notes
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actually purchased by the Manager or an affiliate of the Manager to the
aggregate principal amount of Subordinated Notes actually issued.
If the Notes are issued, Xxxxxxx Xxxxx shall be reimbursed on
the Closing Date from the proceeds of the Offering for all reasonable
out-of-pocket expenses, including but not limited to the fees and disbursements
of Xxxxxxx Xxxxx'x counsel, the fees of the applicable rating agencies, the fees
of the trustee, including trustee's counsel, and fees for accounting and other
professional services that may be incurred in connection with the preparation
and placement of the Offering (the "Xxxxxxx Xxxxx Reimbursement Amount"). If the
Notes are not issued, the Xxxxxxx Xxxxx Reimbursement Amount shall not exceed
$1,000,000 in the aggregate.
If the Notes are issued, the Manager shall be reimbursed on
the Closing Date from the proceeds of the Offering the Manager Reimbursement
Amount (as defined below); provided, however, that in addition to the Manager's
Note purchase obligations under Section 2, the Manager shall purchase an
aggregate principal amount of Subordinated Notes equal to or greater than the
Manager Reimbursement Amount at a price of par of the Closing Date. In addition,
if the Notes are issued Xxxxxxx Xxxxx agrees to pay to the Manager on the
Closing Date an amount equal to the Origination Fee (as defined below) out of,
and only up to, the positive amount of the Gross Carry, if any.
"Manager Reimbursement Amount" shall mean an amount equal to
all of the Manager's reasonable out-of-pocket expenses, including but not
limited to the fees and disbursements of its counsel, in an amount not to exceed
(a) $50,000 if the Notes are issued and (b) $15,000 if no Notes are issued.
"Gross Carry" (which may be a negative number) means (a) the
amount of interest accrued on the Collateral for the period from the acquisition
of such Collateral in anticipation of the Offering to the Closing Date or date
on which such Collateral is liquidated following a determination that the Notes
will not be issued (the "Accumulation Period"), plus (b) any gain on the sale of
any Collateral prior to the Closing Date or from the liquidation of the
Collateral, or any hedging gains or profits, following a determination that the
Closing Date will not occur (in each case net of expenses of such sale or
liquidation and any related hedging costs or losses, but not including the
Origination Fee, if any,), minus (c) any loss on the sale of any Collateral
prior to the Closing Date or from the liquidation of the Collateral following a
determination that the Closing Date will not occur (in each case net of expenses
of such sale or liquidation and any related hedging costs or losses, but not
including the Origination Fee, if any,) minus (d) an amount (the "Finance
Charge") equal to interest accrued on the average daily amount advanced to
purchase the Collateral held by the Issuer or Xxxxxxx Xxxxx during the
Accumulation Period at a rate of three-month LIBOR plus 100 basis points.
Xxxxxxx Xxxxx shall be paid or shall be entitled to retain the Finance Charge
whether or not the Closing Date occurs.
Termination Not Upon Closing of the Transaction. If no Notes
are issued, the Manager and Xxxxxxx Xxxxx agree to ratably share in any negative
Net Carry (as defined below), or in any positive Net Carry remaining after
payment of the Origination Fee as described below, based in each case upon the
Share Ratio, except upon a breach of this letter agreement by either Xxxxxxx
Xxxxx or the Manager as provided below.
"Net Carry" (which may be a negative number) means (i) Gross
Carry minus (ii) the Xxxxxxx Xxxxx Reimbursement Amount minus (iii) the Manager
Reimbursement Amount.
If this letter agreement terminates prior to the Closing Date,
the Collateral shall be sold or liquidated by Xxxxxxx Xxxxx at the respective
Market Prices (as defined below) for each item of Collateral; provided, however,
the Manager shall have a right of first refusal to purchase all or any portion
of the Collateral
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at the respective Market Prices of such Collateral. The Manager must give
Xxxxxxx Xxxxx notice that it wishes to exercise such right within 5 business
days of the termination of this letter agreement.
"Market Price" shall mean the firm bid price obtained by
Xxxxxxx Xxxxx from a buyer or buyers in the market for each item of Collateral.
Upon the occurrence of a sale or liquidation of the Collateral
pursuant to the second preceding paragraph, the Manager shall be entitled to be
paid the Origination Fee out of, and only up to, the positive amount of the Net
Carry, if any.
"Origination Fee" shall mean an amount equal to 0.385% per
annum on the average daily principal amount of the Collateral held by the Issuer
or Xxxxxxx Xxxxx during the Accumulation Period.
Upon a termination of this letter agreement due to a breach by
the Manager of any of its obligations or agreements hereunder, the Manager
hereby agrees that Xxxxxxx Xxxxx shall not be responsible for, and shall be held
harmless from any losses (including any unreimbursed Xxxxxxx Xxxxx Reimbursement
Amount or Manager Reimbursement Amount) relating to, such termination. Upon the
occurrence of such a breach, the Manager shall not be entitled to the
Origination Fee regardless of any gains resulting from a sale or liquidation of
the Collateral pursuant to the fourth preceding paragraph.
Upon a termination of this letter agreement due to a breach by
Xxxxxxx Xxxxx of any of its obligations or agreements hereunder, Xxxxxxx Xxxxx
hereby agrees that the Manager shall not be responsible for, and shall be held
harmless from any losses (including any unreimbursed Xxxxxxx Xxxxx Reimbursement
Amount or Manager Reimbursement Amount) relating to, such termination. Upon the
occurrence of such a breach, the Manager shall be entitled to the Origination
Fee regardless of gains or losses resulting from the sale or liquidation of the
Collateral pursuant to the fifth preceding paragraph.
