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FINANCIAL WARRANTY AGREEMENT
among
XXXXXXXXXXX PRINCIPAL PROTECTED TRUST,
on behalf of its series,
OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND,
OPPENHEIMERFUNDS, INC.,
as investment adviser
and
XXXXXXX XXXXX BANK USA,
as warranty provider
Dated as of May 29, 2003
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TABLE OF CONTENTS
(continued)
TABLE OF CONTENTS
ARTICLE I DEFINITIONS........................................................1
Section 1.1 General Definitions........................................1
Section 1.2 Generic Terms.............................................10
ARTICLE II AMOUNT AND TERMS OF THE FINANCIAL WARRANTY.......................10
Section 2.1 The Financial Warranty....................................10
Section 2.2 Procedure for Issuance and Reduction of Financial
Warranty Amount Limit.....................................10
Section 2.3 Conditions Precedent to Effectiveness.....................11
Section 2.4 Financial Warranty Fee....................................15
Section 2.5 Aggregate Shortfall Amount; Adjustment to Protected
Amount Per Share..........................................15
Section 2.6 Certain Defined Terms.....................................16
ARTICLE III MANAGEMENT OF THE FUND..........................................17
Section 3.1 General...................................................17
Section 3.2 Restrictions on Investments...............................17
Section 3.3 Allocation and Reallocation of Fund's Assets..............19
Section 3.4 Reports; Access to Information............................21
Section 3.5 Intent....................................................22
ARTICLE IV TRIGGER EVENTS...................................................22
Section 4.1 Trigger Events............................................22
Section 4.2 Defeasance Portfolio......................................27
ARTICLE V INDEMNIFICATION and contribution..................................28
Section 5.1 Survival..................................................28
Section 5.2 Indemnification...........................................28
Section 5.3 Indemnification Procedure.................................30
Section 5.4 Contribution..............................................31
ARTICLE VI REPRESENTATIONS AND WARRANTIES...................................32
Section 6.1 Representations and Warranties of the Adviser.............32
Section 6.2 Representations and Warranties of the Trust on Behalf
of the Fund...............................................33
Section 6.3 Representations and Warranties of the Warranty Provider...35
ARTICLE VII COVENANTS.......................................................37
Section 7.1 Covenants of the Adviser..................................37
Section 7.2 Covenants of the Trust on Behalf of the Fund..............39
Section 7.3 Covenants of the Trust....................................42
Section 7.4 Covenants of the Warranty Provider........................42
ARTICLE VIII FURTHER AGREEMENTS.............................................43
Section 8.1 Obligations Absolute......................................43
Section 8.2 Participations and Assignments............................43
Section 8.3 Fund Liability............................................44
Section 8.4 Limitation of Liability of the Warranty Provider..........44
Section 8.5 Adviser Liability for Actions of Subadviser...............44
Section 8.6 Calculation Agent as Agent; Alternative Delivery..........45
Section 8.7 Calculation Agent Determinations Final and Binding........45
ARTICLE IX CONFIDENTIALITY..................................................45
Section 9.1 Confidentiality Obligations of the Warranty Provider......45
Section 9.2 Trading Information and Other Information.................45
Section 9.3 Confidentiality Obligations of the Adviser and the
Fund......................................................46
Section 9.4 Copies of Confidential Information........................46
ARTICLE X TERMINATION.......................................................47
Section 10.1 Termination. 47
ARTICLE XI MISCELLANEOUS....................................................49
Section 11.1 Amendments and Waivers 49
Section 11.2 Notices 49
Section 11.3 No Waiver, Remedies and Severability 51
Section 11.4 Payments 51
Section 11.5 Governing Law 51
Section 11.6 Submission to Jurisdiction, Waiver of Jury Trial 51
Section 11.7 Counterparts 52
Section 11.8 Paragraph Headings 52
Section 11.9 Reliance on Information 52
Section 11.10 Time of the Essence 52
Section 11.11 No Third-Party Rights 52
Section 11.12 Further Assurances 52
Section 11.13 Entire Agreement 53
Section 11.14 Disclosure of Shareholder Liability 53
Exhibit A ......Form of Financial Warranty
Schedule 1 ......Form of Daily Report
Schedule 2 ......Sector Concentration
Schedule 3 ......Single Name Concentration
Schedule 4 ......Volatility
Schedule 5 ......Implied Volatility
Schedule 6 ......Liquidity
Schedule 7 ......Names and Addresses of Certain Persons to Receive the Daily
Report
Annex A-1 ......Form of opinion of Xxxxxx X. Xxxx, general counsel of the
Adviser
Annex A-2 ......Form of opinion of Xxxxxx X. Xxxx, general counsel of the
Adviser
Annex B ......Form of WP Information Letter
Annex C-1 ......Form of Opinion of Xxxxxxxx Chance US, LLP
Annex C-2 ......Form of Opinion of Xxxxxxxxx, Xxxxxxx & XxXxxxxxxx
Annex C-3 ......Form of Opinion of Shearman & Sterling
Annex C-4 ......Form of Opinion of Xxxxxxxxx, Xxxxxxx & XxXxxxxxxx
Annex D ......Form of Escrow Agreement
FINANCIAL WARRANTY AGREEMENT
FINANCIAL WARRANTY AGREEMENT, dated as of May 29, 2003 (the
"Agreement"), among OPPENHEIMER PRINCIPAL PROTECTED TRUST, an open-end
management investment company organized as a business trust under the laws of
the Commonwealth of Massachusetts (the "Trust"), on behalf of its series,
XXXXXXXXXXX PRINCIPAL PROTECTED MAIN STREET FUND (the "Fund"),
OPPENHEIMERFUNDS, INC., a corporation organized under the laws of the State
of Colorado (the "Adviser"), and XXXXXXX XXXXX BANK USA, an industrial loan
corporation chartered under the laws of the State of Utah (the "Warranty
Provider").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act");
WHEREAS, the Trust on behalf of the Fund has requested the
Warranty Provider, and the Warranty Provider has agreed, subject to certain
conditions, to issue a financial warranty in substantially the form of
Exhibit A (such financial warranty being the "Financial Warranty") in an
amount up to $500 million in order to make sure that the Fund is able to
redeem all of its outstanding shares on the Maturity Date (as defined herein)
for an amount equal to the Aggregate Protected Amount (as defined herein); and
WHEREAS, the parties hereto, among other things, desire to
specify the conditions precedent to the issuance by the Warranty Provider of
the Financial Warranty and the drawdown of the Aggregate Shortfall Amount (as
defined herein), the payment of the Financial Warranty Fee (as defined
herein) in respect of the Financial Warranty, and to provide for certain
other matters related thereto.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 General Definitions. The terms defined in this Article I shall
have the meanings provided herein for all purposes of this Agreement, in both
singular and plural form, as appropriate.
"Act of Insolvency" means, with respect to any party, (i) the
commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
law, or such party seeking the appointment of a receiver, trustee, custodian
or similar official for such party or any substantial part of its property;
(ii) the appointment of a receiver, conservator, or manager for such party by
any government agency or authority having the jurisdiction to do so;
(iii) the commencement of any case or proceeding referred to in (i) above
against such party, which (a) is consented to or not timely contested by such
party, (b) results in the entry of an order for relief, such an appointment,
the issuance of such a protective decree or the entry of an order having a
similar effect, or (c) is not dismissed within 72 hours; (iv) the making or
offering by such party of a composition with its creditors or a general
assignment for the benefit of creditors; (v) the admission by such party of
such party's inability to pay its debts or discharge its obligations as they
become due or mature; or (vi) any governmental authority or agency or any
person, agency or entity acting under governmental authority shall have taken
any action to condemn, seize or appropriate, or to assume custody or control
of, all or any substantial part of the property of such party.
"Acts" means the Investment Company Act and the Securities Act.
"Additional Floor Shortfall" has the meaning provided in Section
4.1(d).
"Adjusted Discount Factor" has the meaning provided in
Section 3.3(a).
"Adverse Effect" means, (i) with respect to the Adviser, a
material adverse effect upon (a) the ability of the Adviser to perform its
obligations under this Agreement or any other Transaction Document to which
it is a party, or (b) the rights of the Warranty Provider under the
Transaction Documents, (ii) with respect to the Trust or the Fund, a material
adverse effect upon (a) the ability of the Trust or the Trust on behalf of
the Fund, to perform its obligations under this Agreement or any other
Transaction Document to which it is a party or (b) the rights of the Warranty
Provider under the Transaction Documents, (iii) with respect to the Warranty
Provider, a material adverse effect upon the ability of the Warranty Provider
to perform its obligations under this Agreement or any other Transaction
Document to which it is a party and (iv) with respect to each party, an
adverse effect on the binding nature, validity or enforceability of this
Agreement. The determination of whether a particular set of circumstances
could reasonably be expected to have an Adverse Effect includes a
determination of the likelihood of the occurrence of such set of
circumstances and the likelihood that such set of circumstances, if it were
to occur, would result in an Adverse Effect.
"Adviser" has the meaning provided in the preamble.
"Adviser Conduct" has the meaning provided in Section 4.1(d).
"Affiliate" means any Person directly or indirectly controlling
or controlled by or under common control with such Person or any Subsidiary;
provided, that for purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
"Aggregate Protected Amount" has the meaning provided in Section
2.6(a).
"Aggregate Shortfall Amount" has the meaning provided in
Section 2.6(b).
"Agreement" has the meaning provided in the preamble.
"Bank Deposits" means any of the following having a maturity of not more
than 90 days: demand and time deposits in, certificates of deposit of, and
bankers' acceptances issued by any depository institution or trust company
incorporated under the laws of the United States of America or any state thereof
and subject to supervision and examination by federal and/or state banking
authorities so long as the commercial paper or debt obligations of such
depository institution or trust company (or, in the case of the principal
depository institution in a holding company system, the commercial paper or debt
obligations of such holding company) have a credit rating of at least "P-1" by
Moody's and at least "A-1" by S&P (or equivalent credit ratings if different
rating categories are used), in the case of commercial paper and short-term
obligations; provided, that the issuer thereof must also have at the time of
such investment a long-term credit rating of at least "Aa3" by Moody's or at
least "AA" by S&P (or equivalent credit ratings if different rating
categories are used).
"Benchmark Yield Curve" means either USD LIBOR and USD Swap rates
or U.S. dollar Treasury rates, any of such as determined by the Calculation
Agent.
"Business Day" means any day other than a day on which banks
located in the City of New York, New York are required or authorized by law
to close or on which the New York Stock Exchange and the NASDAQ National
Market are closed for business.
"Calculation Agent" means Xxxxxxx Xxxxx International or any
successor calculation agent.
"Cash" means legal tender of the United States.
"Cash Equivalents" means Bank Deposits, Commercial Paper and U.S.
Government Securities (excluding U.S. Zeroes), having a remaining maturity of
90 days or less.
"Class of Shares" means each class of shares of beneficial
interest of the Fund designated pursuant to the Declaration of Trust.
"Commercial Paper" means commercial paper having a credit rating of at
least "P-1" by Moody's and at least "A-1" by S&P (or equivalent credit
ratings if different rating categories are used), either bearing interest or
sold at a discount from the face amount thereof, having a maturity of not more
than 90 days from the date of issuance, and issued by either (x) a corporation
incorporated under the laws of the United States of America or any state
thereof, or (y) any depository institution or trust company incorporated under
the laws of the United States of America or any state thereof and subject to
supervision and examination by federal and/or state banking authorities;
provided, that the issuer thereof must also have at the time of such investment
a long-term credit rating of at least "Aa3" by Moody's or at least "AA-" by
S&P (or equivalent credit ratings if different rating categories are used).
"Commission" means the United States Securities and Exchange
Commission.
"Contractual Obligation" means, as to any Person, any provision
of any security issued by such Person or any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Curative Steps" has the meaning provided in Section 4.1(b).
"Custodian" means X.X. Xxxxxx Chase Bank, as Custodian pursuant
to the Custodian Agreement or any successor custodian of the Fund's assets
appointed by the Trust's Board of Trustees.
"Custodian Agreement" means the Custodian Agreement, dated August
16, 2002, between the Custodian and the Trust on behalf of the Fund, as such
contract may be amended from time to time or any agreement providing for the
custody of the Fund's assets.
"Daily Report" means a report in the form of the sample attached
as Schedule 1 hereto.
"Declaration of Trust" means the Trust's Declaration of Trust,
dated as of January 16, 2003, as amended and in effect from time to time.
"Defeasance Date" is the date on which a Trigger Initiated
Defeasance Event or Market Initiated Defeasance Event occurs.
"Defeasance Portfolio" means the Fund Portfolio where all of the
Fund's assets have been allocated (i) to the Fixed-Income Portfolio and Cash
and/or Cash Equivalents as set forth below (A) from and after the occurrence
of a Market Initiated Defeasance Event or (B) if the Warranty Provider
exercises the remedy provided in Section 4.1(c)(i)(A), in each case where
each Eligible Fixed-Income Investment shall mature no earlier than three
months prior to, and no later than, the Maturity Date or (ii) to U.S. Zeroes
in accordance with the Irrevocable Instructions if the Warranty Provider
exercises its rights under Section 4.1(c)(i)(B), where each U.S. Zero shall
mature no earlier than three-months prior to, and no later than, the Maturity
Date and Cash and/or Cash Equivalents as set forth below. In each case the
Defeasance Portfolio shall include Cash and/or Cash Equivalents to the extent
necessary for the Fund to meet redemption requests reasonably anticipated to
be received by the Fund within the next five Exchange Business Days or in
connection with the payment of Fund Fees and Expenses; provided, however,
that such Cash and Cash Equivalents shall not exceed 3% of the Fund's Total
NAV on any Exchange Business Day other than in the case of Cash received by
the Fund as a result of Eligible Fixed-Income Investments or U.S. Zeroes, as
applicable, maturing.
"Determination Notice" has the meaning provided in Section 4.1(d).
"Distribution Per Share" means, with respect to any Class of
Shares, an amount equal to the quotient of (i) the amount of any distribution
or payment by the Fund in respect of, or allocated to, such Class of Shares
that is not a Fund Fee and Expense and shall include, without limitation, any
distribution of income, dividends, capital gains or principal to the
Shareholders of such Class of Shares and any payment of Income Taxes
allocated to such Class of Shares, and (ii) the number of Shares of such
Class of Shares outstanding immediately prior to the date of such
distribution or payment.
"Early Close Exchange Business Day" has the meaning provided in
Section 4.1(a).
"Effective Date" means the date on which this Agreement has been
executed by all of the parties hereto.
"Eligible Equity Investments" means shares of the Underlying Fund
and Cash and Cash Equivalents to the extent that such Cash and Cash
Equivalents are in excess of 3% of the Fund's Total NAV on any Exchange
Business Day.
"Eligible Fixed-Income Investments" means U.S. Government
Securities, Cash, Cash Equivalents and such other types of instruments and
investments as may be permitted (and subject to such terms as may be
specified) by the Warranty Provider in its sole discretion; provided,
however, that such Cash and Cash Equivalents held as Eligible Fixed-Income
Investments shall not exceed 3% of the Fund's Total NAV on any Exchange
Business Day, except as otherwise set forth in Section 3.2(a)(iii).
"Equity Limit for all Classes of Shares" has the meaning provided
in Section 3.3(a).
"Equity Portfolio" means the portion of the Fund's assets
invested in Eligible Equity Investments at any time during the Protected
Period.
"Equity Portfolio Sector Weighting" has the meaning provided in
Schedule 2.
"Escrow Account" has the meaning provided in Section 4.1(f).
"Escrow Agreement" means the Escrow Agreement, to be executed in
accordance with Section 4.1(f) by the Adviser and the Warranty Provider,
substantially in the form of Annex D.
"Excess Fees" has the meaning provided in Section 2.6(c).
"Exchange Business Day" means any day other than a day on which
both the New York Stock Exchange and the NASDAQ National Market are closed
for business.
"Expense Limitation Agreement" means the provisions contained in
the Investment Management Agreement, pursuant to which the Adviser has agreed
to limit Fund Fees and Expenses until the Maturity Date in the event of a
Trigger Initiated Defeasance Event or a Market Initiated Defeasance Event (in
each case excluding any Extraordinary Expenses).
"Extraordinary Expenses" means all Fund Fees and Expenses that
are incurred or accrued by the Fund other than in its ordinary course of
business, including by way of example only and not intended as an exhaustive
list, (i) all costs of defending or prosecuting any claim or litigation to
which the Fund is a party, (ii) any amount in judgment or settlement or
indemnification expenses incurred by the Fund, and (iii) any other
non-recurring or non-operating expenses.
"FDIC" has the meaning provided in Section 6.3(h).
"Fee Letter" means the letter agreement dated May 29, 2003
between the Trust on behalf of the Fund, the Adviser and the Warranty
Provider.
"Fee Payment Date" has the meaning provided in Section 2.4.
"Financial Warranty" has the meaning provided in the recitals.
"Financial Warranty Amount Limit" has the meaning provided in
Section 2.1.
"Financial Warranty Fee" has the meaning provided in Section 2.4.
"Fixed-Income Portfolio" means the portion of the Fund's assets
invested in Eligible Fixed-Income Investments at any time during the
Protected Period.
"Floor" means the product of (i) the Adjusted Discount Factor and
(ii) the Protected Amount Per Share, in each case with respect to the
relevant Class of Shares.
"Floor Shortfall" with respect to each Class of Shares at any
time, means the Shares Outstanding for such Class of Shares multiplied by the
difference of the NAV Per Share minus the Floor, if a negative number in each
case, at the relevant time.
"Force Majeure Event" means any act of God (such as an
earthquake, flood, fire, storm, epidemic and any other natural physical
disaster), war (declared or undeclared), act of war, conditions due to war
(such an invasion, act of hostilities, embargo, blockade or other enemy
action, revolution or rebellion), civil commotion, riot, insurrection,
explosion, terrorist acts, seizure or act of sabotage or expropriation or
compulsory acquisition by any Government Authority of any Person.
"Fund" means the Xxxxxxxxxxx Principal Protected Main Street
Fund, a series of Xxxxxxxxxxx Principal Protected Trust.
"Fund/Adviser Parties" has the meaning provided in Section 5.2(c).
"Fund/Adviser Representatives" has the meaning provided in
Section 9.3(b).
"Fund Confidential Information" has the meaning provided in
Section 9.1.
"Fund Fees and Expenses" means all fees, costs, charges and
expenses incurred or accrued by the Fund, including, without limitation,
management fees, distribution fees, custodian fees, service fees, the
Financial Warranty Fee, Trustee Fees and Expenses, Income Taxes, interest,
stamp, transfer or other similar taxes, brokerage commissions, transaction
fees and other investment related costs and any other expense whether or not
incurred in the ordinary course of the Fund's business (including, without
limitation, the cost of defending or prosecuting any claim or litigation to
which the Fund is a party, together with any amount in judgment or settlement
or indemnification expenses incurred by the Fund and any other non-recurring
or non-operating expenses).
"Fund Portfolio" has the meaning provided in Section 3.1.
"Government Authority" means any nation or government, any state
or other political subdivision or agency thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions or
pertaining to government, including any self-regulatory organization.
"Highest Floor" has the meaning provided in Section 3.3(a).
"Implied Volatility" has the meaning provided in Schedule 5.
"Inception Date" means the third Business Day after the end of
the Offering Period.
"Income Taxes" means U.S. income or excise taxes that are
calculated on the net income or undistributed net income of the Fund.
"Indemnification Notice" has the meaning provided in
Section 5.3(a).
"Ineligible Investments" means a security or instrument that is
neither an Eligible Equity Investment nor an Eligible Fixed-Income Investment.
"Indemnified Party" has the meaning provided in Section 5.3(a).
"Indemnifying Party" has the meaning provided in Section 5.3(a).
"Irrevocable Instructions" has the meaning provided in Section
4.2(a).
"Investment Advisers Act" means the Investment Advisers Act of
1940, as amended.
"Investment Company Act" has the meaning provided in the recitals.
"Investment Management Agreement" means the Investment Advisory
Agreement, dated as of April 28, 2003, between the Trust on behalf of the
Fund and the Adviser.
"Issued Financial Warranty Amount" has the meaning provided in
Section 2.2.
"JPMVIEWS System" means the X.X. Xxxxxx VIEWS System or any
equivalent successor system acceptable to the Warranty Provider in its
reasonable discretion.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, charge, lien or security interest
(statutory or otherwise) of any kind or nature whatsoever.
"Litigation Event" means, with respect to the Adviser or the
Fund, as applicable, the submission of any claim or the commencement of any
proceedings by or against such party in any federal, state or local court in
any jurisdiction or before any governmental body or agency, or before any
arbitrator, or the explicit threat of any such proceedings, which, if
adversely determined, could have an Adverse Effect in respect of such party.
"Loans for Temporary or Emergency Purposes" means loans that are
outstanding for not more than 60 days (and are not extended or renewed) in an
aggregate amount not exceeding five percent of the value of the total assets
of the Fund at the time the loans are borrowed, in conformity with Section
18(g) of the Investment Company Act.
"Losses" has the meaning provided in Section 5.2(a).
"Lowest NAV Per Share" has the meaning provided in Section 3.3(a).
"Market Initiated Defeasance Event" means any time during the
Protected Period when absent the occurrence of a Trigger Event or Trigger
Initiated Defeasance Event, the Maximum Equity Component, as determined in
accordance with the formula set forth in Section 3.3(a), is less than 0.025.
"Market Value" means the value of (i) any security or (ii) in the
case of the Equity Portfolio or Fixed Income Portfolio, the assets allocated
to the Equity Portfolio or Fixed Income Portfolio, respectively, in each case
determined in accordance with the Fund's valuation procedures. In the case
of Class Y shares of the Underlying Fund held by the Fund, Market Value means
the last published net asset value per share of the Underlying Fund
multiplied by the number of Class Y shares of the Underlying Fund held by the
Fund.
"Maturity Date" means the date that is the seventh year
anniversary of the Inception Date, but if that date is not an Exchange
Business Day or is an Early Close Exchange Business Day, the Maturity Date
shall be the first Exchange Business Day thereafter that is not an Early
Close Exchange Business Day.
"Maximum Equity Component" has the meaning given in
Section 3.3(a).
"Moody's" means Xxxxx'x Investors Service, Inc.
"Multiple" has the meaning provided in Section 3.3(a).
"NAV Per Share" has the meaning provided in Section 2.6(d).
"Net Assets" means the Total NAV of the Fund minus its
liabilities at the time of determination.
"Objection Event" has the meaning provided in Section 4.1(d).
"Objection Notice" has the meaning provided in Section 4.1(d).
"Offering Period" means the initial period during which the
Shares will be offered for sale to investors as described in the Prospectus.
"Other Information" has the meaning provided in Section 9.1.
"Permitted Instructions" has the meaning provided in Section
7.1(s).
"Permitted Recipients" has the meaning provided in Section 9.2(a).
"Person" means a natural person, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
limited liability company, joint venture, Government Authority or other
entity of whatever nature.
"Portfolio Requirements" has the meaning provided in Section 3.1.
"Potential Trigger Event" means any action, inaction, omission,
event or circumstance that with the giving of notice or lapse of time or if
not cured or waived could give rise to a Trigger Event.
"Prospectus" means for any Class of Shares, the prospectus and
statement of additional information pursuant to which the shares of such
Class of Shares were offered for sale, as the same may be amended,
supplemented or modified and in effect from time to time.
"Protected Amount Per Share" has the meaning provided in
Section 2.6(e).
"Protected Period" means the period commencing on and including
the Inception Date to and including the Maturity Date.
"Registration Statement" has the meaning provided in
Section 2.3(b)(iii).
"Regulatory Change" means with respect to the Adviser or the
Fund, as the case may be, any change in any law, regulation or rule, or
interpretation thereof, by a Governmental Authority with respect to any
statute to which such party is subject (including, as applicable, the
Investment Company Act and the Investment Advisers Act) which has resulted in
or could be reasonably expected to result in an Adverse Effect in respect of
such party.
"Regulatory Event" means with respect to the Adviser or the Fund,
as the case may be, any governmental or regulatory action that limits,
suspends, or terminates the rights, privileges or operation of such party,
which has resulted in or could be reasonably expected to result in an Adverse
Effect in respect of such party.
"Requirements of Law" means, as to any Person, the charter and
by-laws or other organizational or governing document or documents of such
Person, and any law, treaty, rule, or regulation or determination of an
arbitrator or a court or other Government Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.
"Sector" has the meaning provided in Schedule 2.
"Securities Act" means the Securities Act of 1933, as amended.
"Service Agreement" means the Service Agreement, dated as of May
29, 2003, among the Custodian, the Adviser, the Trust on behalf of the Fund,
and the Warranty Provider, as such agreement may be amended from time to time.
"Shareholders" means the shareholders of the Fund.
"Shares" means shares of beneficial interest of any class of the
Fund.
"Shares Outstanding" means on any day of determination, the
number of issued and outstanding Shares with respect to a Class of Shares,
excluding any Shares issued in violation of Section 3.1 and Shares for which
redemption orders have been received and accepted by the Fund.
"Shortfall Amount" has the meaning provided in Section 2.6(f).
"S&P" means Standard & Poor's Ratings Services, a Division of The
XxXxxx-Xxxx Companies, Inc.
"SPX" means the S&P 500 Index or other successor index as
determined by the Calculation Agent.
"Subsidiary" means, with respect to any Person, any corporation,
business trust, association or other business entity of which securities
representing 50% or more of the combined voting power of the total capital
stock (or in the case of an association or other business entity which is not
a corporation, 50% or more of the equity interest) is at the time owned or
controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof.
"Termination Date" has the meaning provided in Section 10.1(a).
"Total NAV" has the meaning provided in Section 2.6(g).
"Trade Date" has the meaning provided in Section 3.4(c).
"Trading Information" has the meaning provided in Section 9.1.
"Transaction Documents" means this Agreement, the Financial
Warranty, the Investment Management Agreement, the Custodian Agreement, the
Service Agreement, the Irrevocable Instructions, the Expense Limitation
Agreement, the Escrow Agreement, the WP Information Letter, the Fee Letter,
the Declaration of Trust, the Prospectus and the Registration Statement
relating to each Class of Shares, as each may be amended, supplemented or
otherwise modified from time to time.
"Transition Date" means the second Business Day after the end of
the Offering Period.
"Trigger Event" means each event set forth in Section 4.1(a).
"Trigger Initiated Defeasance Event" has the meaning provided in
Section 4.1(c).
"Trust" has the meaning provided in the preamble.
"Trustee Fees and Expenses" means compensation and expenses of
the Trust's trustees who are not "interested persons" (as that term is
defined in the Investment Company Act) of the Adviser allocated to the Fund,
and the expenses of any counsel or other Persons or for services retained by
such trustees for and on behalf of the Fund.
"Underlying Fund" means the Xxxxxxxxxxx Main Street Fund
(Bloomberg Ticker "MIGYX"), a series of Xxxxxxxxxxx Main Street Funds, Inc.
"U.S. Government Securities" means non-callable general obligations of (i)
the United States Treasury backed by the full faith and credit of the United
States of America or (ii) of any one of the following agencies of the Federal
Government of the United States of America: Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Bank,
Resolution Funding Corporation, Financing Corporation and Tennessee Valley
Authority, excluding in the case of clause (ii) any such obligations that are
rated less than "AAA" by S&P or less than "Aaa" by Xxxxx'x; provided, that
in the case of both (i) and (ii), each security matures within three months of
the Maturity Date. U.S. Government Securities shall include Separate Trading of
Registered Interest and Principal of Securities (STRIPS).
"U.S. Zeroes" means U.S. Government Securities that are
non-interest bearing.
"Volatility" has the meaning provided in Schedule 4.
"Warranty Provider" has the meaning provided in the preamble.
"Warranty Provider Confidential Information" has the meaning
provided in Section 9.3(a).
"Warranty Provider Parties" has the meaning provided in
Section 5.2(a).
"Warranty Provider Representatives" has the meaning provided in
Section 9.2(b).
"WP Information Letter" has the meaning provided in Section
2.3(a)(vii).
Section 1.2 Generic Terms. All words used herein shall be construed to be of
such gender or number as the circumstances require. The words "herein,"
"hereby," "hereof" and "hereto," and words of similar import, refer to this
Agreement in its entirety and not to any particular paragraph, clause or
other subdivision, unless otherwise specified, and Section and Exhibit
references are to this Agreement unless otherwise specified.
ARTICLE II
AMOUNT AND TERMS OF THE FINANCIAL WARRANTY
------------------------------------------
Section 2.1 The Financial Warranty. The Warranty Provider agrees to issue
the Financial Warranty in the form of a letter of credit issued in accordance
with Section 70A-5-102(a) of the Utah Uniform Commercial Code, subject to the
conditions set forth herein, on the Inception Date, in an amount not to
exceed $500 million (the "Financial Warranty Amount Limit"), which amount may
be adjusted pursuant to Section 2.2 hereof.
Section 2.2 Procedure for Issuance and Reduction of Financial Warranty Amount
Limit. Not later than three Business Days prior to the last day of the
Offering Period, the Trust on behalf of the Fund shall deliver to the
Warranty Provider a notice specifying the expected Inception Date and the
projected amount of the Financial Warranty, which shall not exceed the
Financial Warranty Amount Limit. Prior to 11:00 a.m. (Eastern time) on the
Inception Date, the Trust on behalf of the Fund shall deliver to the Warranty
Provider a notice showing the following, in each case as of the close of
business on the Transition Date: (i) the NAV Per Share for each Class of
Shares and (ii) the Shares Outstanding of each Class of Shares. The notice
also shall certify that the conditions precedent in Sections 2.3(a)(i)
through and including (v) and 2.3(b) have been satisfied. Upon receipt of
such notice and the fulfillment of the applicable conditions set forth in
Section 2.3(b) hereof, the Warranty Provider will issue the Financial
Warranty to the Fund in an amount equal to the Aggregate Protected Amount as
of the close of business on the Transition Date up to a maximum amount equal
to the Financial Warranty Amount Limit (the "Issued Financial Warranty
Amount"). If, during the Offering Period, the Fund expects to receive
subscriptions for its Shares which could result in the Aggregate Protected
Amount as of the close of business on the Transition Date exceeding the
Financial Warranty Amount Limit, then the Fund shall consult with the
Warranty Provider. If the Warranty Provider agrees in writing to increase
the Financial Warranty Amount Limit in its sole discretion, this Agreement
will be amended accordingly. Notwithstanding anything to the contrary
contained herein, the Warranty Provider shall not incur any obligation or
liability hereunder or under any transaction contemplated by any other
Transaction Document during the Offering Period or prior to the issuance of
the Financial Warranty (unless all of the conditions under Section 2.3(b)
have been satisfied or waived). Effective as of the date of the issuance of
the Financial Warranty by the Warranty Provider in an amount equal to the
Issued Financial Warranty Amount, the Financial Warranty Amount Limit
available for the Protection Period shall be reduced to an amount equal to
the Issued Financial Warranty Amount.
Section 2.3 Conditions Precedent to Effectiveness.
(a) Article V shall be effective immediately upon the execution of this
Agreement. The effectiveness of all other provisions of this Agreement are
subject to the satisfaction of the conditions set forth below. Each
provision of this Section 2.3(a), except for (vii), (viii), (ix), (x) and
(xii) below, is deemed to be for the benefit of the Warranty Provider and may
be waived or postponed, in whole or in part, by the Warranty Provider at any
time in its sole discretion. Sections 2.3(a)(vii), (viii), (ix), (x) and
(xii) are deemed to be for the benefit of the Adviser and the Trust on behalf
of the Fund, and may be waived or postponed, in whole or in part, by the
Adviser and the Trust on behalf of the Fund at any time in their sole
discretion.
(i) Each Transaction Document (other than the Financial Warranty,
Prospectus and the Registration Statement) shall be duly authorized,
executed and delivered by each of the parties thereto and be in full
force and effect and executed counterparts of each such Transaction
Document shall have been delivered to the Warranty Provider.
(ii) The Service Agreement shall provide that the Custodian will agree to
(A) receive and comply with the Irrevocable Instructions delivered by
the Warranty Provider in accordance with Sections 4.1(c) and 4.2(a) and
(B) provide to the Warranty Provider electronically in a format
reasonably acceptable to the Warranty Provider the records and access
to the JPMVIEWS System required by Sections 3.4(c) and (d),
respectively. Any licensing or other agreement required by the
Custodian to be executed in connection with receiving access to the
JPMVIEWS System shall be acceptable to the Warranty Provider in its
reasonable discretion.
(iii) The Warranty Provider shall have received (A) a certificate of the
Secretary or Assistant Secretary of the Adviser, dated as of the
Effective Date, as to the incumbency and signature of the officers or
other employees of the Adviser authorized to sign this Agreement and
all other Transaction Documents to which the Adviser is a party, in
each case on behalf of the Adviser and certifying that attached thereto
are true, complete and correct copies of its constituent documents and
resolutions duly adopted by the Adviser authorizing the execution and
delivery of this Agreement and such other Transaction Documents, which
resolutions have not been modified, amended or rescinded, are in full
force and effect on the Effective Date and constitute the most recent
resolutions of the Board of Directors of the Adviser relating to the
transactions contemplated hereby and thereby, and (B) a good standing
certificate from the Secretary of State of the State of Colorado
regarding the Adviser.
(iv) The Warranty Provider shall have received (A) a certificate of the
Secretary or Assistant Secretary of the Trust, dated as of the
Effective Date, as to the incumbency and signature of the officers or
other employees of the Trust authorized to sign this Agreement and the
other Transaction Documents to which the Trust is a party, in each case
on behalf of the Fund, and certifying that the Board of Trustees of the
Trust had duly adopted resolutions authorizing the execution and
delivery on behalf of the Fund of this Agreement and such other
Transaction Documents to which the Trust on behalf of the Fund is a
party and that attached thereto are true, complete and correct copies
in draft form of such resolutions, which resolutions have not been
modified, amended or rescinded, are in full force and effect on the
Effective Date and constitute the most recent resolutions of the Board
of Trustees of the Trust relating to the transactions contemplated
hereby and thereby and (B) a copy of the Declaration of Trust as
amended and in effect on the Effective Date certified as of a recent
date by the Secretary or Assistant Secretary of the Trust.
(v) The Warranty Provider shall have received the opinion of Xxxxxx X.
Xxxx, the general counsel of the Adviser, in the form attached hereto
as Annex A-1.
(vi) All Transaction Documents and proceedings, documents, instruments and
other legal matters in connection with the transactions contemplated by
this Agreement shall be satisfactory in form and substance to the
Warranty Provider in its reasonable discretion, and the Warranty
Provider shall have received such other documents in respect of any
aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
(vii) The Warranty Provider shall have delivered to the Trust on behalf of
the Fund a letter in substantially the form attached hereto as Annex B
(the "WP Information Letter") setting forth the information regarding
the Warranty Provider that the Warranty Provider has provided for
inclusion or to be incorporated by reference into the Registration
Statement.
(viii) All Transaction Documents and proceedings, documents, instruments
and other legal matters in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and
substance to the Adviser and the Trust on behalf of the Fund in their
reasonable discretion, and the Adviser and the Trust on behalf of the
Fund shall have received such other documents in respect of any aspect
or consequence of the transactions contemplated hereby or thereby as
they shall reasonably request.
(ix) The Adviser and the Fund shall have received (A) a certificate of the
Secretary or Assistant Secretary of the Warranty Provider, dated as of
the Effective Date, as to the incumbency and signature of the officers
or employees of the Warranty Provider authorized to sign this Agreement
and all other Transaction Documents to which the Warranty Provider is a
party, in each case on behalf of the Warranty Provider and certifying
that the Warranty Provider has all requisite authority to enter into
the transactions contemplated hereby and thereby, and (B) a good
standing certificate or equivalent certification regarding the Warranty
Provider from the State of Utah Department of Financial Institutions
and/or the State of Utah Department of Commerce Division of
Corporations and Commercial Code.
(x) The Trust on behalf of the Fund and the Adviser shall have received
(A) the opinion of counsel of Xxxxxxxx Chance US, LLP, special New York
counsel to the Warranty Provider in substantially the form attached
hereto as Annex C-1; (B) the opinion of counsel of Xxxxxxxxx, Xxxxxxx &
XxXxxxxxxx, special Utah counsel to the Warranty Provider, in
substantially the form attached hereto as Annex C-2; and (C) the
opinion of counsel of Shearman & Sterling, counsel to the Warranty
Provider, in substantially the form attached hereto as Annex C-3.
(xi) Each of the representations and warranties made by the Adviser and the
Trust on behalf of the Fund in this Agreement shall be true and correct
in all respects on and as of such date, and the Warranty Provider shall
have received a certification from each of the Adviser and the Trust on
behalf of the Fund to such effect as to the representations and
warranties made by it.
(xii) Each of the representations and warranties made by the Warranty
Provider in this Agreement shall be true and correct in all respects on
and as of such date, and the Adviser and the Fund shall have received a
certification from the Warranty Provider to such effect as to the
representations and warranties made by it.
(b) The obligation of the Warranty Provider to issue the Financial Warranty
is subject to the satisfaction of the conditions set forth below on the
Inception Date. Each provision of this Section 2.3(b), except for Section
2.3(b)(xvii) below, is deemed to be for the benefit of the Warranty Provider
and may be waived or postponed, in whole or in part, by the Warranty Provider
at any time in its sole discretion. Section 2.3(b)(xvii) is deemed to be
for the benefit of the Adviser and the Trust on behalf of the Fund, and may
be waived or postponed, in whole or in part, by the Adviser and the Trust on
behalf of the Fund at any time in their sole discretion.
(i) Each of the representations and warranties made by the Adviser and the
Trust on behalf of the Fund in this Agreement shall be true and correct
in all respects on and as of such date, and the Warranty Provider shall
have received a certification from each of the Adviser and the Trust on
behalf of the Fund to such effect as to the representations and
warranties made by it.
(ii) The Warranty Provider shall have received (A) a certificate of the
Secretary or Assistant Secretary of the Trust, dated as of the
Inception Date, as to the incumbency and signature of the officers or
other employees of the Trust authorized to sign this Agreement and the
other Transaction Documents to which the Trust is a party, in each case
on behalf of the Fund, and certifying that attached thereto are true,
complete and correct copies of its resolutions duly adopted by the
Board of Trustees of the Trust authorizing the execution and delivery
on behalf of the Fund of this Agreement and such other Transaction
Documents, which resolutions are the same in all material respects as
the draft resolutions delivered to the Warranty Provider in the
Secretary's Certificate required by Section 2.3(a)(iv)(A), have not
been modified, amended or rescinded in any respect, are in full force
and effect on the Effective Date and constitute the most recent
resolutions of the Board of Trustees of the Trust relating to the
transactions contemplated hereby and thereby and (B) a copy of the
Declaration of Trust as amended and in effect on the Inception Date
certified as of a recent date by the Secretary or Assistant Secretary
of the Trust.
(iii) The Warranty Provider shall have received a certificate of the
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer of the
Trust, dated as of the Inception Date, certifying that (A) the Trust's
registration statement on Form N-1A with respect to each Class of
Shares (1) has been prepared by the Trust in material conformity with
the requirements of the Acts and the rules and regulations of the
Commission thereunder, and (2) has been filed with the Commission under
the Acts, (B) such registration statement (as amended or modified) has
been declared effective by the Commission, (C) true and complete copies
of such registration statement on Form N-1A as amended, supplemented or
modified and in effect on the Inception Date are attached thereto (such
registration statement, as it may be amended, supplemented or modified
from time to time, excluding any exhibits, the "Registration
Statement"), (D) the Commission has not issued any order preventing or
suspending the use of any Prospectus relating to any Class of Shares
and the Fund has not received any notice from the Commission pursuant
to Section 8(e) of the Investment Company Act with respect to the
Registration Statement, (E) the Registration Statement and the
Prospectus with respect to each Class of Shares of the Fund contain all
information and statements which are required by the Acts and the rules
and regulations thereunder, (F) the Registration Statement and the
Prospectus with respect to each Class of Shares do not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading (provided, that such certification shall not be required
to address any information regarding the Warranty Provider contained in
the WP Information Letter), and (G) the shares of each Class of Shares
conform in all respects to the description thereof contained in the
Registration Statement and Prospectus with respect to such Class of
Shares.
(iv) The Warranty Provider shall have received "bringdowns" of the
certificates and other matters referenced in Sections 2.3(a)(iii).
(v) The Warranty Provider shall have received the opinion of Xxxxxx X.
Xxxx, the general counsel of the Adviser, in the form attached hereto
as Annex A-2.
(vi) No Trigger Event shall have occurred.
(vii) No statute, rule, regulation or order shall have been enacted, entered
or deemed applicable by any Government Authority which would make the
transactions contemplated by any of the Transaction Documents illegal
or otherwise prevent the consummation thereof or which could have an
Adverse Effect on the transactions contemplated by this Agreement or on
a party's ability to enjoy the full benefits intended to be conferred
pursuant to this Agreement.
(viii) No suit, action or other proceeding, investigation, or injunction
or final judgment relating thereto, shall be pending or, to the
knowledge of the Adviser or the Trust, threatened before any court or
Governmental Authority in which it is sought to restrain or prohibit or
to obtain damages or other relief in connection with any of the
Transaction Documents.
(ix) There shall not have been an Adverse Effect with respect to the
Adviser, the Trust or the Fund since the date of this Agreement.
(x) The Aggregate Protected Amount as of the close of business on the
Transition Date shall not have exceeded the Financial Warranty Amount
Limit.
(xi) A copy of the Registration Statement declared effective by the
Commission and the Prospectus in the form delivered to Shareholders
with respect to each Class of Shares shall have been delivered to the
Warranty Provider.
(xii) The Warranty Provider shall have received a certificate of the
Secretary or Assistant Secretary of the Trust, dated as of the
Inception Date, certifying that attached thereto are true, complete and
correct copies of its resolutions duly adopted by the Board of Trustees
of the Trust authorizing the issuance of each Class of Shares in
respect of which the Warranty Provider is providing the Financial
Warranty, which resolutions have not been modified, amended or
rescinded, are in full force and effect on the Effective Date and
constitute the most recent resolutions of the Board of Trustees of the
Trust relating to the transactions contemplated hereby and thereby.
(xiii) The Warranty Provider shall have received a certificate of the
Secretary or Assistant Secretary of the Adviser, dated as of the
Inception Date, certifying that (a) the Fund Portfolio as of the
Inception Date is in compliance with the Portfolio Requirements, (b)
the conditions set forth in Sections 2.3(b)(ii), (iii), (iv), (v),
(vi), (viii), (ix), (x), (xi), (xii), (xiv), (xv) and (xvi) have been
satisfied, (c) the Underlying Fund's registration statement on Form
N-1A (1) has been prepared in material conformity with the
requirements of the Acts and the rules and regulations of the
Commission thereunder, (2) has been filed with the Commission under the
Acts, and (3) has been declared effective by the Commission, and (d)
the Commission has not issued any order preventing or suspending the
use of any prospectus relating to any class of shares of the Underlying
Fund and the Underlying Fund has not received any notice from the
Commission pursuant to Section 8(e) of the Investment Company Act with
respect to the registration statement on Form N-1A currently in effect
for the Underlying Fund
(xiv) The Adviser shall provide the Warranty Provider with the Irrevocable
Instructions duly executed by the Adviser.
(xv) This Agreement shall not have been terminated in accordance with
Article X.
(xvi) All fees payable to the Warranty Provider under the Fee Letter shall
have been paid to the Warranty Provider in full.
(xvii) The Trust on behalf of the Fund and the Adviser shall have
received the opinion of counsel of Xxxxxxxxx, Xxxxxxx & XxXxxxxxxx,
special Utah counsel to the Warranty Provider, in substantially the
form attached hereto as Annex C-4.
Section 2.4 Financial Warranty Fee. In consideration of the issuance by the
Warranty Provider of the Financial Warranty, the Fund shall pay to the
Warranty Provider a fee in an amount equal to 0.60% per annum of the average
daily Net Assets of the Fund during the Protected Period (the "Financial
Warranty Fee"), provided, that upon the occurrence of a Trigger Initiated
Defeasance Event or Market Initiated Defeasance Event, the Financial Warranty
Fee shall be reduced to 0.35% per annum of the average daily Net Assets of
the Fund during the Protected Period, which in each case shall accrue daily
and shall be payable monthly in arrears on the fifth Business Day of the
following calendar month (each a "Fee Payment Date"). The Financial Warranty
Fee payable on each Fee Payment Date will be calculated based on a 365 day
year for the actual number of days elapsed. The obligation to pay the
Financial Warranty Fee that has accrued hereunder up to the Termination Date
shall survive termination of this Agreement to the extent not paid in full
prior to such termination.
Section 2.5 Aggregate Shortfall Amount; Adjustment to Protected Amount Per
Share.
(a) Unless this Agreement and, if applicable, the Financial Warranty shall
have been terminated in accordance with Article X prior to such time, for ten
Business Days commencing on the second Business Day after the Maturity Date,
the Fund shall be entitled to draw upon the Financial Warranty in an amount
equal to the Aggregate Shortfall Amount, if any, as determined by the
Calculation Agent. The Calculation Agent shall determine such Aggregate
Shortfall Amount in a good faith commercially reasonable manner and provide
the Adviser or the Fund with the amount of such Aggregate Shortfall Amount
within two Business Days following the Maturity Date.
(b) The Protected Amount Per Share with respect to each Class of Shares
shall be reduced as follows:
(i) Dividends and distributions attributable to each Share of a Class of
Shares will reduce the Protected Amount Per Share of such Class of
Shares to an amount equal to the Protected Amount Per Share for such
Class of Shares on the immediately preceding Exchange Business Day
divided by the sum of one plus the quotient of (a) the amount of any
Distribution Per Share with respect to such Class of Shares effective
since the immediately preceding Exchange Business Day and (b) the NAV
for such Class of Shares at the close of business on the Exchange
Business Day that such Distribution Per Share was effective.
(ii) Excess Fees attributable to each Share of a Class of Shares shall
reduce the Protected Amount Per Share of such Class of Shares to an
amount equal to the Protected Amount Per Share for such Class of Shares
on the immediately preceding Exchange Business Day divided by the sum
of one plus the quotient of (a) the amount of any Excess Fees accrued
with respect to such Class of Shares as of the immediately preceding
Exchange Business Day and (b) the NAV for such Class of Shares at the
close of business on the Exchange Business Day that such Excess Fees
were accrued.
(iii) Shares of a Class of Shares that are issued during the Protected Period
in violation of Section 3.1 shall not be included in the Shares
Outstanding of such Class of Shares; and
(iv) In the event of changes in accounting practices for the Fund from those
used on the Transition Date or corporate actions or other events that
otherwise would result in an increase in the Protected Amount Per Share
with respect to a Class of Shares, upon prior notice to the Fund and
the Adviser, appropriate adjustments shall be made by the Warranty
Provider (or Calculation Agent), to the Protected Amount Per Share for
such Class of Shares or the way such Protected Amount Per Share is
calculated to the extent deemed necessary by the Warranty Provider (or
Calculation Agent), in its sole discretion, to preserve the economic
equivalent of this Agreement and the Financial Warranty by disregarding
an amount equal to such increase in the Protected Amount Per Share with
respect to such Class of Shares. The Fund agrees that no such changes,
actions or events may be made or taken by the Fund or Adviser without
the prior written consent of the Warranty Provider, which consent shall
not be unreasonably withheld if, in the sole discretion of the Warranty
Provider, any such change, action or event does not increase the
Warranty Provider's liabilities or risks or decrease the Warranty
Provider's economic bargain under any Transaction Document.
Section 2.6 Certain Defined Terms.
(a) "Aggregate Protected Amount" means, at any time, the sum of the
products, for each of the Class A Shares, Class B Shares, Class C Shares and
Class N Shares, of the Protected Amount Per Share of each Class of Shares and
the Shares Outstanding of such Class, in each case, at the relevant time.
(b) "Aggregate Shortfall Amount" means the lesser of (i) the sum of the
Shortfall Amount, if any, of each of the Class A Shares, Class B Shares,
Class C Shares and Class N Shares, and (ii) the Aggregate Protected Amount,
in each case as of the close of business on the Maturity Date.
(c) "Excess Fees" means (i) on or prior to the occurrence of a Trigger
Initiated Defeasance Event or a Market Initiated Defeasance Event, any
Extraordinary Expenses incurred or accrued by the Fund which would give rise,
directly or indirectly, to a Floor Shortfall or increase, directly or
indirectly, an existing Floor Shortfall, but for the adjustment required
under Section 2.5(b)(ii); and (ii) following the occurrence of a Trigger
Initiated Defeasance Event or a Market Initiated Defeasance Event, any Fund
Fees and Expenses incurred or accrued by the Fund that exceed 130 basis
points per annum (on an annualized basis) of the average daily Net Assets of
the Fund for the Class A Shares, 205 basis points per annum (on an annualized
basis) of the average daily Net Assets of the Fund for the Class B Shares,
205 basis points per annum (on an annualized basis) of the average daily Net
Assets of the Fund for the Class C Shares and 155 basis points per annum (on
an annualized basis) of the average daily Net Assets of the Fund for the
Class N Shares.
(d) "NAV Per Share" means with respect to each Class of Shares on a per
share basis at the time of determination, the last published net asset value
per Share for such Class of Shares at such time.
(e) "Protected Amount Per Share" at any time on any day and with respect to
each Class of Shares on a per share basis means the NAV Per Share of such
Class of Shares as of the close of business on the Transition Date as
adjusted pursuant to Section 2.5(b) hereof.
(f) "Shortfall Amount" with respect to each Class of Shares is deemed to be
the Shares Outstanding of such Class of Shares as of the close of business on
the Maturity Date multiplied by the difference, if positive, between the
Protected Amount Per Share as determined as of the close of business on the
Maturity Date for such Class in accordance with Section 2.6(e) and the NAV
Per Share as of the close of business on the Maturity Date for such Class.
(g) "Total NAV" means the sum of the products, for each of the Class A
Shares, Class B Shares, Class C Shares and Class N Shares at the time of
determination, of the NAV Per Share for each Class of Shares and the Shares
Outstanding of such Class of Shares at such time.
ARTICLE III
MANAGEMENT OF THE FUND
Section 3.1 General. During the Protected Period, the Fund shall not issue
additional Shares (including through an exchange of Shares or in connection
with any merger, reorganization, acquisition or other similar transaction),
except in connection with the reinvestment of dividends and distributions by
the Fund to its Shareholders in respect of the Shares, or the transfer of
Shares that does not result in an increase in the Shares that are issued and
outstanding. In each such case any such issuance of additional Shares shall
not result in an increase in the Aggregate Protected Amount immediately prior
to the issuance of such additional Shares. Except as set forth in
Section 4.2(a) hereof, commencing on the Inception Date, all of the Fund's
assets shall be allocated between the Equity Portfolio and Fixed-Income
Portfolio (collectively, the "Fund Portfolio") and such assets shall be
invested and reinvested in accordance with the provisions set forth in this
Article III (collectively, the "Portfolio Requirements"). The Adviser shall
fairly and objectively interpret the Portfolio Requirements, consistent with
the intent thereof. The Adviser shall consult with the Warranty Provider as
to any requirement contained herein which, in the Adviser's reasonable
opinion, is not clear, including without limitation the permissibility or
classification of any investment (including any types of investment that may
be used in the market during the term of this Agreement that were not widely
used as of the date hereof), the valuation methodology applicable thereto,
and the methodology used to calculate and report to the Warranty Provider
compliance with the Portfolio Requirements.
Section 3.2 Restrictions on Investments.
(a) During the Protected Period, the Fund Portfolio shall be invested only
in accordance with the following Portfolio Requirements, the compliance with
which shall be determined as of the close of business on each Exchange
Business Day, except with respect to subsection (i) below, the compliance
with which shall be determined as of any time on any Exchange Business Day:
(i) the Fund's assets may be invested only in Eligible Equity Investments
and Eligible Fixed-Income Investments;
(ii) the Market Value of the portion of the Fund's assets allocated to the
Equity Portfolio, calculated as a percentage of the Total NAV of the
Fund, shall not exceed the Maximum Equity Component as of the close of
business on any Exchange Business Day and shall be zero in the event of
a Trigger Initiated Defeasance Event or a Market Initiated Defeasance
Event; provided, however, that for purposes of determining whether the
Fund's assets allocated to the Equity Portfolio are in excess of the
Maximum Equity Component, (A) any portion of the Fund's assets
attributable to orders executed by the Fund to redeem shares of the
Underlying Fund and subsequent thereto to purchase Eligible
Fixed-Income Investments shall be deemed allocated to the Fixed Income
Portfolio; and (B) any Fund assets that are Ineligible Investments
shall be deemed to be allocated to the Equity Portfolio;
(iii) (A) any Cash and Cash Equivalents held by the Fund during the Protected
Period shall be considered allocated to the Fixed-Income Portfolio to
the extent that such investments constitute up to 3% of the Fund's
Total NAV on any Exchange Business Day; provided, that any Cash
received by the Fund as a result of (1) Eligible Fixed-Income
Investments maturing and (2) redemption of shares of the Underlying
Fund that is attributable to orders executed by the Fund to purchase
Eligible Fixed-Income Investments in each case also shall be considered
allocated to the Fixed-Income Portfolio and shall not be counted in
determining such 3% limitation and (B) any portion, if any, in excess
of such 3% limitation (excluding such Cash received by the Fund as a
result of Eligible Fixed-Income Investments maturing and redemption of
shares of the Underlying Fund that are attributable to orders executed
by the Fund to purchase Eligible Fixed-Income Investments) shall be
considered allocated to the Equity Portfolio;
(iv) the portion of the Fixed-Income Portfolio invested in U.S. Government
Securities, calculated as a percentage, shall be 100%; provided, that
the Warranty Provider may in its sole discretion at any time, and upon
notice to the Adviser, impose a different percentage or percentage
range limitation on the investment in U.S. Government Securities under
this Section 3.2(a)(iv);
(v) the portion of U.S. Government Securities included as part of the
Fixed-Income Portfolio that is invested in U.S. Zeroes, calculated as a
percentage, shall be at least 50%; provided, that the Warranty Provider
may in its sole discretion at any time, and upon notice to the Adviser,
impose a different percentage or percentage range limitation on the
investment in U.S. Zeroes under this Section 3.2(a)(v);
(vi) (A) prior to the occurrence of a Trigger Initiated Defeasance Event or
Market Initiated Defeasance Event, each Eligible Fixed-Income
Investment held by the Fund shall have a maturity falling within the
period equal to the Maturity Date plus or minus three months; and (B)
after the occurrence of a Trigger Initiated Defeasance Event or Market
Initiated Defeasance Event, each Eligible Fixed-Income Investment held
by the Fund shall mature no earlier than three-months prior to, and no
later than, the Maturity Date;
(vii) the Fund will not use leverage and, other than solely as a result of
investing in Class Y shares of the Underlying Fund or entering into
this Agreement, will not invest in instruments which have implicit,
embedded or synthetic leverage; provided, however, that after prior
consultation with the Warranty Provider, the Fund may use Loans for
Temporary or Emergency Purposes only to the extent necessary in
emergency situations to meet redemption requests (based on redemption
orders actually received by the Fund) after using all Cash held by the
Fund to meet such redemption requests, other than Cash necessary to pay
Fund Fees and Expenses then incurred by the Fund.
Section 3.3 Allocation and Reallocation of Fund's Assets.
(a) The "Maximum Equity Component" on any Exchange Business Day, as a
percentage of the Total NAV of the Fund, means the Equity Limit for all
Classes of Shares, determined in accordance with the formula set forth below:
Equity Limit
for all Classes
of Shares = ((Lowest NAV Per Share - Highest Floor)/Lowest NAV Per
Share)*Multiple (or zero in the event that the Equity Limit for
all Classes of Shares is less than 0.025; provided, that the
Equity Limit for all Classes of Shares shall not exceed 100% at
any time);
where,
Highest Floor = the product of (i) the Adjusted Discount Factor and
(ii) the highest Protected Amount Per Share of any of the four Classes of Shares;
Lowest NAV = the lowest NAV Per Share of any of the four Classes of Shares.
Per Share
where,
Adjusted
Discount
Factor = with respect to each Class of Shares, means the following
quotient as determined by the Calculation Agent in a commercially
reasonable manner and communicated to the Adviser prior to 9:00
a.m. (Eastern time) on each Exchange Business Day (and if not so
communicated, the Adjusted Discount Factor last communicated to
the Adviser by the Calculation Agent): (i) the present value
discount factor representing the theoretical price, expressed as
a percentage of par, of a theoretical zero coupon bond maturing
on the Maturity Date, the yield of which is consistent with the
Benchmark Yield Curve as of the date of determination and (ii) an
amount, based on the Fee Factor and the time (in years) remaining
to the Maturity Date, determined by the Calculation Agent as
follows:
Fee Factor = 0.0205
Multiple = the lesser of (1) the applicable number set forth in the sector
concentration table attached hereto as Schedule 2; (2) the
applicable number set forth in the single name concentration
table attached hereto as Schedule 3; (3) the applicable number
set forth in the Volatility table attached hereto as Schedule 4;
(4) the applicable number set forth in the Implied Volatility
table attached hereto as Schedule 5; (5) the applicable number
set forth in the liquidity table attached hereto as Schedule 6 or
(6) such other amount as may be determined by the Warranty
Provider in accordance with Sections 3.3(c), 3.4(d) and 4.1(c).
= the time, in years, remaining until the Maturity Date.
(b) The Warranty Provider (or the Calculation Agent, on behalf of the
Warranty Provider) shall prior to 9:00 a.m. on each Exchange Business Day
provide the Adviser with the Maximum Equity Component as calculated pursuant
to the formula set forth in Section 3.3(a) hereof based on, among other
things, the information contained in the latest Daily Report (and in the case
of single name concentration, liquidity and sector concentration, the latest
Daily Report containing such information) received by the Warranty Provider
from the Adviser pursuant to Section 3.4(a); provided, however, that if the
Warranty Provider or the Calculation Agent does not provide the Adviser with
a determination of the Maximum Equity Component pursuant to this
Section 3.3(b), the Adviser shall calculate the Maximum Equity Component
pursuant to the formula set forth in Section 3.3(a) hereof based on the
information contained in the latest Daily Report provided by the Adviser to
the Warranty Provider pursuant to Section 3.4(a). During each Exchange
Business Day on which the Maximum Equity Component is provided to the Adviser
by the Warranty Provider (or the Calculation Agent, on behalf of the Warranty
Provider) or calculated by the Adviser, as applicable, pursuant to this
Section 3.3(b), the Adviser must sell assets and reallocate a portion of the
Fund's assets from the Equity Portfolio to the Fixed-Income Portfolio as
necessary such that the allocation to the Equity Portfolio is less than or
equal to such Maximum Equity Component, as a percentage of the Total NAV of
the Fund as of the close of business on such Exchange Business Day.
(c) Notwithstanding any of the foregoing, if, as determined by the
Calculation Agent in its sole discretion at any time on any Exchange Business
Day, the SPX declines 7.5% or more from the level or value thereof as of the
close of business on the prior Exchange Business Day, then the Warranty
Provider (or the Calculation Agent) may immediately, upon notice to the
Adviser and in its sole discretion, adjust the Multiple. Such notification
shall be provided by the Warranty Provider or the Calculation Agent and shall
specify the adjusted Multiple and the Maximum Equity Component recalculated
using such adjusted Multiple as determined by the Calculation Agent in its
sole discretion and based on the other information contained in the latest
Daily Report received by the Warranty Provider and/or the Calculation Agent
from the Adviser pursuant to Section 3.4(a). The Adviser shall, upon receipt
of such notification and as soon as practicable, sell assets and reallocate
the Fund Portfolio to the extent necessary so that the Market Value of the
Equity Portfolio, as a percentage of the Total NAV of the Fund, is less than
or equal to the Maximum Equity Component provided by the Calculation Agent in
such notification, it being agreed that such rebalancing shall be completed
by the close of business on the Exchange Business Day on which such
notification is given if the notification is received by the Adviser at or
before 3:00 p.m. (Eastern time) or by the end of the next succeeding Exchange
Business Day if the Adviser receives such notification after 3:00 p.m.
(Eastern time) (provided, in each case that should the Adviser fail to
complete such rebalancing within the relevant time, it shall have taken
steps, including being actively engaged in the sale of portfolio securities,
to achieve such rebalancing within such time). Such rebalancing shall be
deemed to have occurred if the Fund executes orders to redeem shares of the
Underlying Fund and subsequent thereto executes orders to purchase Eligible
Fixed-Income Investments; provided, that after taking into account such
executed orders, the Market Value of the Equity Portfolio, as a percentage of
the Total NAV of the Fund, is less than or equal to the Maximum Equity
Component provided by the Calculation Agent in such notification. The
Multiple shall remain as so adjusted until there have been ten consecutive
Exchange Business Days without an intraday increase or decrease of 4% or more
of the SPX, after which the Multiple shall be adjusted as set forth in the
definition of the term "Multiple" in Section 3.3(a).
(d) If at any time during the Protected Period the portion of the Fund's
assets allocated to the Equity Portfolio as a percentage of the Total NAV of
the Fund exceeds the Maximum Equity Component, the Adviser shall cause the
Fund to not acquire any additional Eligible Equity Investments until after
the allocation to the Equity Portfolio has been reduced to below the Maximum
Equity Component.
(e) Notwithstanding any other provision hereof, if the Warranty Provider
determines in its reasonable discretion that the Fund is not complying with
any Portfolio Requirement, the Warranty Provider shall have the right to
notify the Adviser of such violation and direct the Adviser to promptly take
such action as the Warranty Provider shall determine in its reasonable
discretion to be necessary to cause the Fund to comply with the Portfolio
Requirements (it being understood that the Warranty Provider shall not be
entitled to direct the Adviser to sell any specific security unless such
security is an Ineligible Investment).
Section 3.4 Reports; Access to Information.
(a) (1) No later than 9:00 p.m. (Eastern time) on each Exchange Business
Day, the Adviser shall transmit to the Warranty Provider, the Calculation
Agent and the Persons listed on Schedule 7 hereto, in accordance with such
Schedule, the Daily Report which shall include the information described
below in each case as of the close of business on such Exchange Business
Day. If the Warranty Provider does not receive such Daily Report by such
time, it shall notify the Adviser of such failure to receive such Daily
Report at its earliest convenience; provided, that any failure to so notify
the Adviser shall not operate as a waiver of any of the Warranty Provider's
rights under this Agreement.
(i) the Market Value of the Equity Portfolio and the percentage that the
Market Value of the Equity Portfolio represents of Total NAV;
(ii) the number of Class Y shares of the Underlying Fund held by the Fund;
(iii) the percentage of the Total NAV of the Fund allocated to Cash and Cash
Equivalents;
(iv) the Market Value of the Fixed-Income Portfolio;
(v) a list of all of the Eligible Fixed-Income Investments held by the
Fund, including the Market Value of each such security and the
percentage each such security represents of the Total NAV of the Fund;
(vi) the Total NAV of the Fund and whether any portion of the Total NAV of
the Fund has been determined pursuant to fair value pricing,
identifying the particular portfolio security or securities that were
valued using fair value pricing and the procedures used to make such
determination;
(vii) the Shares Outstanding for each Class of Shares;
(viii) the NAV per Share for each Class of Shares;
(ix) the Protected Amount Per Share for each Class of Shares;
(x) if the Maximum Equity Component is calculated by the Adviser pursuant
to Section 3.3(b), the Maximum Equity Component so calculated including
the calculation thereof; and
(xi) a list of all Ineligible Investments held by the Fund, if any.
(2) On the second to last Exchange Business Day of each
week, the Daily Report shall also include as of the close of business on the
prior Exchange Business Day (i) the name, type and amount of any security or
instrument (including Ineligible Investments) held by the Fund as a result of
an in-kind redemption or distribution of securities to the Fund by the
Underlying Fund; (ii) the Equity Portfolio Sector Weighting pursuant to
Schedule 2; (iii) the calculation of the single name concentration pursuant
to Schedule 3; (iv) the Volatility pursuant to Schedule 4; (v) the Implied
Volatility pursuant to Schedule 5; and (vi) the calculation of the liquidity
of the Underlying Fund pursuant to Schedule 6; provided, however, that if at
any time after the delivery of such Daily Report the Adviser becomes aware of
a change in any item reported in such Daily Report that would cause a change
in the Multiple to be used the next time the Maximum Equity Component is
calculated, the Adviser shall immediately notify the Warranty Provider of
such change.
(b) If on any Exchange Business Day the Adviser shall fail to reallocate
the Fund Portfolio in accordance with Section 3.3(b), the Adviser shall
provide the Warranty Provider with written notice of such failure prior to
9:00 p.m. (Eastern time) on such Exchange Business Day and, if applicable,
written notice of the cure of such failure.
(c) The Adviser shall cause the Custodian to provide to the Warranty
Provider and the Calculation Agent electronically in a format acceptable to
the Warranty Provider in its reasonable discretion not later than 9:00 p.m.
(Eastern time) on each Exchange Business Day (i) a copy of the records it
maintains with respect to the assets of the Fund as of the close of business
on such Exchange Business Day and (ii) a list of all of the Fund's trades
during such Exchange Business Day (such Exchange Business Day, a "Trade
Date").
(d) The Adviser shall arrange for the Warranty Provider and the Calculation
Agent to be able to continuously view and monitor the Fund Portfolio by
causing the Custodian to give the Warranty Provider and the Calculation Agent
access to the JPMVIEWS System. If the Warranty Provider or the Calculation
Agent is denied such access at any time, other than during a Force Majeure
Event that directly effects such access, the Warranty Provider (or the
Calculation Agent) may, in its sole discretion, adjust the Multiple until
such time as such access is restored; provided, that the Multiple shall not
be reduced if the Adviser provides the Warranty Provider and the Calculation
Agent with an alternative source of the information provided by the JPMVIEWS
System that is acceptable to the Warranty Provider (or the Calculation Agent)
in its reasonable discretion; provided, further, that such alternative source
provides the Warranty Provider and the Calculation Agent with data that
includes substantially the same information that is available via the
JPMVIEWS System. The Warranty Provider shall notify the Adviser and the Fund
of the Warranty Provider's exercise of remedies pursuant to this
Section 3.4(d).
Section 3.5 Intent. The economic intent of the Portfolio Requirements is to
ensure that the Fund's Net Assets are at least equal to the Aggregate
Protected Amount on the Maturity Date. The Fund will not use leverage and,
other than solely as a result of investing in Class Y shares of the
Underlying Fund or entering into this Agreement, will not invest in
instruments which have implicit, embedded or synthetic leverage; provided,
however, that after prior consultation with the Warranty Provider, the Fund
may use Loans for Temporary or Emergency Purposes only to the extent
necessary in emergency situations to meet redemption requests (based on
redemption orders actually received by the Fund) after using all Cash held by
the Fund to meet such redemption requests, other than Cash necessary to pay
Fund Fees and Expenses then incurred by the Fund.
ARTICLE IV
TRIGGER EVENTS
Section 4.1 Trigger Events.
(a) The following events shall constitute Trigger Events hereunder;
provided, however, that in the event the New York Stock Exchange closes early
on any Exchange Business Day due to extraordinary or other circumstances (an
"Early Close Exchange Business Day") and a suspension of redemptions of the
Underlying Fund has occurred as permitted in accordance with the Investment
Company Act, the cure periods specified in this Section 4.1(a) will be
automatically extended until the next Exchange Business Day following the
Early Close Exchange Business Day.
(i) Any failure at any time to comply with the covenants set forth in the
first two sentences of Section 3.1;
(ii) Any failure at any time to comply with the provisions of Section
3.2(a)(i), unless such failure is cured by the Fund executing a sales
order with respect to such Ineligible Investment on the Exchange
Business Day following the day on which such failure occurs; provided,
that if such failure to comply with Section 3.2(a)(i) occurs because
the Fund has received Ineligible Investments due solely as a result of
an in-kind redemption from the Underlying Fund, a Trigger Event shall
have occurred unless the Fund executes sales orders with respect to
such Ineligible Investments during the next Exchange Business Day on
which the securities exchanges or markets on which such Ineligible
Investments are listed are open;
(iii) Any failure to comply with Section 3.2(a)(ii), Section 3.3 or Section
3.4(d), unless in the case of a violation of Section 3.2(a)(ii) as of
the close of business on any Exchange Business Day, the Market Value of
the portion of the Fund's assets allocated to the Equity Portfolio,
calculated as a percentage of Total NAV of the Fund, does not exceed
the Maximum Equity Component provided to the Adviser by the Warranty
Provider in accordance with Section 3.3(b) prior to 9:00 a.m. on the
immediately succeeding Exchange Business Day;
(iv) Any failure at any time to comply with the provisions of Section 3.4(a)
unless such failure is attributable solely to the conduct of the
Warranty Provider or a Force Majeure Event;
(v) The termination of, or failure to comply with, the Expense Limitation
Agreement or the amendment of such Agreement in each case without the
prior written consent of the Warranty Provider, which consent shall not
be unreasonably withheld if, in the sole discretion of the Warranty
Provider, any such termination, failure to comply or amendment does not
increase the Warranty Provider's liabilities or risks or decrease the
Warranty Provider's economic bargain under any Transaction Document;
(vi) Any violation of Article III that is not provided for in clause (i),
(ii), (iii) or (iv) above that could have an Adverse Effect, unless
cured by the end of the Exchange Business Day following the Exchange
Business Day on which the violation occurred;
(vii) Except as otherwise set forth herein, any failure by the Adviser or the
Fund to adjust the allocation of the Fund's assets between the Equity
Component and the Fixed Income Component in order to comply with any
adjustment to the Multiple made by the Warranty Provider (or
Calculation Agent) under this Agreement;
(viii) The Fund shall fail to pay the Financial Warranty Fee when due as
provided in Section 2.4 and such failure shall continue unremedied for
a period of two Business Days following notice of such failure by the
Warranty Provider to the Fund or the Adviser;
(ix) (A) The Adviser resigns; (B) the Fund elects to terminate the
Investment Management Agreement with the Adviser; (C) the Fund appoints
a successor adviser (including a subadviser) without the prior written
consent of the Warranty Provider in its sole discretion; or (D) the
Investment Management Agreement terminates in accordance with its terms
and in each case any successor adviser (including the Adviser) that
agrees to be bound by the terms of this Agreement is appointed by the
Board of Trustees of the Trust or the Shareholders, in each case
without the prior written consent of the Warranty Provider in its sole
discretion;
(x) The Adviser resigns, the Fund elects to terminate the Investment
Management Agreement with the Adviser or the Investment Management
Agreement terminates in accordance with its terms and either (A) the
Adviser is no longer obligated to manage the Fund pursuant to the terms
of the Investment Management Agreement and a successor investment
adviser acceptable to the Warranty Provider has not entered into an
investment management agreement with the Fund or (B) the termination of
the Investment Management Agreement is not yet effective but the Board
of Trustees of the Trust, on behalf of the Fund, has indicated its
intention to the Warranty Provider, or taken any further action, to
appoint a successor investment adviser notwithstanding the fact that
the Warranty Provider has advised the Board of Trustees that such
successor investment adviser would not be acceptable to the Warranty
Provider, in its sole discretion, then in either such case a Trigger
Event shall be deemed to have occurred notwithstanding the fact that a
successor investment adviser has not yet been appointed;
(xi) Subject to the foregoing provisions of this Section 4.1(a), the Adviser
does not otherwise manage in all material respects the assets of the
Fund in accordance with the investment objective, policies and
strategies set forth in the Registration Statement and/or in accordance
with the Investment Management Agreement;
(xii) Any representation or warranty made by the Adviser, the Trust or the
Trust on behalf of the Fund in any Transaction Document or in any
document or certification provided in connection with any Transaction
Document, shall have been incorrect or misleading when made or when
deemed made, except where such incorrect or misleading representation
or warranty would not have an Adverse Effect;
(xiii) The Adviser, the Trust, the Fund or the Custodian shall fail to
perform any obligation, or shall breach any covenant, under this
Agreement or the Transaction Documents that is not expressly provided
for in clauses (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix),
(x) or (xi) above, which failure could reasonably be expected to have
an Adverse Effect and such violation, if capable of being remedied,
shall continue unremedied for a period of three Business Days after the
Adviser becomes aware of the occurrence of such breach or failure;
provided, that the Adviser shall be deemed to be aware of such
violation if such violation has been in existence for three Exchange
Business Days; or
(xiv) The occurrence of any of the following: (A) a Regulatory Event or
Litigation Event (other than a Litigation Event arising out of a claim
under this Agreement between the Adviser and/or the Trust on behalf of
the Fund on one side and the Warranty Provider on the other side) or
(B) an Act of Insolvency with respect to the Adviser or the Fund.
(b) Notwithstanding any other provision hereof, in the event of a Potential
Trigger Event, the Adviser, upon becoming aware of such event, shall cause
the Fund to not acquire any additional Eligible Equity Investments until such
Potential Trigger Event is cured and shall upon becoming aware of such
Potential Trigger Event immediately notify the Warranty Provider of such
Potential Trigger Event, which notice shall include a description of the
manner in which the Adviser intends to cure such Potential Trigger Event
("Curative Steps"), the Adviser's assessment of the likelihood of success,
the time the Adviser expects to elapse before such Potential Trigger Event is
cured, and such other information as the Warranty Provider may reasonably
request. Upon sending such notice to the Warranty Provider, the Adviser
shall immediately take the Curative Steps set forth in such notice unless and
until such time as the Warranty Provider notifies the Adviser that it objects
to such Curative Steps, in which case the Adviser shall immediately cease the
implementation of such Curative Steps. The Warranty Provider shall only
object to such Curative Steps if in the Warranty Provider's reasonable
discretion, they are not consistent with this Agreement or are not likely to
be an effective cure of the Potential Trigger Event within the cure period
set forth in Section 4.1(a), if any.
(c) If a Trigger Event occurs, then, at the election of the Warranty
Provider in its sole discretion, the Warranty Provider shall have the right
at any time after such Trigger Event to either (i) (A) instruct the Adviser
to invest all of the Fund's assets in accordance with Section 4.2(a) for the
remainder of the Protection Period or (B) to deliver the Irrevocable
Instructions to the Custodian to invest all of the Fund's assets in
accordance with Section 4.2(a) for the remainder of the Protection Period (in
each case, a "Trigger Initiated Defeasance Event") or (ii) adjust the
Multiple. Any such adjustment to the Multiple shall be permanent, unless and
until further adjusted by the Warranty Provider in its sole discretion. For
the avoidance of doubt, the parties hereto agree that (i) the Warranty
Provider may at its election, in its sole discretion, exercise the remedy
provided in Section 4.1(c)(i)(B) after it has exercised the remedy provided
in Section 4.1(c)(i)(A) and (ii) if the Warranty Provider exercises its
rights to adjust the Multiple, the Warranty Provider shall not be precluded
subsequent thereto from exercising its rights under Sections 4.1(c)(i)(A)
and/or 4.1(c)(i)(B). The Warranty Provider shall notify the Adviser and the
Fund of the Warranty Provider's decision to exercise the remedies pursuant to
this Section 4.1(c) prior to such exercise. The Adviser shall invest all of
the Fund's assets in accordance with Section 4.2(a) within one Exchange
Business Day following an instruction by the Warranty Provider under Section
4.1(c)(i)(A).
(d) In the event of (i) an act or omission on the part of the Adviser with
respect to the Trust or the Fund which constitutes negligence, recklessness,
bad faith, willful misconduct or fraud, including by way of example only and
not intended as an exhaustive list, if (A) the Adviser causes the Fund to
purchase additional Eligible Equity Investments in violation of Section
3.3(d) and Section 4.1(b), (B) there is a violation of Section 3.2(a)(i) or
(ii), or (C) the Adviser causes the Fund to purchase investments other than
those permitted to be invested in hereunder after the occurrence of a Trigger
Initiated Defeasance Event or a Market Initiated Defeasance Event resulting
in a violation of Section 4.1(c) or Section 4.2(a) (such conduct referenced
in subsection (i) of this Section 4.1(d), the "Adviser Conduct"), and
(ii) the existence of a Floor Shortfall, the Adviser agrees to pay to the
Warranty Provider an amount equal to the amount of such Floor Shortfall
determined as provided in this Section 4.1(d) to have been directly or
indirectly attributable to such Adviser Conduct. The amount of such Floor
Shortfall directly or indirectly attributable to the Adviser Conduct shall be
equal to the sum of the differences with respect to each Class of Shares, if
negative, between (a) the actual NAV Per Share as of the date of
determination and (b) the hypothetical NAV Per Share of a hypothetical
portfolio comprised of the actual portfolio assets as of the date of
determination adjusted to eliminate the effect of the Adviser Conduct to the
extent necessary to eliminate any Floor Shortfall directly or indirectly
attributable to such Adviser Conduct. In making the determination of the
Floor Shortfall, the hypothetical portfolio will be based on the actual
portfolio of assets as of the date of determination adjusted to bring the
portfolio into compliance with all of the restrictions of Section 3.2 hereof,
by decreasing and increasing positions in asset classes, as the case may be,
on a pro rata basis. In addition, if all of the Fund's assets are required
to be invested in a Defeasance Portfolio pursuant to Sections 4.1(c)(i) and
4.2 and the Fund's assets are not so invested on the Exchange Business Day
immediately following the Defeasance Date and for the remainder of the
Protected Period, then if (and only if) a Floor Shortfall or an additional
Floor Shortfall (collectively "Additional Floor Shortfall") that arises due
to the Fund's assets not being so invested within such period and/or for the
remainder of the Protected Period, then the Adviser agrees to pay to the
Warranty Provider such Additional Floor Shortfall (if any). The Fund's
assets shall be deemed to be invested in the Defeasance Portfolio if the Fund
has executed orders to sell all Eligible Equity Investments and Ineligible
Investments, if any, and subsequent thereto has executed orders to invest all
of the proceeds thereof in the Defeasance Portfolio. The Warranty Provider
shall notify (the "Determination Notice") the Adviser in writing of its
determination that Adviser Conduct has occurred and any Floor Shortfall
directly or indirectly attributable to such Adviser Conduct and any
Additional Floor Shortfall. If the Adviser disagrees with the Warranty
Provider's determination that there has been Adviser Conduct and/or the
amount of the Floor Shortfall directly or indirectly attributable to such
Adviser Conduct and/or the amount of the Additional Floor Shortfall contained
in the Determination Notice, then (i) the Adviser shall notify (the
"Objection Notice") the Warranty Provider in writing of such disagreement
within five Business Days after the delivery by the Warranty Provider of the
Determination Notice and (ii) unless the Adviser and the Warranty Provider
otherwise agree, the existence, if any, of Adviser Conduct and the amount, if
any, of the Floor Shortfall directly or indirectly attributable to such
Adviser Conduct and the amount of any Additional Floor Shortfall shall be
determined by arbitration in accordance with the procedures set forth in
Section 4.1(e), (an "Objection Event"). If the Adviser does not provide the
Warranty Provider with the Objection Notice within such five Business Day
period, then the Adviser shall be deemed to have agreed to the Warranty
Provider's determination of the existence of Adviser Conduct and of the
amount of the Floor Shortfall directly or indirectly attributable to the
Adviser Conduct and the amount of the Additional Floor Shortfall, in each
case as contained in the Determination Notice. Any amount payable by the
Adviser under this Section 4.1(d) with respect to Adviser Conduct (i) shall
be paid to the Warranty Provider within five Business Days of the delivery of
the Determination Notice or if such amount is determined pursuant to an
arbitration proceeding, within five Business Days after such final
arbitration decision; provided, that should the parties otherwise agree on
any amount payable by the Adviser under this Section 4.1(d), such amount
shall be paid to the Warranty Provider within five Business Days of such
agreement; and (ii) shall be reduced on a dollar for dollar basis by any
amounts paid by the Adviser to the Fund (subject to applicable law) as a
result of the same Adviser Conduct to the extent that the Total NAV is
increased and the Floor Shortfall or Additional Floor Shortfall, as
applicable, is in fact decreased by such amount. In the event that the
Adviser fails to pay to the Warranty Provider any amounts payable under this
Section 4.1(d) or fails to deposit into the Escrow Account any amounts
required to be so deposited in accordance with Section 4.1(f) hereof, in each
case within the time period specified herein, the Shortfall Amount shall be
decreased (i) in the case of a Floor Shortfall, on a pro rata basis by the
percentage of the Floor Shortfall directly or indirectly attributable to the
Adviser Conduct, and (ii) in the case of an Additional Floor Shortfall, by
the amount of such Additional Floor Shortfall on a dollar for dollar basis.
The payment of the Floor Shortfall amount by the Adviser to the Warranty
Provider pursuant to this Section 4.1(d) is in addition to, and not in lieu
of, any obligations of the Adviser or Fund to indemnify the Warranty Provider
under this Agreement.
(e) In the case of an Objection Event, within three Business Days after the
delivery by the Adviser of the Objection Notice, the Adviser shall file with
the American Arbitration Association a submission to arbitration (an
"Arbitration Submission Notice") pursuant to the Commercial Dispute
Resolution Procedures of the American Arbitration Association and the rules
thereunder and shall pay any filing fees. The Arbitration Submission Notice
shall state that the parties have agreed to the use of the American
Arbitration Association's procedures on expedited arbitration and desire that
such expedited procedures be applied to their dispute regardless of the
amount of the claim at issue. A copy of the Arbitration Submission Notice
shall be delivered to the Warranty Provider concurrently with the Adviser's
delivery of such Arbitration Submission Notice to the American Arbitration
Association. An arbitrator shall be selected in accordance with the American
Arbitration Association's procedures on expedited arbitration. No Person
affiliated with any party hereto shall be eligible to be an arbitrator. The
arbitrator shall determine (i) whether the Adviser Conduct that is the
subject of the applicable Objection Notice occurred, (ii) the amount of the
Floor Shortfall directly or indirectly attributable to such Adviser Conduct
as of such date of determination, and/or (iii) the amount of any Additional
Floor Shortfall as of such date of determination. The Adviser and the
Warranty Provider hereby acknowledge and agree that the arbitration shall be
held in New York, New York and shall be conducted in accordance with the
Commercial Dispute Resolution Procedures of the American Arbitration
Association including the procedures for expedited arbitration, as each are
in effect as of the date of this Agreement. Each determination to be made by
the arbitrator pursuant to this Section 4.1(e), shall be final, binding and
subject to judicial enforcement and shall be the exclusive remedy of the
Warranty Provider and the Adviser with regard to the specific determinations
made by such arbitrator; provided, however, that the Warranty Provider shall
neither be limited from seeking indemnification under Section 5.2(a) hereof
nor be limited from exercising its full rights to pursue any and all other
claims that were not determined by the arbitrator in any manner or forum
arising out of any Adviser Conduct, including with respect to any other
Losses incurred by the Warranty Provider and/or any other Warranty Provider
Party in connection with or arising out of such Adviser Conduct. The amount
of any Floor Shortfall directly or indirectly attributable to Adviser Conduct
and/or Additional Floor Shortfall determined by the arbitrator shall be as of
the date of such determination. Fees and expenses of the arbitration
(including fees and expenses of the arbitrator) shall be borne by the party
against which the arbitration is decided.
(f) In the case of an Objection Event, an amount equal to any Floor
Shortfall and/or Additional Floor Shortfall that is the subject under such
Objection Event as set forth in the Determination Notice delivered to the
Adviser by the Warranty Provider in accordance with Section 4.1(d) shall be
deposited into an escrow account (the total amount held in such account at
any time being the "Escrow Account") pursuant to the Escrow Agreement by the
Adviser within five Business Days of its delivery to the Warranty Provider of
the Objection Notice relating to such Objection Event pending a final
determination of the amount of such Floor Shortfall and/or Additional Floor
Shortfall in accordance with Section 4.1(e). The Escrow Account shall be
held in escrow by X.X. Xxxxxx Xxxxx Bank, as escrow agent, pursuant to the
terms of the Escrow Agreement substantially in the form attached hereto as
Annex D.
Section 4.2 Defeasance Portfolio.
(a) The Warranty Provider may exercise the remedies provided in Section
4.1(c) at any time after the occurrence of a Trigger Event or Market
Initiated Defeasance Event. If the Warranty Provider exercises the remedy
provided by Section 4.1(c)(i)(A), the Warranty Provider shall have the right
to instruct the Adviser to immediately allocate all of the assets of the Fund
to the Defeasance Portfolio in accordance with subsection (i) of the
definition of Defeasance Portfolio under Section 1.1. If the Warranty
Provider exercises the remedy provided by Section 4.1(c)(i)(B), the Warranty
Provider shall have the right to deliver to the Custodian the Irrevocable
Instructions instructing the Custodian to invest all of the assets of the
Fund in a Defeasance Portfolio in accordance with subsection (ii) of the
definition of Defeasance Portfolio under Section 1.1 and such Irrevocable
Instructions. For the avoidance of doubt, the parties hereby agree that (i)
the Warranty Provider may at its election, in its sole discretion, exercise
the remedy provided in Section 4.1(c)(i)(B) after it has exercised the remedy
provided in Section 4.1(c)(i)(A) and (ii) if the Warranty Provider exercises
its rights to adjust the Multiple under Section 4.1(c)(ii), the Warranty
Provider shall not be precluded subsequent thereto from exercising its rights
under Sections 4.1(c)(i)(A) and/or 4.1(c)(i)(B). The Financial Warranty Fee
shall remain due and payable in accordance with Section 2.4 notwithstanding
the occurrence of a Trigger Event, Trigger Initiated Defeasance Event or a
Market Initiated Defeasance Event. The Adviser shall provide the Warranty
Provider as a condition precedent to the issuance of the Financial Warranty
with irrevocable instructions ("Irrevocable Instructions"), in substantially
the form of Annex A to the Service Agreement, executed by the Adviser. The
Irrevocable Instructions shall also constitute a limitation of the further
authority of the Adviser (including any subadviser of the Fund) to manage the
Fund's assets other than in accordance with the Irrevocable Instructions
after the occurrence of a Trigger Initiated Defeasance Event or Market
Initiated Defeasance Event, as applicable, and the delivery of the
Irrevocable Instructions to the Custodian by the Warranty Provider. The
Warranty Provider shall only deliver the Irrevocable Instructions to the
Custodian following a Trigger Event or Trigger Initiated Defeasance Event, as
applicable, or a Market Initiated Defeasance Event and shall give prior
notice thereof to the Adviser.
(b) If a Trigger Initiated Defeasance Event or a Market Initiated
Defeasance Event shall have occurred, the Adviser shall reduce its management
fee so as to immediately cause maximum Fund Fees and Expenses (excluding
Extraordinary Expenses) to be reduced to 130 basis points per annum of the
average daily Net Assets of the Fund for the Class A Shares, 205 basis points
per annum of the average daily Net Assets of the Fund for the Class B Shares,
205 basis points per annum of the average daily Net Assets of the Fund for
the Class C Shares and 155 basis points per annum of the average daily Net
Assets of the Fund for the Class N Shares.
ARTICLE V
INDEMNIFICATION and contribution
Section 5.1 Survival. Except as otherwise specifically provided in this
Agreement, all representations, warranties, covenants and other agreements,
if any, contained in the Transaction Documents including, without limitation,
the indemnification obligations in Section 5.2 and the payment obligations in
the Fee Letter shall survive the execution and delivery of this Agreement and
the Financial Warranty, and the Termination Date.
Section 5.2 Indemnification.
(a) The Adviser agrees to indemnify and hold harmless the Warranty
Provider, its Affiliates, and their respective employees, officers, directors
and agents (collectively, the "Warranty Provider Parties") from and against
any and all losses, claims, damages, liabilities, judgments, costs (including
reasonable attorneys' fees), expenses (including expenses of investigation
and enforcement) and disbursements (collectively, "Losses") incurred or
suffered by any of them, directly or indirectly, in connection with or
arising out of (i) any breach or alleged breach of any warranty, or the
inaccuracy or alleged inaccuracy of any representation, as the case may be,
made by either of the Adviser or the Fund under this Agreement or any of the
other Transaction Documents to which it is a party, (ii) the failure or
threatened failure of either of the Adviser (including any subadviser of the
Fund) or the Fund to fulfill any of their respective agreements or covenants
contained in this Agreement or any of the other Transaction Documents to
which it is a party, including without limitation the failure or threatened
failure to pay to the Warranty Provider any amounts pursuant to
Section 4.1(d), but excluding any Portfolio Requirement as to which a cure
period is provided in Section 4.1(a) if such Portfolio Requirement is
satisfied within such cure period, (iii) the enforcement or preservation of
any of the Warranty Provider's rights under this Agreement and the other
Transaction Documents, (iv) the overpayment (including without limitation a
situation where no payment was required by the Warranty Provider) of the
Aggregate Shortfall Amount, including by reason of mistake, negligence, fraud
or error in calculation; provided, however, that the Warranty Provider
Parties shall not be entitled to indemnification for any such overpayment to
the extent that (A) such overpayment was a result of the fault of the
Warranty Provider or the Calculation Agent and (B) due to either Shareholder
redemptions or market fluctuations, such overpayment (or any portion thereof)
allocable to such Shareholder redemptions or market fluctuations on a pro
rata basis, no longer constitute assets of the Fund, (v) the improper
calculation of the Total NAV of the Fund or each Class of Shares of the Fund
by reason of mistake, negligence, fraud or error in calculation thereof and
(vi) any claim, suit or demand involving (A) the transactions contemplated by
the Transaction Documents, (B) any investigation or defense of, or
participation in, any legal proceeding relating to the execution, delivery,
enforcement, performance or administration of the Transaction Documents, (C)
the liquidation or termination of the Fund after the Inception Date and prior
to the Maturity Date, or (D) an allegation or other claim that the
Registration Statement or any Prospectus included any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading other than with
respect to any information relating solely to the Warranty Provider included
in the Registration Statement, which has been provided by the Warranty
Provider in writing for inclusion therein under the WP Information Letter;
provided, however, that the Adviser shall not be liable for any Losses to the
extent that such Losses result, directly or indirectly, from any action or
omission on the part of any of the Warranty Provider Parties which
constitutes negligence, recklessness, bad faith, willful misconduct or fraud
by such Warranty Provider Party. The Adviser agrees to promptly reimburse
any of the Warranty Provider Parties for all Losses in respect of which
indemnification may be sought by such Warranty Provider Party hereunder as
they are incurred or suffered by such Warranty Provider Party. For the
avoidance of doubt, and not by way of limitation, the parties hereby
acknowledge and agree that the indemnification obligations of the Adviser for
any alleged breach of any warranty, any alleged inaccuracy of any
representation and any threatened failure to fulfill any agreement or
covenant under subsections (i) and (ii) above shall not apply in the case of
disputes between the Adviser and one or more Warranty Provider Parties unless
such dispute has been determined substantially in favor of the Warranty
Provider Party or Parties by a court of competent jurisdiction.
(b) The Fund agrees to indemnify and hold harmless the Warranty Provider
Parties from and against any and all Losses incurred or suffered by any of
them, directly or indirectly, in connection with or arising out of (i) any
breach or alleged breach of any warranty, or the inaccuracy or alleged
inaccuracy of any representation, as the case may be, made by the Trust on
behalf of the Fund under this Agreement or any of the other Transaction
Documents to which it is a party, (ii) the failure or threatened failure of
the Fund to fulfill any agreement or covenant of the Fund (or the Trust on
behalf of the Fund) contained in this Agreement or any of the other
Transaction Documents to which it is a party, but excluding any Portfolio
Requirement as to which a cure period is provided in Section 4.1(a) if such
Portfolio Requirement is satisfied within such cure period, (iii) the
enforcement or preservation of any of the Warranty Provider's rights under
this Agreement and the other Transaction Documents, (iv) the overpayment
(including any situation where no payment was required by the Warranty
Provider) of the Aggregate Shortfall Amount, including by reason of mistake,
negligence, fraud or error in calculation; provided, however, that the
Warranty Provider Parties shall not be entitled to indemnification for any
such overpayment to the extent that (A) such overpayment was a result of the
fault of the Warranty Provider or the Calculation Agent or (B) due to either
Shareholder redemptions or market fluctuations, such overpayment (or any
portion thereof) allocable to such Shareholder redemptions or market
fluctuations on a pro rata basis no longer constitute assets of the Fund,
(v) the improper calculation of the Total NAV of the Fund or each Class of
Shares of the Fund by reason of mistake, negligence, fraud or error in
calculation thereof and (vi) any claim, suit or demand involving (A) the
transactions contemplated by the Transaction Documents, (B) any investigation
or defense of, or participation in, any legal proceeding relating to the
execution, delivery, enforcement, performance or administration of the
Transaction Documents, (C) the liquidation or termination of the Fund after
the Inception Date and prior to the Maturity Date, or (D) an allegation or
other claim that the Registration Statement or any Prospectus included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading other
than with respect to any information relating solely to the Warranty Provider
included in the Registration Statement, which has been provided by the
Warranty Provider in writing for inclusion therein under the WP Information
Letter; provided, however, that the Fund shall not be liable for any Losses
to the extent that such Losses result, directly or indirectly, from any
action or omission on the part of any of the Warranty Provider Parties which
constitutes negligence, recklessness, bad faith, willful misconduct or fraud
by such Warranty Provider Party. The Fund agrees to promptly reimburse any
of the Warranty Provider Parties for all Losses in respect of which
indemnification may be sought by such Warranty Provider Party hereunder as
they are incurred or suffered by such Warranty Provider Party. For the
avoidance of doubt, and not by way of limitation, the parties hereby
acknowledge and agree that the indemnification obligations of the Fund for
any alleged breach of any warranty, any alleged inaccuracy of any
representation and any threatened failure to fulfill an agreement or covenant
under subsections (i) and (ii) above shall not apply in the case of disputes
between the Fund and one or more Warranty Provider Parties unless such
dispute has been determined substantially in favor of the Warranty Provider
Party or Parties by a court of competent jurisdiction.
(c) The Warranty Provider agrees to indemnify and hold harmless the Adviser
and the Fund, their Affiliates, and their respective employees, officers,
directors, trustees and agents (collectively, the "Fund/Adviser Parties")
from and against any and all Losses incurred or suffered by any of them,
directly or indirectly, in connection with or arising out of (i) any breach
or alleged breach of any warranty, or the inaccuracy or alleged inaccuracy of
any representation, as the case may be, made by the Warranty Provider under
this Agreement or any of the other Transaction Documents to which it is a
party, (ii) the failure or threatened failure of the Warranty Provider to
fulfill any agreement or covenant of the Warranty Provider contained in this
Agreement or any other Transaction Documents to which it is a party, or
(iii) the Warranty Provider's failure to pay the Aggregate Shortfall Amount,
if any, required to be paid by it under the Financial Warranty in accordance
with the terms of this Agreement including by reason of the Calculation Agent
failing to provide to the Adviser or the Fund a certificate certifying the
calculation of the Aggregate Shortfall Amount within two Business Days
following the Maturity Date or if there is a final determination by a court
of competent jurisdiction that the Aggregate Shortfall Amount determined by
the Calculation Agent and included in such certificate is less than the
actual Aggregate Shortfall Amount as determined by such court; provided,
however, that (A) the Warranty Provider shall not be liable for any Losses to
the extent that such Losses result, directly or indirectly, from any action
or omission on the part of any of the Fund/Adviser Parties which constitutes
negligence, recklessness, bad faith, willful misconduct or fraud by such
Fund/Adviser Party and (B) the Warranty Provider's liability under this
Section 5.2(c) shall be subject to the limitations in Section 8.4. The
Warranty Provider agrees to promptly reimburse any of the Fund/Adviser
Parties for all Losses in respect of which indemnification may be sought by
such Fund/Adviser Party hereunder as they are incurred or suffered by such
Fund/Adviser Party. For the avoidance of doubt, and not by way of
limitation, the parties hereby acknowledge and agree that the indemnification
obligations of the Warranty Provider for any alleged breach of any warranty,
any alleged inaccuracy of any representation and any threatened failure to
fulfill an agreement or covenant under subsections (i) and (ii) above shall
not apply in the case of disputes between the Warranty Provider and one or
more Fund/Adviser Parties unless such dispute has been determined
substantially in favor of the Fund/Adviser Party or Parties by a court of
competent jurisdiction.
Section 5.3 Indemnification Procedure.
(a) The party or parties being indemnified are referred to herein as the
"Indemnified Party" and the indemnifying party is referred to herein as the
"Indemnifying Party." In the event that any party shall incur or suffer any
Losses in respect of which indemnification may be sought by such party
hereunder, the Indemnified Party shall assert a claim for indemnification by
written notice (the "Indemnification Notice") to the Indemnifying Party
stating the nature and basis of such claim. In the case of Losses arising by
reason of any third party claim, the Indemnification Notice shall be given
within thirty (30) days of the filing or other written assertion of any such
claim against the Indemnified Party, but the failure of the Indemnified Party
to give the Indemnification Notice within such time period shall not relieve
the Indemnifying Party of any liability that the Indemnifying Party may have
to the Indemnified Party, except to the extent that the Indemnifying Party
demonstrates that the defense of such action has been prejudiced by the
Indemnified Party's failure to give such Indemnification Notice.
(b) In the case of third party claims for which indemnification is sought,
the Indemnifying Party shall have the option (i) to conduct any proceedings
or negotiations in connection therewith, (ii) to take all other steps to
settle or defend any such claim (provided that the Indemnifying Party shall
not settle any such claim without the consent of the Indemnified Party (which
consent shall not be unreasonably withheld or delayed)), and (iii) to employ
counsel to contest any such claim or liability in the name of the Indemnified
Party or otherwise. In any event, the Indemnified Party shall be entitled to
participate at its own expense and by its own counsel in any proceedings
relating to any third party claim. The Indemnifying Party shall, within
twenty (20) days of receipt of the Indemnification Notice, notify the
Indemnified Party of its intention to assume the defense of such claim. If
(i) the Indemnifying Party shall decline to assume the defense of any such
claim, (ii) the Indemnifying Party shall fail to notify the Indemnified Party
within twenty (20) days after receipt of the Indemnification Notice of the
Indemnifying Party's election to defend such claim or (iii) the Indemnified
Party shall have reasonably concluded that there may be defenses available to
it which are different from or in addition to those available to the
Indemnifying Party or a conflict exists between the Indemnifying Party and
the Indemnified Party (in which case the Indemnifying Party shall not have
the right to direct the defense of such action on behalf of the Indemnified
Party), the Indemnified Party shall defend against such claim and the
Indemnified Party may settle such claim without the consent of the
Indemnifying Party, and the Indemnifying Party may not challenge the
reasonableness of any such settlement. The expenses of all proceedings,
contests or lawsuits in respect of such claims shall be borne and paid by the
Indemnifying Party (up to a limit of one counsel in the case of attorneys'
fees) and the Indemnifying Party shall pay the Indemnified Party, in
immediately available funds, as such Losses are incurred upon receipt of
supporting documentation thereof. Regardless of which party shall assume the
defense of the claim, the parties agree to cooperate fully with one another
in connection therewith. In the event that any Losses incurred by the
Indemnified Party do not involve payment by the Indemnified Party of a third
party claim, then, the Indemnifying Party shall pay, within ten (10) days
after agreement on the amount of Losses or the occurrence of a determination
of such amount payable, to the Indemnified Party, in immediately available
funds, the amount of such Losses. Anything in this Section 5.3 to the
contrary notwithstanding, the Indemnifying Party shall not, without the
Indemnified Party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or plaintiff to the
Indemnified Party, a release from all liability in respect of such claim.
(c) The remedies provided for in this Article V shall not be exclusive of
any other rights or remedies available to one party against the other, either
at law or in equity.
Section 5.4 Contribution.
(a) To provide for just and equitable contribution, if the indemnification
by an Indemnifying Party provided for in Article V of this Agreement is
determined to be unavailable or insufficient to hold harmless any Indemnified
Party in respect of any Losses, such Indemnifying Party shall contribute to
the amount paid or payable by such Indemnified Party as a result of such
Losses (A) in such proportion as shall be appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and the Indemnified Party on
the other with respect to the matter that resulted in such Losses or (B) if
the allocation provided by clause (A) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
fault referred to in clause (A) above but also the relative benefits received
by each of such parties from the offering of the Shares and entering and
performance of this Agreement, as well as any other relevant equitable
considerations. The relative fault of each Indemnifying Party on the one hand
and each Indemnified Party on the other shall be determined by reference to,
among other things, whether (i) any negligence, recklessness, bad faith,
willful misconduct or fraud relates to action or inaction within the control
of the Indemnifying Party or the Indemnified Party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such negligence, recklessness, bad faith, willful misconduct or fraud
and (ii) any untrue or alleged untrue statement of a material fact or the
omission or alleged omission of a material fact relates to information
supplied by or action within the control of, the Indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 5.4 were to be determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to herein.
(b) Each Indemnifying Party agrees to promptly reimburse an Indemnified
Party for all Losses in respect of which contribution may be sought hereunder
as they are incurred or suffered by such Indemnified Party.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties of the Adviser. To induce the
Warranty Provider to enter into this Agreement and to issue the Financial
Warranty, the Adviser hereby represents and warrants to the Warranty Provider
as follows, on and as of the effective date hereof:
(a) The Adviser (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado, (ii) has the
power and authority, and the legal right, to own its assets and to
transact the business in which it is engaged, (iii) is duly qualified
to do business and is in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification, except where the failure to
so qualify could not reasonably be expected to have an Adverse Effect
and (iv) is in compliance with all Requirements of Law, except where
non-compliance could not reasonably be expected to have an Adverse
Effect.
(b) The Adviser has the power and authority, and the legal right, to
execute, deliver and perform the Transaction Documents to which it is a
party and has taken all necessary action required by applicable
Requirements of Law to authorize the execution, delivery and
performance of the Transaction Documents to which it is a party.
Except as has been obtained, no consent or authorization of, filing
with, or other act by or in respect of, any Government Authority or any
other Person is required in connection with the execution, delivery,
performance, validity or enforceability by or against the Adviser of
the Transaction Documents to which it is a party, other than such
consents, authorizations, filings or acts the absence of which could
not reasonably be expected to have an Adverse Effect. This Agreement
has been, and each other Transaction Document to which the Adviser is a
party will be, duly executed and delivered on behalf of the Adviser.
This Agreement constitutes, and each other Transaction Document to
which the Adviser is a party, when executed and delivered, will
constitute, a legal, valid and binding obligation of the Adviser
enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
(c) The execution, delivery and performance by the Adviser of the
Transaction Documents to which it is a party do not and will not
violate any Requirement of Law or Contractual Obligation of the Adviser
and will not result in, or require, the creation or imposition of any
Lien on any of its property, assets or revenues, except where such
violation or Lien could not reasonably be expected to have an Adverse
Effect. The Adviser is not in violation of any Contractual Obligation,
except where such violation could not reasonably be expected to have an
Adverse Effect.
(d) No litigation, proceeding or investigation of or before any arbitrator
or Governmental Authority is pending or, to the Adviser's knowledge,
threatened (i) asserting the invalidity or unenforceability of any of
the Transaction Documents, (ii) seeking to prevent the consummation of
any of the transactions contemplated by the Transaction Documents or
(iii) seeking any determination or ruling that could reasonably be
expected to have an Adverse Effect.
(e) The Adviser is duly registered with the Commission as an investment
adviser under the Investment Advisers Act; and to the best of the
Adviser's knowledge there does not exist any proceeding or any facts or
circumstances the existence of which could adversely affect the
registration of the Adviser with the Commission; the Adviser is not
prohibited by any provision of the Investment Advisers Act or the
Investment Company Act, or the respective rules and regulations
thereunder, from acting as an investment adviser of the Fund as
contemplated hereunder.
(f) All factual information prepared and furnished by or on behalf of the
Adviser to the Warranty Provider and/or the Calculation Agent (whether
prepared by the Adviser or any other Person) for purposes of or in
connection with this Agreement, any Transaction Document or any
transaction contemplated hereby or thereby is true and accurate in all
material respects on the date as of which such information is dated or
certified and such information taken as a whole does not omit to state
any material fact necessary to make such information in the context in
which it is furnished not misleading.
(g) To the best of the Adviser's knowledge, no statute, rule, regulation,
order or publicly available interpretation thereof by a Government
Authority has been enacted or deemed applicable by any Government
Authority that would make the transactions contemplated by the
Transaction Documents illegal or otherwise prevent the consummation
thereof by the Adviser.
(h) The Trust is duly registered with the Commission as an open-end
management investment company under the Investment Company Act and has
been operated in compliance in all material respects with the
Investment Company Act and the rules and regulations thereunder and the
Commission has not issued any order preventing or suspending the use of
any prospectus relating to any Class of Shares and the Fund has not
received any notice from the Commission pursuant to Section 8(e) of the
Investment Company Act with respect to the Registration Statement.
(i) The Underlying Fund is duly registered with the Commission as an
open-end management investment company under the Investment Company Act
and has been operated in compliance in all material respects with the
Investment Company Act and the rules and regulations thereunder and the
Commission has not issued any order preventing or suspending the use of
any prospectus relating to any class of shares of the Underlying Fund
and the Underlying Fund has not received any notice from the Commission
pursuant to Section 8(e) of the Investment Company Act with respect to
the registration statement on Form N-1A currently in effect for the
Underlying Fund.
Section 6.2 Representations and Warranties of the Trust on Behalf of the
Fund. The Trust on behalf of the Fund hereby represents and warrants to the
Warranty Provider as follows, on and as of the effective date hereof:
(a) The Trust (i) is a business trust duly formed, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts;
(ii) has the power and authority, and the legal right, to own its
assets and to transact the business in which it is engaged; (iii) is
duly qualified to do business and is in good standing under the laws of
each jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to so qualify could not reasonably be expected to have an
Adverse Effect; and (iv) is in compliance with all Requirements of Law,
except where non-compliance could not reasonably be expected to have an
Adverse Effect.
(b) The Trust has the power and authority, and the legal right, on behalf
of the Fund, to execute, deliver and perform the Transaction Documents
to which the Fund is a party and has taken all necessary action
required by applicable Requirements of Law to authorize the execution,
delivery and performance of the Transaction Documents to which the Fund
is a party. No consent or authorization of, filing with, or other act
by or in respect of, any Government Authority or any other Person is
required in connection with the execution, delivery, performance,
validity or enforceability by or against the Fund of the Transaction
Documents to which it is a party, other than the filing under the Acts
of the Registration Statement and the Prospectus, filings in accordance
with Blue Sky laws and the requisite approval of the Trust's Board of
Trustees, other than such consents, authorizations, filings or acts,
the absence of which could not reasonably be expected to have an
Adverse Effect. This Agreement has been, and each other Transaction
Document to which the Trust, on behalf of the Fund, is a party will be,
duly executed and delivered on behalf of the Fund. This Agreement
constitutes, and each other Transaction Document to which the Trust, on
behalf of the Fund, is a party, when executed and delivered, will
constitute, a legal, valid and binding obligation of the Fund
enforceable against the Fund in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
(c) The execution, delivery and performance by the Trust, on behalf of the
Fund, of the Transaction Documents to which the Fund is a party
(including the Declaration of Trust) do not and will not violate any
Requirement of Law or Contractual Obligation of the Fund and will not
result in, or require, the creation or imposition of any Lien on any of
its property, assets or revenues, except where such violation or Lien
could not reasonably be expected to have an Adverse Effect. The Fund
is not in violation of any Contractual Obligation, except where such
violation could not reasonably be expected to have an Adverse Effect.
(d) No litigation, proceeding or investigation of, or before any arbitrator
or Governmental Authority is pending or, to the Fund's knowledge,
threatened by or against the Fund or against any of its properties or
revenues (i) asserting the invalidity or unenforceability of this
Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by the Transaction Documents to which it is a
party or (iii) seeking any determination or ruling that could
reasonably be expected to have an Adverse Effect.
(e) The Trust is duly registered with the Commission as an open-end
management investment company under the Investment Company Act and has
been operated in compliance in all material respects with the
Investment Company Act and the rules and regulations thereunder and the
Commission has not issued any order preventing or suspending the use of
any prospectus relating to any Class of Shares and the Fund has not
received any notice from the Commission pursuant to Section 8(e) of the
Investment Company Act with respect to the Registration Statement.
(f) The Fund is a "diversified" fund within the meaning of the Investment
Company Act.
(g) Each Class of Shares of the Fund is duly authorized and validly issued
and is outstanding, fully paid and nonassessable by the Trust and
conforms in all respects to the description thereof contained in the
Registration Statement and Prospectus with respect to such Class of
Shares.
(h) The Registration Statement and the Prospectus (other than with respect
to any information relating solely to the Warranty Provider included in
the Registration Statement or the Prospectus which has been provided by
the Warranty Provider in writing for inclusion therein under the WP
Information Letter) (A) have been prepared by the Trust in material
conformity with the requirements of the Acts and the rules and
regulations of the Commission thereunder; (B) have been declared
effective by the Commission; (C) contain all information and statements
which are required by the Acts and the rules and regulations
thereunder; and (D) do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(i) All factual information prepared and furnished by or on behalf of the
Fund to the Warranty Provider and/or the Calculation Agent (whether
prepared by the Fund or any other Person) for purposes of or in
connection with this Agreement, any Transaction Document or any
transaction contemplated hereby or thereby is true and accurate in all
material respects on the date as of which such information is dated or
certified and such information taken as a whole does not omit to state
any material fact necessary to make such information in the context in
which it is furnished not misleading.
(j) To the best of the Fund's knowledge, no statute, rule, regulation,
order or publicly available interpretation thereof by a Government
Authority has been enacted or deemed applicable by any Government
Authority that would make the transactions contemplated by this
Agreement or any other Transaction Document to which it is a party
illegal or otherwise prevent the consummation thereof by the Fund.
Section 6.3 Representations and Warranties of the Warranty Provider. The
Warranty Provider hereby represents and warrants to the Adviser and the Fund
as follows, on and as of the effective date hereof:
(a) The Warranty Provider (i) is an industrial loan corporation, chartered
and in good standing under the laws of the State of Utah; (ii) has the
power and authority, and the legal right, to own its assets and to
transact the business in which it is engaged; (iii) is duly qualified
to do business and is in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification, except where the failure to
so qualify would not reasonably be expected to have an Adverse Effect
with respect to the Warranty Provider; and (iv) is in compliance with
all Requirements of Law, except where non-compliance would not
reasonably be expected to have an Adverse Effect with respect to the
Warranty Provider.
(b) The Warranty Provider has the power and authority and the legal right
to execute, deliver and perform its obligations under this Agreement
and any other Transaction Document to which it is a party and has taken
all necessary action required by applicable Requirements of Law to
authorize the execution, delivery and performance of this Agreement and
any other Transaction Document to which it is a party. Except as has
been obtained, no consent or authorization of, filing with, or other
act by or in respect of, any Government Authority or any other Person
is required in connection with the execution, delivery, performance,
validity or enforceability by or against the Warranty Provider of the
Transaction Documents to which it is a party, other than such consents,
authorizations, filings or acts the absence of which could not
reasonably be expected to have an Adverse Effect. This Agreement has
been, and each other Transaction Document to which it is a party will
be, duly executed and delivered on behalf of the Warranty Provider.
This Agreement constitutes, and each other Transaction Document to
which the Warranty Provider is a party, when executed and delivered,
will constitute, a legal, valid and binding obligation of the Warranty
Provider enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
(c) The execution, delivery and performance by the Warranty Provider of
each of this Agreement and any other Transaction Document to which it
is a party does not and will not violate any Requirement of Law or
Contractual Obligation of the Warranty Provider and will not result in,
or require, the creation or imposition of any Lien on any of its
property, assets or revenues, except where such violation or Lien could
not reasonably be expected to have an Adverse Effect with respect to
the Warranty Provider. The Warranty Provider is not in violation of
any Contractual Obligation, except where such violation could not
reasonably be expected to have an Adverse Effect with respect to the
Warranty Provider.
(d) No litigation, proceeding or investigation of or before any arbitrator
or Governmental Authority is pending or, to the Warranty Provider's
knowledge, threatened by or against the Warranty Provider (i) asserting
the invalidity or unenforceability of any of this Agreement or any
other Transaction Document to which it is a party, or (ii) seeking to
prevent the consummation of any of the transactions contemplated by
this Agreement or any other Transaction Document to which it is a party
or (iii) seeking any determination or ruling that could reasonably be
expected to have an Adverse Effect with respect to the Warranty
Provider.
(e) To the best of the Warranty Provider's knowledge, no statute, rule,
regulation, order or publicly available interpretation thereof by any
Government Authority has been enacted or deemed applicable by any
Government Authority that would make the transactions contemplated by
this Agreement or any other Transaction Document to which it is a party
illegal or otherwise prevent the consummation thereof by the Warranty
Provider.
(f) all information provided by the Warranty Provider to the Adviser and
the Trust as set forth in the WP Information Letter (including the
audited financial statements referenced therein) is true and accurate
in all material respects as of the date of such WP Information Letter
and such information taken as a whole does not omit to state any
material fact necessary to make such information in the context in
which it is furnished not misleading; provided, that any representation
regarding any information in the WP Information Letter that references
the Warranty Provider's financial statements shall be deemed to be made
as of the date and for the periods referred to in such financial
statements.
(g) The financial statements of the Warranty Provider included in the
Trust's Registration Statement with respect to the Fund when such
Registration Statement was declared effective and any financial
statements subsequently made available to the Fund pursuant to
Section 7.4, fairly present or will fairly present in all material
respects the financial position of the Warranty Provider as of the
dates and for the periods referred to therein and in conformity with
generally accepted accounting principles applied on a consistent basis.
(h) The Warranty Provider is "well capitalized" within the meaning of the
capital maintenance regulations of the Federal Deposit Insurance
Corporation ("FDIC"), 12 C.F.R. Part 325.
ARTICLE VII
COVENANTS
Section 7.1 Covenants of the Adviser. The Adviser hereby covenants and
agrees that through the Termination Date and so long as a drawing is
available under the Financial Warranty:
(a) it shall not amend, supplement, modify, terminate, or agree to any
waiver of any rights with respect to, any of the Transaction Documents
(other than amendments or supplements to the Registration Statement or
Prospectus pursuant to Rules 485 or 497 under the Securities Act that
do not modify references to or otherwise relate to the Warranty
Provider, this Agreement or the Financial Warranty or include any
change to the Fund's investment objective or any material change to the
Fund's investment policies or strategies), without the prior written
consent of the Warranty Provider, which consent shall not be
unreasonably withheld or delayed;
(b) for the period after the Offering Period through and including the
Maturity Date, other than in connection with the redemption of Shares
by a Shareholder, the reinvestment of dividends and distributions or
the transfer of Shares that does not result in an increase in the
Shares that are issued and outstanding, it shall not allow the Fund to
change the number of Shares issued and outstanding;
(c) it shall notify the Warranty Provider promptly of (i) any request by
the Commission for (A) an amendment to the Registration Statement with
respect to any Class of Shares of the Fund or a supplement to the
Prospectus with respect to any Class of Shares of the Fund, or (B) an
amendment to the registration statement of the Underlying Fund or a
supplement to the prospectus of the Underlying Fund, (ii) the issuance
by the Commission of any stop-order suspending the effectiveness of (A)
the Registration Statement with respect to any Class of Shares of the
Fund or the initiation or threat of any such stop-order proceeding, or
(B) the registration statement of the Underlying Fund or the
initiation or threat of any such stop-order proceeding, or
(iii) receipt by the Trust of a notice from or order of the Commission
pursuant to Section 8(e) of the Investment Company Act with respect to
any Registration Statement with respect to the Fund or (B) receipt by
the Underlying Fund of a notice from or order of the Commission
pursuant to Section 8(e) of the Investment Company Act with respect to
any registration statement with respect to the Underlying Fund;
(d) within five days after the filing with the Commission of any amendment
to the Registration Statement with respect to any Class of Shares or
supplement to the Prospectus with respect to any Class of Shares, it
shall furnish a copy thereof to the Warranty Provider; provided,
however, that the Adviser shall within a reasonable period of time
prior to filing with the Commission of any such amendment or supplement
furnish a copy thereof to the Warranty Provider and obtain the prior
written consent of the Warranty Provider, which consent shall not be
unreasonably withheld, if such amendment or supplement modifies
references to or otherwise relates to the Warranty Provider, this
Agreement or the Financial Warranty or includes any change to the
Fund's investment objective or any material change to the Fund's
investment policies or strategies;
(e) it shall manage the Fund Portfolio in accordance with the Portfolio
Requirements;
(f) it shall not, without the prior written consent of the Warranty
Provider, elect to terminate any Transaction Document;
(g) it shall comply in all material respects with the terms and provisions
of all Requirements of Law, including the Acts and the Investment
Advisers Act, with respect to the Fund and it shall obtain and maintain
all licenses, permits, charters and registrations which are necessary
to the conduct of its business or where the failure to obtain and
maintain the same could reasonably be expected to have an Adverse
Effect;
(h) it shall promptly inform the Warranty Provider of any Potential Trigger
Events and the action, inaction, omission, event or circumstance giving
rise thereto;
(i) it shall promptly inform the Warranty Provider in writing of the
occurrence of any of the following events of which it has knowledge:
any Litigation Event, Regulatory Change, Regulatory Event or other
event in each case that could reasonably be expected to have an Adverse
Effect;
(j) it shall promptly and fully perform all of, and comply in all respects
with, its obligations (i) under each Transaction Document to which it
is a party, and (ii) under each other agreement, instrument or contract
delivered in connection with a Transaction Document and by which it is
bound, except in each case to the extent that such non-performance
could not reasonably be expected to have an Adverse Effect and shall
provide the Warranty Provider with written notice promptly upon
becoming aware of any breach by it of the provisions of any such
agreements. The Adviser shall take all action necessary to preserve
its existence and ensure that the Transaction Documents remain in full
force and effect;
(k) it shall keep or cause to be kept in reasonable detail books and
records of account of its business in relation to the Fund, including
without limitation electronic information with respect thereto, in form
and detail customary in the industry and sufficient to satisfy the
Adviser's obligation to provide to the Warranty Provider and the
Calculation Agent the information referred to herein;
(l) it shall implement compliance procedures reasonably designed to monitor
the Fund Portfolio's compliance with the Portfolio Requirements on an
ongoing basis;
(m) it shall not include any material relating to the Warranty Provider (or
any Affiliate thereof) or describing the terms of the Financial
Warranty or this Agreement in any marketing materials used by or on
behalf of the Adviser or the Fund unless such material has been
approved in writing by the Warranty Provider prior to its inclusion in
such marketing materials, such approval not to be unreasonably withheld
or delayed. The Warranty Provider shall use its best efforts to
respond to any such request for approval within five Business Days of
its receipt of such marketing material;
(n) it shall not delegate any of its management responsibilities under the
Investment Management Agreement to a subadviser or subsequent thereto
terminate such delegation to any subadviser or materially modify any
then existing subadvisory agreement with any subadviser to which it has
delegated any of its management responsibilities under the Investment
Management Agreement without the prior written consent of the Warranty
Provider;
(o) it shall provide to the Warranty Provider such additional information
with respect to the Trust and the Fund as the Warranty Provider may
from time to time reasonably request and, after the occurrence of a
Trigger Event, at the expense of the Adviser, during normal business
hours with reasonable prior notice allow the Warranty Provider to
inspect, audit and make copies of and abstracts from the Fund's records
and to visit the offices of the Adviser for the purpose of examining
such records maintained by the Adviser;
(p) in the case of a Floor Shortfall, it shall provide the Warranty
Provider and the Calculation Agent with such information regarding the
assets and liabilities of the Underlying Fund as the Warranty Provider
may reasonably request that directly or indirectly relate to the
existence of a Floor Shortfall in order to allow the Warranty Provider
to independently verify the sector concentration, liquidity and
Volatility of the Underlying Fund previously provided to the Warranty
Provider and the Calculation Agent by the Adviser;
(q) all factual information prepared and furnished by or on behalf of the
Adviser to the Warranty Provider and/or the Calculation Agent (whether
prepared by the Adviser or any other Person) for purposes of or in
connection with this Agreement, any Transaction Document or any
transaction contemplated hereby or thereby will be true and accurate in
all material respects on the date as of which such information is dated
or certified and such information taken as a whole will not omit to
state any material fact necessary to make such information in the
context in which it is furnished not misleading; and
(r) it has not and will not cause the Trust to establish or designate any
series of the Trust other than the Fund.
(s) it shall (A) immediately upon notice to the Adviser from the Warranty
Provider, the Calculation Agent or the Custodian that the Warranty
Provider has exercised its right to deliver the Irrevocable
Instructions, deliver to the Custodian (1) a schedule setting forth (i)
the dates of expected payments of expected Fund Fees and Expenses,
exclusive of any Extraordinary Expenses, for the remainder of the
Protected Period and (ii) the amount of any redemption requests
reasonably anticipated to be received by the Fund within the next five
Exchange Business Days and (2) a notice instructing the Custodian as to
which broker or dealer the Custodian shall utilize to execute any
transaction to purchase or sell securities in accordance with the terms
of the Irrevocable Instructions; (B) thereafter deliver to the
Custodian on a periodic basis as necessary a notice specifying the
amount of redemption requests reasonably anticipated to be received by
the Fund within a rolling five Exchange Business Day period and any
appropriate changes to the schedule setting forth the dates of expected
payments of expected Fund Fees and Expenses, exclusive of any
Extraordinary Expenses; and (C) at all times do, make, honor, execute
and deliver (and shall likewise use reasonable efforts to cause the
Trust, on behalf of the Fund, to do, make, honor, execute and deliver)
all such additional and further acts, information, instruments,
documents and Instructions (the terms referenced in (A), (B) and (C)
shall collectively be referred to as, "Permitted Instructions") as the
Custodian may at any time reasonably request (each in form and
substance satisfactory to the Custodian) in connection with the
Irrevocable Instructions. The Adviser hereby covenants and agrees
that, other than in the case of Conflicting Instructions (as defined in
the Custodian Agreement) approved by all necessary actions of the Board
of Trustees of the Trust, all Permitted Instructions delivered by it to
the Custodian shall be consistent with the intent of the Irrevocable
Instructions and be in accordance the terms of the Service Agreement.
Section 7.2 Covenants of the Trust on Behalf of the Fund. The Trust on
behalf of the Fund hereby covenants and agrees that through the Termination
Date and so long as a drawing is available under the Financial Warranty:
(a) within 65 days after the end of each fiscal year, it shall provide the
Warranty Provider with true, accurate, correct and complete audited
statements of assets and liabilities of the Fund with values determined
in accordance with the procedures described in the Registration
Statement and in accordance with the Investment Company Act, and an
audited schedule of investments of the Fund, each as of such fiscal
year end. Such audited financial statements will fairly and accurately
present in all material respects the financial position of the Fund as
of the dates and for the periods referred to therein and in conformity
with generally accepted accounting principles applied on a consistent
basis. Such audited financial statements shall not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case as of the dates and for the
periods referred to in such audited financial statements;
(b) it shall provide the Warranty Provider with accurate, correct and
complete semi-annual (and if required by applicable law, quarterly)
unaudited statements of assets and liabilities of the Fund with values
determined in accordance with the procedures described in the
Registration Statement and in accordance with the Investment Company
Act, and a semi-annual unaudited schedule of investments of the Fund,
in each case within 65 days after the end of such period (or 30 days
after the end of such period if quarterly unaudited financials are
required by applicable law). Such unaudited financial statements will
fairly and accurately present in all material respects the financial
position of the Fund as of the dates and for the periods referred to
therein and in material conformity with generally accepted accounting
principles applied on a consistent basis. Such unaudited financial
statements shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case
as of the dates and for the periods referred to in such unaudited
financial statements;
(c) for the period after the Offering Period through and including the
Maturity Date, other than in connection with the redemption of Shares
by a Shareholder, the reinvestment of dividends and distributions or
the transfer of Shares that does not result in an increase in the
Shares that are issued and outstanding, it shall not change the number
of Shares issued and outstanding;
(d) it shall promptly and fully perform all of, and comply in all respects
with, its obligations (i) under each Transaction Document to which it
is a party, and (ii) under each other agreement, instrument or contract
delivered in connection with a Transaction Document and by which it is
bound, except in each case to the extent that such non-performance
would not reasonably be expected to have an Adverse Effect and shall
provide the Warranty Provider with written notice promptly upon
becoming aware of any breach by it of the provisions of any such
agreements;
(e) it shall not amend, supplement, modify, terminate, or agree to any
waiver of any rights with respect to, any of the Transaction Documents
(other than amendments or supplements to the Registration Statement or
Prospectus pursuant to Rules 485 or 497 under the Securities Act that
do not modify references to or otherwise relate to the Warranty
Provider, this Agreement or the Financial Warranty or include any
change to the Fund's investment objective or any material change to the
Fund's investment policies or strategies) or the Declaration of Trust
in each case without the prior written consent of the Warranty
Provider, which consent shall not be unreasonably withheld or delayed;
(f) it shall not include any material relating to the Warranty Provider (or
any Affiliate thereof) or describing the terms of the Financial
Warranty or this Agreement in any marketing materials used by or on
behalf of the Fund unless such material has been approved in writing by
the Warranty Provider prior to its inclusion in such marketing
material. The Warranty Provider shall use its best efforts to respond
to any such request for approval within five Business Days of its
receipt of such marketing material;
(g) it shall not change in any respect the manner in which the assets or
liabilities of the Fund are allocated to any Class of Shares without
the prior written consent of the Warranty Provider, which approval
shall not be unreasonably withheld or delayed;
(h) prior to taking any action to terminate the Custodian, the Fund shall
notify the Warranty Provider and, in the event that the Custodian shall
terminate the Custodian Agreement with respect to the Fund, the Fund
shall notify the Warranty Provider and engage a successor Custodian;
provided, however, that the Fund shall not engage as successor
Custodian any Custodian that (1) does not agree to be bound by the
Service Agreement and by the provisions of Sections 3.4(c), 3.4(d),
4.1(c) and 4.2(a) to the extent they are relevant to duties of the
Custodian, (2) does not have a system in place that is equivalent to
the JPMVIEWS System (that provides data that includes substantially the
same information that is available via the JPMVIEWS System) acceptable
to the Warranty Provider in its reasonable discretion or (3) is not
acceptable to the Warranty Provider in its reasonable discretion;
(i) in the event that the Adviser resigns, the Fund elects to terminate the
Investment Management Agreement with the Adviser or the Investment
Management Agreement terminates in accordance with its terms, the Fund
shall immediately notify the Warranty Provider and engage a successor
adviser; provided, however, that the Fund shall not engage as successor
adviser any adviser (including the Adviser) that (1) does not agree to
be bound by the terms of this Agreement, subject to applicable law, and
the Service Agreement, in each case prior to the effective date of such
termination or (2) is not acceptable to the Warranty Provider in its
sole discretion;
(j) it shall comply in all material respects with the terms and provisions
of the Acts with respect to the Fund;
(k) it promptly shall provide the Warranty Provider with a copy of any
amendment or waiver of any provision of the Transaction Documents or
the filing of any amendment to the Declaration of Trust;
(l) it shall provide to the Warranty Provider such additional information
with respect to the Fund as the Warranty Provider may from time to time
reasonably request and, after the occurrence of a Trigger Event, during
normal business hours with reasonable prior notice allow the Warranty
Provider to inspect, audit and make copies of and abstracts from the
Fund's records and visit the offices of the Fund for the purpose of
examining such records maintained by the Fund or the Adviser on behalf
of the Fund;
(m) in the case of a Floor Shortfall, it shall provide the Warranty
Provider and the Calculation Agent with such information regarding the
assets and liabilities of the Underlying Fund as the Warranty Provider
may reasonably request that directly or indirectly relate to the
existence of a Floor Shortfall in order to allow the Warranty Provider
to independently verify the sector concentration, liquidity and
Volatility of the Underlying Fund previously provided to the Warranty
Provider and the Calculation Agent by the Adviser;
(n) all factual information prepared and furnished by or on behalf of the
Fund to the Warranty Provider and/or the Calculation Agent (whether
prepared by the Fund or any other Person) for purposes of or in
connection with this Agreement, any Transaction Document or any
transaction contemplated hereby or thereby will be true and accurate in
all material respects on the date as of which such information is dated
or certified and such information taken as a whole will not omit to
state any material fact necessary to make such information in the
context in which it is furnished not misleading;
(o) it shall not approve or implement conversion rights for any Class
without the prior written consent of the Warranty Provider;
(p) the Fund Portfolio shall be managed in accordance with the Portfolio
Requirements; and
(q) it shall maintain a fidelity bond with respect to its officers,
trustees, employees and agents of the type and in the amounts as is
required by law under Rule 17g-1 of the Investment Company Act for
funds similar to the Fund.
Section 7.3 Covenants of the Trust. The Trust hereby covenants and agrees
that through the Termination Date and so long as a drawing is available under
the Financial Warranty it has not and will not establish or designate any
series of the Trust other than the Fund.
Section 7.4 Covenants of the Warranty Provider. The Warranty Provider hereby
covenants and agrees that through the Termination Date:
(a) it will make its audited annual financial statements, together with
the relevant auditor's consents, and its unaudited quarterly financial
statements available to the Trust on behalf of the Fund for inclusion
in the Registration Statement as required by the Commission. Such
audited financial statements shall be so provided within 90 days of the
end of each fiscal year end of the Warranty Provider and such unaudited
financial statements shall be so provided within 45 days of the end of
the applicable quarterly period. Such financial statements shall not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case as of the dates and for
the periods referred to in such financial statements. The Warranty
Provider agrees to use reasonable efforts to provide to the Trust on
behalf of the Fund any additional information reasonably requested by
the Trust on behalf of the Fund from the Warranty Provider;
(b) it will provide the Adviser and the Trust promptly upon becoming aware
of the same with written notice (i) if the Warranty Provider ceases to
be classified as "well capitalized" based on the most recent call
report filed by the Warranty Provider with its primary federal banking
regulator, for purposes of the capital maintenance regulations of the
FDIC, 12 C.F.R. Part 325, or any successor regulations or (ii) of the
commencement of any conservatorship, receivership or other Act of
Insolvency of the Warranty Provider;
(c) it shall comply in all material respects with the terms and provisions
of all Requirements of Law with respect to the Warranty Provider and it
shall obtain and maintain all licenses, permits, charters and
registrations which are necessary to the conduct of its business or
where the failure to obtain and maintain the same would not reasonably
be expected to have an Adverse Effect with respect to the Warranty
Provider;
(d) it shall promptly and fully perform all of, and comply in all respects
with, its obligations (i) under each Transaction Document to which it
is a party, and (ii) under each other agreement, instrument or contract
delivered in connection with a Transaction Document and by which it is
bound, except in each case to the extent that such non-performance
would not reasonably be expected to have an Adverse Effect with respect
to the Warranty Provider and shall provide the Adviser and the Trust
with written notice promptly upon becoming aware of any material breach
by it of the provisions of any such agreements. The Warranty Provider
shall take all action reasonably necessary to preserve its existence
and ensure that the Transaction Documents remain in full force and
effect; and
(e) all information provided by the Warranty Provider to the Adviser and
the Trust in the WP Information Letter (including the audited
financial statements referenced therein) is true and accurate in all
material respects as of the date of such WP Information Letter and such
information taken as a whole will not omit to state any material fact
necessary to make such information in the context in which it is
furnished not misleading provided, that any representation regarding
any information in the WP Information Letter that references the
Warranty Provider's financial statements shall be deemed to be made as
of the date and for the periods referred to in such financial
statements.
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.1 Obligations Absolute. The obligations of the Adviser and the
Fund, pursuant to this Agreement are absolute and unconditional and will be
paid or performed strictly in accordance with the respective terms hereof,
irrespective of (but not limited to):
(a) (i) Any lack of validity or enforceability of any of the Transaction
Documents (other than the Financial Warranty), unless such lack of
validity or enforceability is finally determined by a final,
non-appealable judgment of a court of competent jurisdiction; provided,
the invalidity or enforceability of such Transaction Document(s) as
determined by such court has an Adverse Effect, or (ii) any amendment
or other modification of, or waiver with respect to, or consent to
departure from, any of the Transaction Documents (other than amendments
to this Agreement in accordance with Section 11.1); or
(b) The existence of any claim, set-off, defense or other right either may
have at any time against the other, any beneficiary or any transferee
of the Financial Warranty (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), the Warranty
Provider or any other Person or entity whether in connection with this
Agreement, any of the Transaction Documents or any unrelated
transactions; the inaccuracy or alleged inaccuracy upon which any
drawing under the Financial Warranty is based; or any default or
alleged default of the Warranty Provider under this Agreement, other
than a default with respect to payment of the Aggregate Shortfall
Amount as finally determined by a final, non-appealable judgment of a
court of competent jurisdiction.
Section 8.2 Participations and Assignments.
(a) The Warranty Provider may assign its obligations under this Agreement
and any other Transaction Document to which it is a party to its ultimate parent
company Xxxxxxx Xxxxx & Co., Inc. (together with any successor entity, "ML
& Co.") or an Affiliate of the Warranty Provider or ML & Co. without the
prior consent of the Fund or the Adviser; provided, that upon such assignment to
an Affiliate, (A) ML & Co. guarantees to the Fund and the Adviser all
obligations assumed by such Affiliate under this Agreement and such other
Transaction Documents and (B) the Warranty Provider delivers to the Fund and the
Adviser an opinion of counsel, in a form acceptable to the Fund and the Adviser
in their reasonable discretion, that provides that the Affiliate assignee is
authorized under applicable law to assume the obligations of the Warranty
Provider under this Agreement and such other Transaction Documents. The Warranty
Provider also may assign its obligations under this Agreement and any other
Transaction Document to which it is a party to any other Person, subject to the
prior consent of the Fund and the Adviser, in their sole discretion.
(b) The Warranty Provider shall have the right to issue participations in
its rights under this Agreement and to enter into hedging contracts with
respect to the Financial Warranty; provided, that the Warranty Provider
agrees that any such disposition will not alter or affect in any way
whatsoever the Warranty Provider's direct obligations hereunder and under the
Financial Warranty.
(c) The Adviser may assign its obligations under the Investment Management
Agreement to its Affiliate subject to the prior consent of the Warranty
Provider, in its sole discretion; provided, that (A) such assignment shall
not constitute an "assignment" for purposes of the Investment Company Act;
(B) such Affiliate assignee is registered as an investment adviser under the
Investment Advisers Act; and (C) such Affiliate assignee agrees to assume the
obligations of the Adviser under this Agreement and all other Transaction
Documents to which the Adviser is a party.
Section 8.3 Fund Liability. Any other provision to the contrary
notwithstanding, any liability of the Fund under this Agreement or in
connection with the transactions contemplated herein shall be discharged only
out of the assets of the Fund.
Section 8.4 Limitation of Liability of the Warranty Provider.
(a) The Adviser and the Trust, on behalf of the Fund, agree that neither
the Warranty Provider, its Affiliates, nor any of their respective officers,
trustees/directors or employees shall be liable or responsible for (i) the
use which may be made of the Financial Warranty by any Person or for any acts
or omissions of another Person in connection therewith or (ii) the validity,
sufficiency, accuracy or genuineness of any documents delivered to the
Warranty Provider, or of any endorsement(s) thereon, even if such documents
should in fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged. In furtherance and not in limitation of the foregoing,
the Warranty Provider may accept documents that appear on their face to be in
order, without responsibility for further investigation.
(b) The parties hereby acknowledge and agree that in no event shall the
Warranty Provider's liability under this Agreement or any of the other
Transaction Documents, including without limitation any liability under
Section 5.2(c) and the Financial Warranty, exceed the Issued Financial
Warranty Amount.
Section 8.5 Adviser Liability for Actions of Subadviser. For the avoidance
of doubt, the parties hereby agree that (a) the Adviser shall be solely
responsible for the management of the Fund Portfolio regardless of whether
the Adviser delegates any of its management responsibilities under the
Investment Management Agreement to a subadviser, (b) the Adviser shall be
liable under this Agreement and the other Transaction Documents to which it
is a party for any actions taken by any subadviser with regard to the Fund
Portfolio, and (c) for purposes of this Agreement and any other Transaction
Document to which it is a party, any action or omission by a subadviser with
respect to the Fund Portfolio shall be deemed to be the action or omission of
the Adviser.
Section 8.6 Calculation Agent as Agent; Alternative Delivery. The Warranty
Provider hereby notifies the Adviser and the Fund that the Calculation Agent
is authorized on behalf of the Warranty Provider as its agent to take any
action required or permitted to be taken by the Warranty Provider under this
Agreement. Upon written notice from the Warranty Provider to the Adviser or
the Trust on behalf of the Fund, the Warranty Provider may request the
Adviser and the Trust on behalf of the Fund to provide, and the Adviser to
cause the Custodian to provide, all information and reports to be delivered
to the Warranty Provider under any Transaction Document to the Calculation
Agent on behalf of the Warranty Provider. The Adviser and the Trust on
behalf of the Fund hereby agree that any information or instruction required
or permitted to be provided by the Warranty Provider under this Agreement or
any other Transaction Document may be provided by an Affiliate of the
Warranty Provider, including, without limitation, the Calculation Agent as an
agent of the Warranty Provider.
Section 8.7 Calculation Agent Determinations Final and Binding. All
determinations or calculations of any Maximum Equity Component, Adjusted
Discount Factor, Shortfall Amount, Aggregate Shortfall Amount, Floor
Shortfall and Additional Floor Shortfall and any other determination or
calculations the Calculation Agent is permitted or required to make under
this Agreement shall for purposes of this Agreement be final, binding and
unchallengeable absent manifest error.
ARTICLE IX
CONFIDENTIALITY
Section 9.1 Confidentiality Obligations of the Warranty Provider. Subject to
Section 9.2, the Warranty Provider agrees from the commencement of the
Offering Period through and including one year after the Maturity Date, on
behalf of itself and its agents (including the Calculation Agent), not to
disclose or use for any purpose other than the approval or administration of
this Agreement, the exercise of its rights hereunder or legitimate corporate
purposes relating to this Agreement (including any corporate purposes
relating to the characterization or treatment of the rights and obligations
hereunder for accounting, insurance, rating agency or other similar purposes)
(x) any information regarding the specific investments of the Fund or the
Underlying Fund whether provided to the Warranty Provider by the Adviser, the
Fund or the Custodian ("Trading Information") or (y) other confidential
information (including without limitation proprietary information as to
systems, software and trading methods) (collectively, "Other Information"
and, together with Trading Information, "Fund Confidential Information")
provided by the Adviser or the Fund to the Warranty Provider hereunder unless
(i) such information was or becomes generally available to the public other
than as a result of the Warranty Provider's breach of this Article IX; (ii)
such information is already in the Warranty Provider's possession (other than
Fund Confidential Information provided to the Warranty Provider by the Fund,
the Adviser or their representatives), provided, that such information is not
known by the Warranty Provider to be subject to another confidentiality
agreement with, or obligation of secrecy to, the Fund, the Adviser or their
representatives; (iii) such information was or becomes available to the
Warranty Provider on a non-confidential basis from a source other than the
Fund, the Adviser or their representatives, provided, that such source is not
known by the Warranty Provider to be bound by a confidentiality agreement
with, or other obligation of secrecy to, the Fund, the Adviser or their
representatives; or (iv) such information is required to be disclosed
pursuant to applicable law or in connection with any legal proceedings or to
the extent required by a subpoena, order of any court or Government Authority
having jurisdiction over the Warranty Provider, in the Warranty Provider's
reasonable belief. The Warranty Provider shall promptly provide the Fund and
the Adviser with prior written notice of any request or requirement to the
extent permissible and practicable under the circumstances, so the Fund or
the Adviser may seek a protective order or other appropriate remedy
prior to the release of such information by the Warranty Provider.
Section 9.2 Trading Information and Other Information.
(a) Notwithstanding Section 9.1, the Warranty Provider may to the extent
necessary in the Warranty Provider's sole discretion disclose Fund
Confidential Information in connection with the Warranty Provider's hedging
arrangements to recipients ("Permitted Recipients") so long as such persons
agree to keep such information confidential on the terms contained in Section
9.1. The Adviser and the Fund agree that the Warranty Provider and any
Permitted Recipient will satisfy their obligation to treat such information
as Fund Confidential Information and comply with Section 9.1 of the Agreement
by (i) restricting access to such information to the investment officers
and compliance officers who require access to such information for
monitoring, hedging, administration and compliance purposes, provided,
however, that in no case will individuals employed by Xxxxxxx Lynch, Pierce,
Xxxxxx & Xxxxx Incorporated as "Financial Advisors" (i.e., registered
representatives) be granted access to any Fund Confidential Information that
includes specific information regarding the identity of the Shareholders,
and (ii) complying with the other requirements of an institutional compliance
procedure in form and detail customary in the industry.
(b) Notwithstanding Section 9.1, the Warranty Provider may disclose Fund
Confidential Information to those of its officers, employees, directors,
representatives, agents, outside counsel, and independent auditors
(collectively, "Warranty Provider Representatives") who need (in the Warranty
Provider's sole discretion) to see such information in connection with
administration of the Agreement, the exercise of the Warranty Provider's
rights hereunder, or legitimate corporate purposes so long as such persons
agree to keep such information confidential on the terms contained in
Section 9.1.
Section 9.3 Confidentiality Obligations of the Adviser and the Fund.
(a) Subject to subsection (b) below, the Adviser and the Fund each agrees
from the commencement of the Offering Period through and including one year
after the Maturity Date, on behalf of itself and its agents, not to disclose
or use for any purpose other than the approval or administration of this
Agreement and the exercise of its rights and obligations hereunder any
confidential information (including, without limitation, proprietary
information as to systems, software and trading methods) (collectively,
"Warranty Provider Confidential Information") provided by the Warranty
Provider to the Adviser or the Fund hereunder unless (i) such information was
or becomes generally available to the public other than as a result of the
Adviser's or the Fund's breach of this Article IX; (ii) such information is
already in the Adviser's or the Fund's possession (other than Warranty
Provider Confidential Information provided to the Adviser or the Fund by the
Warranty Provider or its representatives), provided, that such information is
not known by the Adviser or the Fund to be subject to another confidentiality
agreement with, or obligation of secrecy to, the Warranty Provider or its
representatives; (iii) such information was or becomes available to the
Adviser of the Fund on a non-confidential basis from a source other than the
Warranty Provider or its representatives; provided, that the source is not
known by the Adviser or the Fund to be bound by a confidentiality agreement
with, or other obligation of secrecy to, the Warranty Provider or its
representatives; or (iv) such information is required to be disclosed
pursuant to applicable law or in connection with any legal proceedings or to
the extent required by a subpoena, order of any court or Government Authority.
(b) Notwithstanding subsection (a) above, each of the Adviser and the Fund
may disclose Warranty Provider Confidential Information to those of its
respective officers, employees, directors, representatives, agents, outside
counsel, and independent auditors (collectively "Fund/Adviser
Representatives") who need (in the Adviser's or the Fund's, as applicable,
reasonable discretion) to see such information in connection with
administration of the Agreement or the exercise of the Adviser's and Fund's
rights or obligations hereunder or thereunder, so long as such persons agree
to keep such information confidential on the terms contained in this
Section 9.3.
Section 9.4 Copies of Confidential Information.
(a) Upon the request of the Fund or the Adviser, all copies of Fund
Confidential Information, except for that portion of the Fund Confidential
Information that consists of notes, analyses, compilations, studies,
interpretations or other documents prepared by the Warranty Provider, the
Warranty Provider Representatives and Permitted Recipients, will be promptly
returned to the Fund or the Adviser or destroyed; provided, however, that any
Fund Confidential Information retained by the Warranty Provider, the Warranty
Provider Representatives and Permitted Recipients, shall be maintained by the
Warranty Provider, the Warranty Provider Representatives and Permitted
Recipients, subject to the confidentiality terms of this Agreement until one
year after the termination of this Agreement.
(b) Upon the request of the Warranty Provider, all copies of Warranty
Provider Confidential Information, except for that portion of the Warranty
Provider Confidential Information that consists of notes, analyses,
compilations, studies, interpretations or other documents prepared by the
Fund or the Adviser, or the Fund/Adviser Representatives, will be promptly
returned to the Warranty Provider or destroyed; provided, however, that any
Warranty Provider Confidential Information retained by the Fund, the Adviser,
or the Fund/Adviser Representatives, shall be maintained by the Fund, the
Adviser, and the Fund/Adviser Representatives, subject to the confidentiality
terms of this Agreement until the earlier of (i) the termination of this
Agreement or (ii) one year after receipt by the Fund or the Adviser of a
written request from the Warranty Provider to return the Warranty Provider
Confidential Information.
ARTICLE X
TERMINATION
Section 10.1 Termination.
(a) Unless this Agreement and the Financial Warranty are sooner terminated
pursuant to Section 10.1(b) hereof, this Agreement and the Financial Warranty
shall terminate (i) effective as of the Maturity Date if no amounts are
payable under the Financial Warranty, or (ii) thereafter, upon payment by the
Warranty Provider of all amounts due by the Warranty Provider under the
Financial Warranty to the Fund (any such date of termination pursuant to this
Article X is referred to in this Agreement as the "Termination Date").
(b) (i) This Agreement and, if issued, the Financial Warranty may be
terminated by the Fund and the Adviser by written notice to the Warranty
Provider at any time (A) upon the occurrence of an Act of Insolvency with
respect to the Warranty Provider or (B) in the event that the Warranty
Provider ceases to be "well capitalized" (based on its most recent Call
Report filed with its primary Federal banking regulator) within the meaning
of the capital maintenance regulations of the FDIC, 12 C.F.R. Part 325 (or
any successor provision).
(ii) This Agreement (and in the case of clauses (B) and (C) in this
subparagraph the Financial Warranty) may be terminated by the Warranty
Provider in its sole discretion by written notice to the Fund and the Adviser
(A) prior to the Inception Date and the issuance of the Financial Warranty if
the Fund's Total NAV on the last day of the Offering Period is less than $90
million; (B) subsequent to the Inception Date and the issuance of the
Financial Warranty and prior to the Maturity Date if (1) the Adviser resigns,
the Fund elects to terminate the Investment Management Agreement with the
Adviser or the Investment Management Agreement terminates in accordance with
its terms and a successor adviser is not elected by the Board of Trustees of
the Trust prior to the date of such termination or the Trust's Board of
Trustees elects a successor adviser for the Fund (including the Adviser)
which agrees to be bound by the terms of this Agreement without the Warranty
Provider's prior written consent; (2) the Fund terminates the Custodian
Agreement with X.X. Xxxxxx Chase and engages a successor custodian that does
not agree to be bound by the Service Agreement and/or by the provisions of
Sections 3.4(c), 3.4(d), 4.1(c) and 4.2(a) to the extent they are relevant to
duties of the Custodian, or the Fund amends the Custodian Agreement so that
the Custodian is no longer bound by such provisions, in each case without the
prior written consent of the Warranty Provider; (3) the Fund's assets are
not, for any reason, within a reasonable time (such time not to exceed one
Exchange Business Day) invested in compliance with the Warranty Provider's
instructions after the Warranty Provider exercises its rights under Section
4.1(c)(i); (4) the Adviser does not pay, in full, the amounts payable under
Section 4.1(d) or (f) within five Business Days after the earlier of (x) the
last Business Day the Adviser is entitled to deliver the Objection Notice
under Section 4.1(d) if no such Objection Notice has been delivered and (y) a
final arbitration determination under Section 4.1(e) (or the prior agreement
by the Adviser and the Warranty Provider of the Floor Shortfall directly or
indirectly attributable to the Adviser or the Additional Floor Shortfall);
(5) a determination of negligence, recklessness, bad faith, willful
misconduct or fraud on the part of the Adviser or the Fund under any of the
Transaction Documents by any (a) court of competent jurisdiction, or (b)
board of arbitration provided for under this Agreement; (6) the Adviser
and/or the Trust on behalf of the Fund does not deliver to the Warranty
Provider the information required by Sections 7.1(p) and/or Section 7.2(m),
respectively, within two Exchange Business Days of the Warranty Provider's
request for such information; (7) the Adviser fails to manage the assets of
the Fund in accordance with the investment objective, policies and strategies
as set forth in the Prospectus and the Registration Statement if such failure
would have an Adverse Effect on the Warranty Provider; (8) the Adviser fails
to comply with Section 7.1(s); or (9) if the Adviser (or any subadviser to
the Fund) or other Authorized Person (as defined in the Custodian Agreement)
delivers Conflicting Instructions to the Custodian, or (C) at any time, if
the Adviser causes the Trust to establish or designate, or the Trust
establishes or designates, any series of the Trust other than the Fund at any
time during the Protected Period.
(iii) Notwithstanding any of the foregoing, this Agreement shall
automatically terminate, and if such termination occurs after the Inception
Date the Financial Warranty shall automatically terminate, (A) prior to the
Inception Date if the Trust's Board of Trustees has determined to liquidate
the Fund or subsequent to the Inception Date and prior to the Maturity Date
if the Fund is liquidated during that time, (B) on the Inception Date if the
Financial Warranty is not issued because the conditions in Section 2.3(b)
have not been satisfied, (C) if the Adviser resigns, the Fund elects to
terminate the Investment Management Agreement with the Adviser, the Fund
appoints a successor adviser (including a subadviser) without the prior
written consent of the Warranty Provider in its sole discretion, the
Investment Management Agreement terminates in accordance with its terms and
in each case any successor adviser (including the Adviser) that agrees to be
bound by the terms of this Agreement is appointed by the Board of Trustees of
the Trust or the Shareholders, in each case without the prior written consent
of the Warranty Provider in its sole discretion, or the Investment Management
Agreement terminates in accordance with its terms and any successor adviser
(including the Adviser) does not agree to be bound by the terms of this
Agreement prior to the effective date of such termination; or (D) if the Fund
is involved in a merger, reorganization or sale of all or substantially all
of its assets.
(iv) If this Agreement is terminated in accordance with this
Section 10.1(b), the Fund shall notify its Shareholders of such termination
and such notice shall state that the Fund has released the Warranty Provider
from all liability under the Financial Warranty. The Fund shall provide a
copy of such notice to the Warranty Provider. From and after the effective
date of such termination, the Fund shall have no obligation to pay the
Financial Warranty Fee (except as to amounts thereof accrued on a daily
interpolated basis prior to such termination), and the Warranty Provider
shall have no liability under the Financial Warranty.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement nor consent to any departure therefrom, shall in
any event be effective unless in writing and signed by all of the parties
hereto; provided, that any waiver so granted shall extend only to the
specific event or occurrence so waived and not to any other similar event or
occurrence which occurs subsequent to the date of such waiver.
Section 11.2 Notices. All notices, communications, requests and demands
to or upon the respective parties hereto to be effective shall be in writing
(and if sent by mail, sent via certified or registered mail, return receipt
requested) or be by confirmed facsimile transmission or email with confirmed
delivery status notification. All notices shall be deemed to have been duly
given or made when delivered by hand, or three Business Days (seven Business
Days in the case of notices sent to the Calculation Agent) after being
deposited in the mail, postage prepaid, or, in the case of facsimile
transmission or email transmission, when sent, addressed as follows or at
such other address as such party may designate in writing:
If to the Adviser:
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
Telephone No: 000-000-0000
Facsimile No: 000-000-0000
Email: xxxxx@xxxxxxxxxxxxxxxx.xxx
with a copy to: President (at the above address)
If to the Fund:
Xxxxxxxxxxx Principal Protected Main Street Fund
of Xxxxxxxxxxx Principal Protected Trust
c/o OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Secretary
Telephone No: 000-000-0000
Facsimile No: 000-000-0000
Email: xxxxx@xxxxxxxxxxxxxxxx.xxx
with a copy to: President (at the above address)
If to the Warranty Provider:
Xxxxxxx Xxxxx Bank USA
4 World Financial Center
9th Floor
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx, First Vice President
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: x_xxxxx@xx.xxx
with a copy to:
Xxxxxxx Xxxxx Bank USA
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxxxx, XX 00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000 0000
Email: xxxxxxxx@xxxxxxxx.xx.xxx
with a copy to (except in the case of the Daily Report under
Section 3.4):
-----------
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Email: xxxxxxxx@xxxxxxxx.xxx
If to the Calculation Agent:
Xxxxxxx Xxxxx International
4 World Financial Center
5th Floor
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: Xxxxxxxx@xxxxxxxx.xx.xxx
with a copy to:
Xxxxxxx Xxxxx International
4 World Financial Center
5th Floor
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxx@xxxxxxxx.xx.xxx
with a copy to:
Xxxxxxx Xxxxx International
4 World Financial Center
5th Floor
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxxx@xxxxxxxx.xx.xxx
or such other address and/or addresses or other contact information (and with
copies to such persons) as shall be specified in writing by any such party to
the others.
Section 11.3 No Waiver, Remedies and Severability. No failure on the
part of any party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or
the exercise of any other right. Except as otherwise provided in
Sections 4.1 (e), the remedies herein provided are cumulative and not
exclusive of any remedies provided by law. The parties further agree that
the holding by any court of competent jurisdiction that any remedy pursued by
any party hereunder is unavailable or unenforceable shall not affect in any
way the ability of such party to pursue any other remedy available to it. In
the event any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, the parties hereto
agree that such holding shall not invalidate or render unenforceable any
other provision hereof.
Section 11.4 Payments. All payments to the Warranty Provider hereunder
shall be made in lawful currency of the United States in immediately
available funds and shall be made prior to 2:00 p.m. (New York City time) on
the date such payment is due by wire transfer to the account designated by
the Warranty Provider by notice to the Fund and the Adviser. Any payments to
the Fund under the Financial Warranty shall be made in accordance with the
terms thereof in lawful currency of the United States in immediately
available funds by wire transfer to the account designated by the Fund by
notice to the Warranty Provider.
Whenever any payment under this Agreement shall be stated to be
due on a day which is not a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such cases
be included in computing interest or fees, if any, in connection with such
payment.
Section 11.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah without giving
effect to the principals of conflicts of law rules.
Section 11.6 Submission to Jurisdiction, Waiver of Jury Trial. EXCEPT
AS OTHERWISE SET FORTH IN SECTIONS 4.1(d) AND (e), THE WARRANTY PROVIDER, THE
ADVISER AND THE TRUST ON BEHALF OF THE FUND HEREBY IRREVOCABLY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE WARRANTY PROVIDER, THE
ADVISER AND THE TRUST ON BEHALF OF THE FUND HEREBY IRREVOCABLY AGREE THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR FEDERAL COURT. THE WARRANTY PROVIDER, THE ADVISER AND
THE TRUST ON BEHALF OF THE FUND HEREBY IRREVOCABLY WAIVE, TO THE FULLEST
EXTENT THAT THEY MAY LEGALLY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. THE WARRANTY PROVIDER, THE
ADVISER AND THE TRUST ON BEHALF OF THE FUND AGREE THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED
BY LAW.
THE WARRANTY PROVIDER, THE ADVISER AND THE TRUST ON BEHALF OF THE
FUND HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF THE PARTIES HERETO. EACH OF THE WARRANTY PROVIDER, THE ADVISER AND THE
TRUST ON BEHALF OF THE FUND ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL
AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR SUCH PARTIES ENTERING INTO THIS AGREEMENT.
Section 11.7 Counterparts. This Agreement may be executed in
counterparts of the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section 11.8 Paragraph Headings. The headings of paragraphs contained
in this Agreement are provided for convenience only. They form no part of
this Agreement and shall not affect its construction or interpretation.
Section 11.9 Reliance on Information. In making a determination as to
whether a Trigger Event has occurred, the Warranty Provider shall be entitled
to rely on reports published or broadcast by media sources believed by the
Warranty Provider to be generally reliable and on information provided to the
Warranty Provider by any other source believed by the Warranty Provider to be
generally reliable; provided, that the Warranty Provider reasonably and in
good faith believes such information to be accurate and has taken such steps
as may be reasonable under the circumstances to attempt to verify such
information.
Section 11.10 Time of the Essence. Time is of the essence under this
Agreement.
Section 11.11 No Third-Party Rights. Nothing in this Agreement, express
or implied, shall or is intended to confer any rights upon any Person other
than the parties hereto or their respective successors or assigns, including,
without limitation, any Shareholder.
Section 11.12 Further Assurances. The parties hereto shall, upon the
request of the Warranty Provider, the Adviser or the Fund, from time to time,
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, within a reasonable period following such request, such amendments
or supplements hereto and such further instruments and take such further
action as may be reasonably necessary to effectuate the intention,
performance and provisions of the Transaction Documents.
Section 11.13 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to its subject matter
and supercedes all prior discussions and agreements among the parties with
respect to the subject matter hereof.
Section 11.14 Disclosure of Shareholder Liability. The Warranty Provider
understands and agrees that the obligations of the Trust on behalf of the
Fund under this Agreement are not binding upon any trustee of the Trust or
Shareholder personally, but bind only the Fund's assets and property. The
Warranty Provider represents that it has notice of the provisions of the
Declaration of Trust of the Trust disclaiming Shareholder and Trustee
liability for acts or obligations of the Fund other than in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of such Trustee.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, all as of the day and year first above mentioned.
OPPENHEIMERFUNDS, INC., as Adviser
/s/ Xxxxxx Xxxxxxxx
By: ____________________________________
Name: Xxxxxx Xxxxxxxx
Title: Senior Vice President
XXXXXXXXXXX PRINCIPAL PROTECTED TRUST, on
behalf of itself and its series,
XXXXXXXXXXX PRINCIPAL PROTECTED MAIN
STREET FUND
/s/ Xxxxx X. Xxxxxxx
By: ____________________________________
Name: Xxxxx X. Xxxxxxx
Title: Assistant Secretary
XXXXXXX XXXXX BANK USA, as Warranty
Provider
/s/ Xxxxxxx Xxxxx
By: ____________________________________
Name: Xxxxxxx Xxxxx
Title: First Vice President
EXHIBIT A TO FINANCIAL WARRANTY AGREEMENT
FINANCIAL WARRANTY
No. _____________
[Date]
Xxxxxxxxxxx Principal Protected Trust, on behalf of its series
Xxxxxxxxxxx Principal Protected Main Street Fund
c/o OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Secretary
Dear Sirs:
We hereby establish, in your favor, our Financial Warranty No. ____ (the
"Financial Warranty") in the form of this letter of credit in the amount of
$_________ (as more fully described below), effective immediately and
expiring at the close of banking business at our Salt Lake City, Utah office
on the [insert date that is 12 Business Days after the Maturity Date]. All
terms used herein but not defined herein have the meanings given to such
terms in the Financial Warranty Agreement (the "Financial Warranty
Agreement") dated as of May 29, 2003, among OppenheimerFunds, Inc.,
Xxxxxxxxxxx Principal Protected Trust, on behalf of its series Xxxxxxxxxxx
Principal Protected Main Street Fund, and Xxxxxxx Xxxxx Bank USA.
If at any time on or prior to the Maturity Date, the Calculation Agent
provides the Warranty Provider with a written certificate certifying that the
Financial Warranty has been terminated pursuant to Section 10.1 of the
Financial Warranty Agreement (a "Termination Certificate"), the Financial
Warranty amount shall automatically reduce to zero and the Financial Warranty
shall terminate on such date and the Aggregate Shortfall Amount shall be
deemed to be zero.
Unless the Warranty Provider has received a Termination Certificate, funds
under this Financial Warranty are available to you against on sight draft
drawn on our Salt Lake City, Utah office, referring thereon to the number of
this Financial Warranty, accompanied by your written certificate signed by
you with an authenticated signature and certifying as to (a), (b) and (c)
below, and a written certificate from the Calculation Agent certifying the
determination of the Aggregate Shortfall Amount and its accuracy. Your
written certificate shall state that:
(a) The Maturity Date under the Financial Warranty Agreement
has occurred.
(b) The amount of your draft does not exceed the lesser of (i)
the amount of the drawing available under this Financial Warranty and
(ii) the Aggregate Shortfall Amount, as determined by the Calculation
Agent, in its sole discretion, in a good faith commercially reasonable
manner.
(c) You and the Adviser have complied with all applicable
covenants set forth in the Financial Warranty Agreement, including
without limitation Article III thereof.
Presentation of such draft and certificate shall be made at our office
located in Salt Lake City, Utah, Attention: Manager, Letters of Credit, or at
any other office which may be designated by us by written notice delivered to
you.
Upon the earliest of (i) the termination of this Financial Warranty in
accordance with the Financial Warranty Agreement, (ii) our honoring your
draft presented hereunder, (iii) the surrender to us by you of this Financial
Warranty for cancellation; (iv) the expiration date stated in the initial
paragraph hereof; and (v) the issuance of a Substitute Financial Warranty (as
hereinafter defined) to you pursuant to the penultimate paragraph of this
Financial Warranty, this Financial Warranty shall automatically terminate. A
termination of this Financial Warranty in accordance with the Financial
Warranty Agreement will be notified to you in writing upon which you will
immediately surrender this Financial Warranty to us for cancellation;
provided, that the failure to so notify or surrender shall not affect the
validity of such termination.
This Financial Warranty is subject to the International Standby Practices,
International Chamber of Commerce Publication No. 590 (the "ISP"), which is
incorporated into the text of this Financial Warranty by this reference.
Communications with respect to this Financial Warranty shall be addressed to
us at Salt Lake City, Utah, Attention: Manager, Letters of Credit, Facsimile:
(000) 000-0000, specifically referring to the number of this Financial
Warranty.
This Financial Warranty is not transferable.
As to matters not governed by the ISP, this Financial Warranty shall be
governed by, and construed in accordance with, the laws of the State of Utah,
including the Uniform Commercial Code as in effect in the State of Utah
(without regard to choice of law principles).
This Financial Warranty sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited
by reference to any document, instrument or agreement referred to herein,
except only the certificates and draft referred to herein; and any such
reference shall not be deemed to incorporate herein by reference any
document, instrument or agreement except for such certificates and draft.
The Warranty Provider hereby agrees that any drawing available under this
Financial Warranty will be paid to you in U.S. Dollars.
The Warranty Provider may arrange for a substitute warranty provider (a
"Substitute Warranty Provider") to issue a financial warranty to you in
substantially the form of this Financial Warranty (the "Substitute Financial
Warranty"); provided, that if the Substitute Warranty Provider is ML & Co.
or an Affiliate of the Warranty Provider or ML & Co., (A) ML & Co.
guarantees to the Fund and the Adviser all obligations assumed by such Affiliate
under the Financial Warranty Agreement and the other Transaction Documents and
(B) the Warranty Provider delivers to the Fund and the Adviser an opinion of
counsel, in a form acceptable to the Fund and the Adviser in their reasonable
discretion, that provides that the Affiliate assignee is authorized under
applicable law to assume the obligations of the Warranty Provider under the
Financial Warranty Agreement and such other Transaction Documents. The Warranty
Provider also may arrange for any other Substitute Warranty Provider to issue to
you a Substitute Financial Warranty, subject to the prior consent of the Fund
and the Adviser, in their sole discretion. Simultaneously with the delivery of
the Substitute Financial Warranty to you, you shall surrender this Financial
Warranty to the Warranty Provider for cancellation. Upon the issuance of the
Substitute Financial Warranty, the Warranty Provider shall be discharged from
any further obligations hereunder and under the Financial Warranty Agreement.
Subject to the first and seventh preceding paragraphs herein, we hereby agree
to forthwith honor your draft drawn under and in compliance with the terms of
this Financial Warranty if presented to us at any time during normal business
hours during the ten Business Day period commencing on [____________] through
and including [__________], accompanied by the written certificates specified
above.
Very truly yours,
XXXXXXX XXXXX BANK USA
By: _____________________
SCHEDULE 1 TO FINANCIAL WARRANTY AGREEMENT
FORM OF DAILY REPORT
Holdings
Oppenheimer Principal Protected Main Street Fund
Holdings as of 05/12/2003
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CUSIP Security ClassificatioShares / Price Market % of
Description Par Value NAV
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#N/A
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SubTotal $0.00 #N/A
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Total $0.00 #DIV/0!
Market
Value
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NAV
Oppenheimer Principal Protected Main Street Fund
As of 05/12/2003
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Class Shares Net Assets NAV Protected NAV
Outstanding
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All Shares
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SCHEDULE 1 TO FINANCIAL WARRANTY AGREEMENT (Continued)
Valuation
**********EXAMPLE**********
Xxxxxxx Xxxxx,
OFI's Valuation Committee today approved fair valuation for the
OppenheimerFunds for sedol XXXXXXX, Paramount Energy Trust. Today's
valuation for the OppenheimerFunds for Paramount Energy Trust is XX.XX CAD.
Regards,
Xxxxx X. Xxxxx
Assistant Vice President
Securities Valuation & Corporate Actions
OppenheimerFunds
0000 X. Xxxxxx Xxx
Xxxxxxxxx, XX 00000
000-000-0000
This data is provided for information purposes only and is not intended
to be relied upon. OFI is not the pricing or accounting agent for the Fund.
Official pricing or liquidity determinations should be based upon the Fund's
official books and records, using the Fund's procedures.
**********EXAMPLE**********
SCHEDULE 2 TO FINANCIAL WARRANTY AGREEMENT
SECTOR CONCENTRATION
The Multiple shall be adjusted as follows (subject to the Calculation Agent
determining, in its sole discretion, if a higher Multiple shall be used):
If an Equity Portfolio Sector Weighting is more than 1) the product of the
percentage highlighted below in Column 1 and the Sector weight and 2) the
percentage in Column 2, then the Multiple shall be adjusted to the number set
forth in Column 3:
---------------------------------------------------------------
Column 1 Column 2 Column 3
---------------------------------------------------------------
---------------------------------------------------------------
150% 12% 4
---------------------------------------------------------------
---------------------------------------------------------------
= 150% =12% 3
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---------------------------------------------------------------
= 200% =20% 2
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---------------------------------------------------------------
= 300% =30% 1
---------------------------------------------------------------
"Equity Portfolio Sector Weighting" means, with respect to any Sector, the
amount expressed as a percentage of the Market Value of the Equity Portfolio,
invested in such Sector by the Fund indirectly through its investment in
Class Y shares of the Underlying Fund.
"Sector" means the S&P 500 GIC sectors (Consumer Discretionary,
Consumer Staples, Energy, Financials, Health Care, Industrials, Information
Technology, Materials, Telecommunication Services, and Utilities), or such other
industry sectors determined using a third party source for identifying sectors
mutually agreed upon by the Trust on behalf of the Fund, the Adviser and the
Warranty Provider.
SCHEDULE 3 TO FINANCIAL WARRANTY AGREEMENT
SINGLE NAME CONCENTRATION
The Multiple shall be 4 subject to the adjustments below (provided however
that the Calculation Agent may determine, in its sole discretion, if a higher
Multiple shall be used):
-----------------------------------------------------
Multiple
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Should any stock held by 3
the Underlying Fund
represent more than or
equal to 10% of the total
assets of the Underlying
Fund
-----------------------------------------------------
-----------------------------------------------------
Should any 5 stocks held 3
by the Underlying Fund
represent in the
aggregate more than 25%
of the total assets of
the Underlying Fund
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SCHEDULE 4 TO FINANCIAL WARRANTY AGREEMENT
VOLATILITY
The Multiple shall be adjusted down as follows in Table 1 (subject to the
Calculation Agent determining, in its sole discretion, if a higher Multiple
shall be used):
-----------------------------------------------------
Table 1
-------
-----------------------------------------------------
-----------------------------------------------------
Volatility Multiple
---------- --------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
45% 4.0
-----------------------------------------------------
-----------------------------------------------------
=45% and 50% 3.0
-----------------------------------------------------
-----------------------------------------------------
=50% and 55% 2.0
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-----------------------------------------------------
=55% 1.0
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The Multiple shall be adjusted up as follows in Table 2:
-----------------------------------------------------
Table 2
-------
-----------------------------------------------------
-----------------------------------------------------
Volatility Multiple
---------- --------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
35% 4.0
-----------------------------------------------------
-----------------------------------------------------
=35% and 45% 3.0
-----------------------------------------------------
-----------------------------------------------------
= 45% and 50% 2.0
-----------------------------------------------------
-----------------------------------------------------
= 50% No adjustment up
-----------------------------------------------------
"Volatility" means the amount, as determined by the Calculation Agent, equal
to the product of (i) the square root of 252 and (ii) the standard deviation
of the daily percentage change in the Market Value of the Equity Portfolio,
excluding Cash and Cash Equivalents and for purposes of this definition only
including any Ineligible Investments held by the Fund, computed using the
most recent 60 such percentage changes.
SCHEDULE 5 TO FINANCIAL WARRANTY AGREEMENT
IMPLIED VOLATILITY
The Multiple shall be adjusted down as follows in Table 1 (subject to the
Calculation Agent determining, in its sole discretion, if a higher Multiple
shall be used):
-----------------------------------------------------
Table 1
-------
-----------------------------------------------------
-----------------------------------------------------
VIX Multiple
--- --------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
40% 4.0
-----------------------------------------------------
-----------------------------------------------------
= 40% and 45% 3.0
-----------------------------------------------------
-----------------------------------------------------
= 45% and 50% 2.0
-----------------------------------------------------
-----------------------------------------------------
= 50% 1.0
-----------------------------------------------------
The Multiple shall be adjusted up as follows in Table 2:
-----------------------------------------------------
Table 2
-------
-----------------------------------------------------
-----------------------------------------------------
VIX Multiple
--- --------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
30% 4.0
-----------------------------------------------------
-----------------------------------------------------
= 30% and 40% 3.0
-----------------------------------------------------
-----------------------------------------------------
= 40% and 45% 2.0
-----------------------------------------------------
-----------------------------------------------------
= 45% No adjustment up
-----------------------------------------------------
"Implied Volatility" means the Chicago Board of Options Exchange OEX
Volatility Index ("VIX"). Bloomberg code VIX Index (go)
SCHEDULE 6 TO FINANCIAL WARRANTY AGREEMENT
LIQUIDITY
The Multiple shall be adjusted as follows (subject to the Calculation Agent
determining, in its sole discretion, if a higher Multiple shall be used):
o Step #1 The Adviser shall calculate for each stock held in the
Underlying Fund the percentage each stock represents of the total value of
the Underlying Fund
o Step #2 The Adviser shall then calculate the positive difference
between the percentage calculated above and the percentage each stock
represents in the S&P 500
o Step #3 For each of these positive differences, the Adviser shall
then calculate the dollar amount that each of these positive differences
represents as holdings within the Equity Portfolio
o Step #4 For each of these dollar amounts, the Adviser shall then
compare these to the 3 month trailing average daily dollar volume for each
stock
o Step #5 For those which are more than 3%, the Adviser shall then
sum the total dollar value calculated in Step #3
o Step#6 The Adviser shall then take the total dollar value
calculated in Step #5 and divide it by the Total NAV of the Fund to calculate
a percentage
o The Multiple will be determined using the percentage calculated in the
preceding step, as highlighted below:
-----------------------------------------------------
Multiple
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
15% 4.0
-----------------------------------------------------
-----------------------------------------------------
= 15% and 25% 3.0
-----------------------------------------------------
-----------------------------------------------------
= 25% and 40% 2.0
-----------------------------------------------------
-----------------------------------------------------
= 40% 1.0
-----------------------------------------------------
SCHEDULE 7 TO FINANCIAL WARRANTY AGREEMENT
NAMES AND ADDRESSES OF CERTAIN PERSONS TO RECEIVE THE DAILY REPORT
Each Person listed on this Schedule 7 shall receive a copy of the Daily
Report via e-mail with confirmed delivery status notification sent to the
following addresses, or to such other address and/or addresses or other
contact information as shall be specified in writing by the Warranty Provider
to the Adviser or the Fund:
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XXXXXXX XXXXX BANK USA XXXXXXX XXXXX INTERNATIONAL
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---------------------------------------------------------------------------------
Xxxxxxx Xxxxx Bank USA Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx, First Attention: Xxxx Xxxxxxx
Vice President Telephone: 000-000-0000
Telephone: 000-000-0000 Facsimile: 000-000-0000
Facsimile: 000-000-0000 Email:
Email: x_xxxxx@xx.xxx Xxxxxxxx@xxxxxxxx.xx.xxx
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Xxxxxxx Xxxxx Bank USA Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxx Attention: Xxxxxxx Xxxxxxx
Telephone: 000-000-0000 Telephone: 000-000-0000
Facsimile: 000-000-0000 Facsimile: 000-000-0000
Email: xxxxx@xx0.xx.xx.xxx Email:
xxxxxxxx@xxxxxxxx.xx.xxx
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Xxxxxxx Xxxxx Bank USA Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxx Attention: Xxxxx Xxxxxxxxxx
Telephone: 000-000-0000 Telephone: 000-000-0000
Facsimile: 000-000-0000 Facsimile: 000-000-0000
Email: xxxxx@xxxxxxxx.xx.xxx Email: xxxxxxxxxxx@xxxxxxxx.xx.xxx
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Xxxxxxx Xxxxx Bank USA Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx Attention: Xxxx Xxxxxxxx
Telephone: 000-000-0000 Telephone: 000-000-0000
Facsimile: 000-000-0000 Facsimile: 000-000-0000
Email: xxxxxx@xxxxxxxx.xx.xxx Email:
xxxxxxxxxx@xxxxxxxx.xx.xxx
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Xxxxxxx Xxxxx Bank USA Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx Attention: Xxxxxxx Xxxx
Telephone: 000-000-0000 Telephone: 000-000-0000
Facsimile: 000-000-0000 Facsimile: 000-000-0000
Email: xxxxxxxxx@xxxxxxxx.xx.xxx Email: xxxxx@xxxxxxxx.xx.xxx
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Xxxxxxx Xxxxx Bank USA Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxxxxxx Attention: Xxxx Xxxxxxxx
Telephone: 000-000-0000 Telephone: 000-000-0000
Facsimile: 000-000-0000 Facsimile: 000-000-0000
Email: xxx_xxxxxxxx@xx.xxx Email:
Xxxxxxxxx@xxxxxxxx.xx.xxx
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A copy of the Daily Report shall be deemed to have been delivered in
accordance with Section 3.4 when sent to each of the following three Persons
via confirmed facsimile transmission to the addresses below, or to such other
address and/or addresses or other contact information as shall be specified
in writing by the Warranty Provider to the Adviser or the Fund:
--------------------------------------------------------------------------------
Xxxxxxx Xxxxx Bank USA Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx, First Attention: Xxxx Xxxxxxx
Vice President Telephone: 000-000-0000
Telephone: 000-000-0000 Facsimile: 000-000-0000
Facsimile: 000-000-0000 Email:
Email: x_xxxxx@xx.xxx Xxxxxxxx@xxxxxxxx.xx.xxx
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Xxxxxxx Xxxxx International Xxxxxxx Xxxxx International
4 World Financial Center 4 World Financial Center
0xx Xxxxx 0xx Xxxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxx Attention: Xxxxxxx Xxxxxxx
Telephone: 000-000-0000 Telephone: 000-000-0000
Facsimile: 000-000-0000 Facsimile: 000-000-0000
Email: xxxxx@xxxxxxxx.xx.xxx Email:
xxxxxxxx@xxxxxxxx.xx.xxx
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