6. Notices. Each notice or request by the Manager hereunder
will be evidenced by a writing signed by authorized representatives of the
Manager. All communications hereunder shall be in writing and shall be mailed or
delivered (i) to the Manager at the address set forth above, and (ii) to Xxxxxxx
Xxxxx, at its offices at Xxxxxxx Xxxxx World Headquarters, North Tower -7th
Floor, World Financial Center, New York, New York 10281-1307, Attention: Xxxxx
Xxxxx, Managing Director.
7. Benefits of this Agreement. This letter agreement shall be
binding on and inure to the benefit of Xxxxxxx Xxxxx, the Manager and their
respective successors and assigns. No person other than such parties specified
in the preceding sentence shall have any rights with respect to the enforcement
of any of the rights or obligations hereunder.
No party to this letter agreement shall assign this letter
agreement to any other person or entity without the prior written consent of
each party hereto.
8. Manager Representation. The Manager represents that neither
it nor any of its affiliates is a party to or is bound by any agreement (written
or unwritten) with any person other xxxx Xxxxxxx Xxxxx (i) relating in any
manner to the structuring, offer, issuance, sale, purchase or management of
collateralized loan obligations or similar instruments, (ii) the terms of which
would in any manner limit the Manager's ability to execute, deliver and perform
the Manager's obligations under this letter agreement, the Collateral Management
Agreement, the terms of any indenture relating to the Offering or any other
documents or instruments contemplated in connection with the transactions
described herein or (iii) the terms of which would in any manner limit the
Manager's ability to provide information to the Issuer or Xxxxxxx Xxxxx in
connection with the
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structuring and execution of such transactions, the composition or other
characteristics of the Collateral or any other aspect of the Manager's
involvement in such transactions.
9. Confidentiality. In connection with the transactions
contemplated by this letter agreement, Xxxxxxx Xxxxx expects to furnish the
Manager with certain oral and written confidential or proprietary material and
information, including without limitation information regarding the specific
proposed structure of the transaction, including investment criteria and hedging
arrangements. All material and information furnished by Xxxxxxx Xxxxx to the
Manager, whether oral or written, shall be considered confidential and
proprietary unless Xxxxxxx Xxxxx otherwise specifies in writing (all such
confidential or proprietary material and information is referred to herein as
the "Confidential Information"). The Manager agrees that it will keep the
Confidential Information strictly confidential. Notwithstanding the foregoing,
the Manager may disclose Confidential Information to Tri-River to the extent the
Manager deems appropriate; provided, however, that the Manager agrees to take
all reasonable steps necessary to ensure that Tri-River keeps the Confidential
Information strictly confidential. The Manager agrees that it will use the
Confidential Information solely for the purposes described in this letter
agreement. The term "Confidential Information" does not include any information
(i) that is or becomes publicly available other than as a result of a breach of
this Section 9 by the Manager or (ii) that was known by the Manager prior to its
disclosure by Xxxxxxx Xxxxx. This Section 9 shall not be construed to prohibit
disclosure by the Manager of the Confidential Information or any portion thereof
pursuant to any subpoena or similar legal process of any court or tribunal
provided that the Manager shall first give Xxxxxxx Xxxxx notice of the proposed
disclosure and seek to obtain confidential treatment of the Confidential
Information or portion thereof from such court or tribunal. Moreover, this
Section 9 shall not be construed to prohibit disclosure by the Manager of the
Confidential Information or any portion thereof as required by federal
securities laws; provided, however, that the Manager shall first give Xxxxxxx
Xxxxx notice of the proposed disclosure and certify to Xxxxxxx Xxxxx in writing
that such disclosure is required pursuant to federal securities laws. Upon
request of Xxxxxxx Xxxxx, the Manager shall return or cause to be returned to
Xxxxxxx Xxxxx the Confidential Information, without retaining any copy thereof.
It is understood and agreed that money damages would not be a sufficient remedy
for a breach of this Section 9 and that in addition to all other remedies
available at law or in equity, Xxxxxxx Xxxxx shall be entitled to equitable
relief, including injunction and specific performance, without proof of actual
damages.
Xxxxxxx Xxxxx agrees that all material and information
furnished by the Manager to Xxxxxxx Xxxxx, whether oral or written, with respect
to the Collateral shall be considered confidential and proprietary unless the
Manager otherwise specifies in writing, and that its review and inspection of
such material or information shall be undertaken solely for the purposes of
evaluating the transactions contemplated herein. The rights and limitations set
forth with respect to the disclosure of Confidential Information by the Manager
in the last five sentences of the preceding paragraph shall also apply mutatis
mutandis to the disclosure by Xxxxxxx Xxxxx of information with respect to the
Collateral. Notwithstanding the foregoing, nothing herein shall prevent the
disclosure by Xxxxxxx Xxxxx of information with respect to the Collateral in
order to assert, as Xxxxxxx Xxxxx xxxxx necessary or appropriate, any defenses
available to them under federal or state law.
10. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS EXECUTED IN AND TO BE PERFORMED IN THAT STATE.
11. Due Authorization. Each party represents that it is duly
authorized to execute this letter agreement.
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12. Counterparts. This letter agreement my be executed in one
or more counterparts each of which shall be deemed an original.
13. Headings. The section headings in this letter agreement
have been inserted as a matter of convenience of reference and are not a part of
this letter agreement.
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If the above correctly sets forth the understanding among the
Manager and Xxxxxxx Xxxxx, please so indicate by signing and returning to the
undersigned one of the enclosed duplicates of this letter agreement.
Very truly yours,
XXXXXXX LYNCH, PIERCE, XXXXXX
& XXXXX INCORPORATED
By:___________________________
Name:
Title:
Confirmed and agreed to as of the date first above written:
PILGRIM AMERICA INVESTMENTS, INC.
By:_______________________________
Name:
Title:
