Exhibit 8(d)(2)
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FINANCIAL WARRANTY AGREEMENT
among
XXXXXXX XXXXX PRINCIPAL PROTECTED TRUST
FUND ASSET MANAGEMENT, L.P.,
as investment adviser
and
MAIN PLACE FUNDING, LLC,
as warranty provider
Dated as of [___], 2002
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..................................................1
Section 1.1 General Definitions...................................1
Section 1.2 Generic Terms.........................................9
ARTICLE II AMOUNT AND TERMS OF THE FINANCIAL WARRANTY..................10
Section 2.1 The Financial Warranty...............................10
Section 2.2 Procedure for Issuance and cancellation of
remaining Financial Warranty Limit...................10
Section 2.3 Conditions Precedent to Effectiveness................10
Section 2.4 Financial Warranty Fee...............................13
Section 2.5 Aggregate Shortfall Amount; Adjustment to
Protected Amount Per Share...........................13
Section 2.6 Certain Defined Terms................................14
ARTICLE III MANAGEMENT OF THE FUND......................................15
Section 3.1 General..............................................15
Section 3.2 Restrictions on Investments..........................15
Section 3.3 Allocation and Reallocation of Fund's Assets.........16
Section 3.4 Reports; Access to Information.......................19
Section 3.5 Intent...............................................19
ARTICLE IV TRIGGER EVENTS..............................................19
Section 4.1 Trigger Events.......................................19
Section 4.2 Defeasance Portfolio.................................23
ARTICLE V INDEMNIFICATION.............................................24
Section 5.1 Survival.............................................24
Section 5.2 Indemnification......................................24
Section 5.3 Indemnification Procedure............................25
ARTICLE VI REPRESENTATIONS AND WARRANTIES..............................26
Section 6.1 Representations and Warranties of the Adviser........26
Section 6.2 Representations and Warranties of the Trust
on behalf of the Fund................................28
Section 6.3 Representations and Warranties of the
Warranty Provider....................................29
ARTICLE VII COVENANTS...................................................30
Section 7.1 Covenants of the Adviser.............................30
Section 7.2 Covenants of the Trust on behalf of the Fund.........32
Section 7.3 Covenants of the Warranty Provider...................34
ARTICLE VIII FURTHER AGREEMENTS..........................................34
Section 8.1 Obligations Absolute.................................34
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Section 8.2 Participations and Assignments.......................35
Section 8.3 Fund Liability.......................................35
Section 8.4 Limitation of Liability of the Warranty Provider.....35
Section 8.5 Adviser Liability for Actions of Subadviser..........35
Section 8.6 Fees and Expenses....................................35
ARTICLE IX CONFIDENTIALITY.............................................35
Section 9.1 Confidentiality Obligations of the
Warranty Provider....................................35
Section 9.2 Trading Information and Other Information............36
Section 9.3 Confidentiality Obligations of the
Adviser and the Fund.................................36
Section 9.4 Copies of Fund Confidential Information..............37
ARTICLE X TERMINATION.................................................37
Section 10.1 Termination..........................................37
ARTICLE XI MISCELLANEOUS...............................................38
Section 11.1 Amendments and Waivers...............................38
Section 11.2 Notices..............................................38
Section 11.3 No Waiver, Remedies and Severability.................39
Section 11.4 Payments.............................................40
Section 11.5 Governing Law........................................40
Section 11.6 Submission to Jurisdiction, Waiver
of Jury Trial........................................40
Section 11.7 Counterparts.........................................40
Section 11.8 Paragraph Headings...................................40
Section 11.9 Reliance on Information..............................41
Section 11.10 Time of the Essence..................................41
Section 11.11 No Third-Party Rights................................41
Section 11.12 Further Assurances...................................41
Section 11.13 Entire Agreement.....................................41
Exhibit A Form of Financial Warranty
Exhibit B Form of Bank of America Corporation Guarantee
Schedule 1 Form of Daily Report
Schedule 2 Cushion/Volatility Matrix
Annex A Form of opinion of Shearman & Sterling
Annex B Form of opinion Xxxxxxxx Chance US LLP
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FINANCIAL WARRANTY AGREEMENT
FINANCIAL WARRANTY AGREEMENT, dated as of [___], 2002 (the "Agreement"),
among XXXXXXX XXXXX PRINCIPAL PROTECTED TRUST, an open-end management investment
company organized as a business trust under the laws of the State of Delaware
(the "Trust"), on behalf of its series XXXXXXX XXXXX BASIC VALUE PRINCIPAL
PROTECTED FUND (the "Fund"), FUND ASSET MANAGEMENT, L.P., a limited partnership
organized under the laws of Delaware (the "Adviser"), and MAIN PLACE FUNDING,
LLC (the "Warranty Provider"), a limited liability company formed under the laws
of the State of Delaware and an indirect, wholly-owned subsidiary of Bank of
America Corporation.
W I T N E S S E T H:
WHEREAS, the Trust is an open-end, diversified, 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, to issue a financial warranty in
substantially the form of Exhibit A (such financial warranty being the
"Financial Warranty") in the amount of up to $500 million in order to ensure
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;
WHEREAS, Bank of America Corporation will guarantee the obligations of the
Warranty Provider under the Financial Warranty subject to the terms set forth in
this Agreement pursuant to a guarantee in substantially the form of Exhibit B;
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.
"Adjusted Discount Factor" has the meaning provided in Section 3.3(a).
"Adverse Effect" means, (i) in respect of 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) in respect
of the Fund, a material adverse effect upon (a) the ability of 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 and (iii) in respect of 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. An adverse effect on the binding nature, validity or
enforceability of this Agreement shall constitute an Adverse Effect. The
determination of whether a particular set of circumstances would reasonably be
expected to have an Adverse Effect includes a determination of both 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 Excess" means the sum of the Excess Allocations with respect to
all Eligible Equity Investments and Sectors.
"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 180 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
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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).
"BBID System" means the Xxxxx Brothers Information Display System or any
equivalent successor system acceptable to the Warranty Provider in its
reasonable discretion.
"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 is closed for business.
"Calculation Agent" means Banc of America Securities, LLC.
"Cash" means legal tender of the United States.
"Cash Equivalents" means Bank Deposits, Commercial Paper, Repurchase
Agreements, and U.S. Government Securities (excluding U.S. Zeroes), having a
remaining maturity of 180 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 180
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.
"Corporate Bonds" means non-callable debt obligations of a corporation
having a rating of at least "A-" by S&P or "A3" by Moody's (or equivalent credit
ratings if different rating categories are used); provided that if both Moody's
and S&P have issued a rating thereon, such rating shall be no less than
"A-"/"A3" (or equivalent credit ratings if different rating categories are
used).
"Curative Steps" has the meaning provided in Section 4.1(b).
"Cushion" has the meaning provided in Section 3.3(a).
"Cushion/Volatility Matrix" has the meaning provided in Section 3.3(a).
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"Custodian" means Xxxxx Brothers Xxxxxxxx & Co. as Custodian pursuant to
the Custodian Agreement or any successor custodian of the Fund's assets
appointed by the Fund's Board of Trustees.
"Custodian Agreement" means the Custodian Agreement, dated October 26,
2001, as amended with respect to the Trust on [________], 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
[___], 2002, as amended and in effect from time to time.
"Defeasance Portfolio" has the meaning provided in Section 4.2(a).
"Determination Notice" has the meaning provided in Section 4.1(d).
"Early Close Exchange Business Day" has the meaning provided in Section
4.1(a).
"Effective Date" means the date on which the conditions set forth in
Section 2.3(b) are satisfied.
"Eligible Equity Investments" means common shares, preferred shares,
convertible debt securities, depository receipts, rights and warrants of U.S.
and non-U.S. issuers and any other equity or equity-type investments that the
Fund may invest in pursuant to the Prospectus.
"Eligible Fixed-Income Investments" means U.S. Government Securities,
Cash, Cash Equivalents and Corporate Bonds.
"Equity Portfolio" means the portion of the Fund's assets invested in
Eligible Equity Investments at any time during the Protected Period, including
Cash and Cash Equivalents deemed allocated to the Equity Portfolio pursuant to
Section 3.2(a)(iii).
"Equity Portfolio Value" has the meaning provided in Section 3.3(b).
"Equity Weighting Limit" means 6.5%.
"Excess Allocation" means (i) with respect to any Eligible Equity
Investment, the amount (if any) by which the Portfolio Weighting of such
Eligible Equity Investment exceeds the Equity Weighting Limit and (ii) with
respect to any Sector, one-half of the amount (if any) by which the Portfolio
Weighting of such Sector exceeds the Sector Weighting Limit.
"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 Expense Limitation Agreement,
dated as of the date hereof, between the Adviser and the Trust on behalf of the
Fund, pursuant to which the Adviser has agreed to limit Fund fees and expenses
until the Maturity Date to a maximum of 1.05% per annum for each of the Class A
Shares, Class B Shares, Class C Shares and Class D Shares if a Permanent
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Defeasance Event shall have occurred (excluding any extraordinary expenses (as
described in the Expense Limitation Agreement)).
"Extended Cure Time" has the meaning provided in Section 4.1(a).
"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,
but excluding any Cash and Cash Equivalents deemed allocated to the Equity
Portfolio pursuant to Section 3.2(a)(iii).
"Fund" has the meaning provided in the preamble.
"Fund Confidential Information" has the meaning provided in Section
9.1(a).
"Fund Parties" has the meaning provided in Section 5.2(c).
"Fund Portfolio" has the meaning provided in Section 3.1.
"Government Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions or pertaining to government,
including any self-regulatory organization.
"Inception Date" means the second 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.
"Ineligible Investments" means a security 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).
"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 Management Agreement, dated as
of the date hereof, between the Trust on behalf of the Fund and the Adviser.
"Investment Related Expenses" means interest, stamp, transfer or other
similar taxes, brokerage commissions, transaction fees and other investment
related costs.
"Issued Financial Warranty Amount" has the meaning provided in Section
2.2.
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"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, charge, lien or security interest (statutory or other)
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 or before any
governmental body or agency, or before any arbitrator, or the overt threat of
any such proceedings, which would reasonably be expected to 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).
"Market Value" means the value of any security determined in accordance
with the Fund's valuation procedures used to determine the value of its Net
Assets; provided, however, that in the case of intraday valuation, Market Value
shall be determined based on the Fund's assets as of the close of business on
the Exchange Business Day immediately prior to such date of determination.
"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).
"Modified Duration" means, with respect to any Corporate Bond or U.S.
Government Security, the quotient of (a) the weighted average term to maturity
of the cash flows generated by such security divided by (b) the sum of (i) one
plus (ii) the quotient of (A) the yield to maturity of such security divided by
(B) the number of interest payments on such security per year. For the purposes
of this calculation, the number of interest payments on any non-interest bearing
Corporate Bonds or U.S. Zeroes is assumed to be two per year. With respect to a
portfolio of Eligible Fixed-Income Investments, Modified Duration means an
amount equal to the average of the Modified Duration of each such Eligible
Fixed-Income Investment, weighted on the basis of the Market Values thereof.
"Moody's" means Xxxxx'x Investors Service, Inc.
"NAV Per Share" has the meaning provided in Section 2.6(d).
"Net Assets" means the Market Value of the total assets of the Fund minus
its liabilities at the time of determination.
"Notice" has the meaning provided in Section 5.3(a).
"Objection Notice" has the meaning provided in Section 4.1(d).
"Offering Period" means the initial period during which the Shares of the
Fund will be offered for sale to investors as described in the Prospectus. The
Offering Period may not be extended beyond November 15, 2002 without the prior
written consent of the Warranty Provider.
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"Other Information" has the meaning provided in Section 9.1.
"Permanent Defeasance Date" is the date on which a Permanent Defeasance
Event occurs in accordance with Section 4.1(c).
"Permanent Defeasance Event" has the meaning provided in Section 4.1(c).
"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.
"Portfolio Weighting" means, with respect to any Eligible Equity
Investment or Sector, the amount, expressed as a percentage of the Market Value
of the Equity Portfolio Value, invested in Eligible Equity Investments or any
Sector, respectively.
"Potential Trigger Event" means an event or circumstance which could, with
the giving of notice, lapse of time, the issuing of a certificate and/or
fulfillment of any other requirement provided for in the definition of "Trigger
Event" become 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 updated 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.
"PV" has the meaning provided in Section 3.3(a).
"PV Shortfall" with respect to each Class of Shares, means the Shares
Outstanding for such Class of Shares multiplied by the difference of the NAV Per
Share minus PV, if a negative number.
"Registration Statement" has the meaning provided in Section 2.3(b)(v).
"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 and federal banking laws) which has resulted in or would
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 would be reasonably expected to result in an Adverse Effect in respect of
such party.
"Representatives" has the meaning specified in Section 9.2(b).
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"Repurchase Agreements" means unleveraged repurchase obligations, with
maturities of not more than seven (7) days, with respect to any U.S. Government
Security entered into with a depository institution or trust company (acting as
principal) that satisfies the criteria set forth in the definition of Bank
Deposits or entered into with a broker-dealer (acting as principal) incorporated
under the laws of the United States of America or any state thereof whose
obligations are rated 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 short-term obligations or, in the case of long-term obligations, at least
"Aa2" by Moody's and at least "AA" by S&P (or equivalent credit ratings if
different rating categories are used).
"Requirements of Law" means, as to any Person, the charter and by-laws or
other organizational or governing document 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" means [_____________________________].
"Sector Weighting Limit" means 33%.
"Securities Act" means the Securities Act of 1933, as amended.
"Service Agreement" means the Service Agreement, dated as of [___], 2002,
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.
"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,
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).
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"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 Expense Limitation Agreement, 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 Business Day after the end of the Offering
Period.
"Trigger Event" means each event set forth in Section 4.1(a).
"Trust" has the meaning provided in the preamble.
"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. U.S. Government
Securities shall include Separate Trading of Registered Interest and Principal
of Securities (STRIPS), Certificates of Accrual on Treasury Securities (CATS),
Treasury Investment Growth Receipts (TIGRs), and Generic Treasury Receipts
(TRs).
"U.S. Zeroes" means U.S. Government Securities that are non-interest
bearing.
"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 (adjusted for the effect of any daily redemption of Shares), computed
using the most recent sixty such percentage changes.
"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).
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, 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 and Section
2.3(c)(vii) hereof.
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Section 2.2. Procedure for Issuance and cancellation of remaining
Financial Warranty 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 be in the amount of the
Aggregate Protected Amount as of the close of business on the Transition Date
and 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(b)(i)
through and including (vi) and 2.3(c) have been satisfied. Upon receipt of such
notice and the fulfillment of the applicable conditions set forth in Section 2.3
hereof, the Warranty Provider will issue the Financial Warranty to the Trust on
behalf of the Fund in the amount specified in the parenthetical in the first
sentence of this Section 2.2 (the "Issued Financial Warranty Amount"). 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. 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. Section 8.6, Section
9.1, Section 9.3 and Article V shall be effective immediately upon the execution
of this Agreement.
(a) Subject to Section 2.3(c), the effectiveness of all provisions
of this Agreement (other than this Section 2.3(b), Section 8.6, Section 9.1,
Section 9.3 and Article V hereof) is subject to the satisfaction of the
following conditions:
(i) Each Transaction Document (other than the Prospectus and
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 instructions from 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 BBID System required by Sections
3.4(c) and (d), respectively.
(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 in any respect, 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 Delaware
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
-10-
Transaction Documents to which the Trust is a party, in each case on behalf of
the Trust, 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 of this Agreement and such other
Transaction Documents, which resolutions 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, (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, and (C) a
copy of the Certificate of Trust (including all amendments thereto) certified as
of a recent date by the Secretary of State of the State of Delaware.
(v) The Warranty Provider shall have received a certificate of
the Secretary, Assistant Secretary, Treasurer or Assistant Treasurer of the
Trust, dated as of the Effective Date, certifying that (A) the Trust's
registration statement on Form N-1A with respect to each Class of Shares of the
Fund (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) the
Registration Statement (or the most recent amendment thereto) has been declared
effective by the Commission, (C) true and complete copies of such Registration
Statement on Form N-1A as amended and in effect on the Effective Date are
attached thereto (such registration statement, as it may be amended from time to
time, the "Registration Statement"), excluding any exhibits thereto, (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 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 that has been provided by the
Warranty Provider in writing for inclusion in or to be incorporated by reference
into the Registration Statement), and (F) the shares of each Class of Shares of
the Fund conform in all material respects to the description thereof contained
in the Registration Statement and Prospectus with respect to such Class of
Shares.
(vi) The Warranty Provider shall have received the opinion of
Shearman & Sterling, counsel to the Fund and the Adviser, in the form attached
hereto as Annex A.
(vii) 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, 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.
(viii) The Adviser and the Trust shall have received the
opinion of Xxxxxxxx Chance US LLP, counsel to the Warranty Provider, in the form
attached hereto as Annex B.
(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 attached
thereto are true, complete and correct copies of its certificate of formation,
operating agreement and consents duly adopted by the Warranty Provider,
authorizing the execution and delivery of this Agreement and such other
Transaction Documents, which consents have not been modified, amended or
rescinded in any respect, are in full
-11-
force and effect on the Effective Date and constitute the most recent consents
of the Warranty Provider relating to the transactions contemplated hereby and
thereby, and (B) a good standing certificate from the Secretary of State of the
State of Delaware regarding the Warranty Provider.
(x) The Warranty Provider shall have delivered the guarantee
of Bank of America Corporation in the form attached hereto as Exhibit B.
(xi) The Warranty Provider shall have delivered to the Trust
on behalf of the Fund a 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.
(b) The obligation of the Warranty Provider to issue the Financial
Warranty is subject to the satisfaction of the following conditions on the
Inception Date:
(i) Each of the representations and warranties made by the
Adviser and the Fund in this Agreement shall be true and correct in all material
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 "bringdowns" of
the certificates and other matters referenced in Sections 2.3(b)(iii), (iv) and
(v) and of the opinion referenced in Section 2.3(b)(vi) through the Inception
Date.
(iii) No Trigger Event shall have occurred.
(iv) 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.
(v) No suit, action or other proceeding, investigation, or
injunction or final judgment relating thereto, shall be pending or threatened
before any court or governmental agency in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with any of the
Transaction Documents.
(vi) There shall not have been an Adverse Effect in respect of
the Adviser or the Fund since the date of this Agreement.
(vii) On the Inception Date, the Aggregate Protected Amount
shall not exceed the Financial Warranty Amount Limit. If, during the Offering
Period, the Fund expects to receive subscriptions for its Shares which could
result in the Aggregate Protected Amount exceeding the Financial Warranty Amount
Limit as of the close of business on the Transition Date, then the Fund shall
consult with the Warranty Provider. If the Warranty Provider agrees to increase
the Financial Warranty Amount Limit in its sole discretion, this Agreement will
be amended accordingly.
(viii) A copy of the Prospectus with respect to each Class of
Shares of the Fund shall have been delivered to the Warranty Provider.
(ix) 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 Fund authorizing
the issuance of each Class of Shares of the Fund in respect of which the
Warranty Provider is
-12-
providing the Financial Warranty, which resolutions 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.
(x) 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 the Fund Portfolio as of the Inception Date is in
compliance with the Portfolio Requirements.
(xi) The parties shall have provided the notice procedures
contemplated by Section 11.2(b), if applicable.
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 (a) prior to the occurrence of a
Permanent Defeasance Event, 0.80% per annum of the average daily Net Assets of
the Fund during each calendar month in the Protected Period or (b) following the
occurrence of a Permanent Defeasance Event, 0.40% per annum of the average daily
Net Assets of the Fund during each calendar month in the Protected Period
(collectively, the "Financial Warranty Fee"), in each case, payable monthly in
arrears on the last Business Day of the following calendar month (each a "Fee
Payment Date"); provided that, for the purposes of calculating the Financial
Warranty Fee, the Net Assets shall be determined without taking into account any
indemnification claim made by the Warranty Provider against the Fund pursuant to
the terms of this Agreement. The Financial Warranty Fee payable on each Fee
Payment Date will be calculated based on a 360 day year for the actual number of
days elapsed. The obligation to pay the Financial Warranty Fee that has accrued
hereunder 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) 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. The
calculation and accuracy of the Aggregate Shortfall Amount determined hereunder
shall be certified by the Calculation Agent on the first Business Day following
the Maturity Date. The Calculation Agent shall determine such Aggregate
Shortfall Amount in a good faith commercially reasonable manner and provide such
certification within three 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 on a
pro rata basis to an amount equal to the product of (a) the Protected Amount Per
Share for such Class immediately prior to such dividends or distributions and
(b) a fraction, the numerator of which shall be the NAV Per Share for such Class
immediately after such dividends or distributions and the denominator of which
shall be the NAV Per Share for such Class immediately prior to such dividends or
distributions;
(ii) Excess Fees attributable to each Share of a Class of
Shares shall reduce the Protected Amount Per Share to an amount equal to the
product of (a) the Protected Amount Per Share for such Class immediately prior
to the time that such Excess Fees are accrued with respect to such Class and (b)
a fraction, the numerator of which shall be the NAV Per Share for such Class
immediately after such Excess Fees are accrued and the denominator of which
shall be the NAV Per Share for such Class immediately prior to the time that
such Excess Fees are accrued;
-13-
(iii) The Shares of a Class that are issued during the
Protected Period in violation of Section 3.1 shall not be included in the Shares
Outstanding of such Class; and
(iv) In the event of changes in accounting practices for the
Fund from those used on the Transition Date, 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, appropriate adjustments shall be made by the
Warranty Provider to the Protected Amount Per Share for such Class or the way
such Protected Amount Per Share is calculated to the extent deemed necessary by
the Warranty Provider to preserve the economic equivalent of this Agreement and
the Financial Warranty. 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 the sum of the products, for
each of the Class A Shares, Class B Shares, Class C Shares and Class D Shares,
of the Protected Amount Per Share of each Class of Shares and the Shares
Outstanding of such Class.
(b) "Aggregate Shortfall Amount" means the sum of the Shortfall
Amount, if any, of each of the Class A Shares, Class B Shares, Class C Shares
and Class D Shares, which shall never exceed the Aggregate Protected Amount as
of the close of business on the Maturity Date.
(c) "Excess Fees" means Fund fees and expenses (other than
Investment Related Expenses) accruing in excess of the limitations provided in
the Expense Limitation Agreement, including, without limitation, Income Taxes
and any extraordinary expenses (as described in the Expense Limitation
Agreement), including any indemnification claims made by the Warranty Provider
against the Fund and the Adviser pursuant to this Agreement.
(d) "NAV Per Share" means with respect to each Class of Shares on a
per share basis at the time of determination, (i) the published net asset value
per Share for such Class if the determination is made as of the close of
business on any Business Day and (ii) if the determination is made at any time
other than the close of business on any Business Day, NAV Per Share shall mean
the NAV Per Share (as determined in accordance with subsection (i) above) as of
the close of business on the immediately preceding Business Day, adjusted to
reflect any difference in the Market Value of the Fund's portfolio securities at
the time of such determination compared to the Market Value of such securities
at the close of business on such prior Business Day and taking into account any
purchases and sales of portfolio securities effected as of the time that the
determination is made. The assets, income, gain, loss, expenses and liabilities
(other than those expenses and liabilities relating specifically to a Class of
Shares which shall be allocated solely to such Class) of the Fund shall be
allocated to each Class of Shares of the Fund at each time of determination on a
pro rata basis based on the NAV Per Share of such Class of Shares as determined
as of the close of business on the preceding Business Day.
(e) "Protected Amount Per Share" at any time on any Business 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.
(f) "Shortfall Amount" with respect to each Class of Shares is
deemed to be the Shares Outstanding of such Class of Shares multiplied by the
difference, if positive, between the
-14-
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 Class A
Shares, Class B Shares, Class C Shares and Class D Shares at the time of
determination, of the NAV Per Share for each Class and the Shares Outstanding of
such Class 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. Except as set forth in Section 4.2 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 subject
to the following Portfolio Requirements, the compliance with which shall be
determined as of the close of business on each Exchange Business Day and with
respect to subsection (i) below, as of any time on any Exchange Business Day:
(i) subject to this Article III and Section 4.2, the Fund's
assets may be invested only in Eligible Equity Investments and Eligible
Fixed-Income Investments;
(ii) the portion of the Fund's assets allocated to the Equity
Portfolio, calculated as a percentage, 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 Permanent Defeasance Event; provided that, for purposes
of determining whether the Fund's assets allocated to the Equity Portfolio are
in excess of the Maximum Equity Component, the Fund's assets that are Ineligible
Investments shall be deemed to be allocated to the Equity Portfolio;
(iii) any Cash and Cash Equivalents held by the Fund during
the Protected Period (in the absence of a Permanent Defeasance Event), shall be
considered allocated to the Fixed-Income Portfolio to the extent that such
investments constitute up to 5% of the Fund's assets on any Exchange Business
Day and any portion, if any, in excess of such 5% shall be considered allocated
to the Equity Portfolio;
-15-
(iv) the portion of the Fixed-Income Portfolio invested in
U.S. Government Securities, calculated as a percentage, shall be 100% (exclusive
of any Cash and Cash Equivalents); 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 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. Zeroes under
this Section 3.2(a)(v);
(vi) the Equity Portfolio will be managed in a manner
substantially similar to the manner in which the equity securities of Xxxxxxx
Xxxxx Basic Value Fund, Inc. (Bloomberg ticker "MDBAX") are managed at the time
the Registration Statement is declared effective;
(vii) all Cash Equivalents and U.S. Zeroes shall mature no
later than one month after the Maturity Date;
(viii) all U.S. Government Securities shall mature no earlier
than six months prior to the Maturity Date;
(ix) the Fixed-Income Portfolio (excluding Cash and Cash
Equivalents), in the aggregate, shall have a Modified Duration equal to the
period from the date of determination to the Maturity Date plus or minus three
months;
(x) the weighted average rating by S&P (determined at the time
of acquisition) of any portion of the Fixed-Income Portfolio allocated to
Corporate Bonds, if any, shall be at least A+ (or equivalent credit rating if
different rating categories are used); and
(xi) to the extent that any portion of the Fixed-Income
Portfolio is allocated to Corporate Bonds, such investments shall be limited so
that the Corporate Bonds of a single issuer do not represent more than 5% of the
assets of the Fund allocated to Corporate Bonds.
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 Fund's Total NAV, means the smallest Equity Limit for a
Class of Shares, determined in accordance with the formula set forth below:
Equity Limit
for a Class
of Shares = ((NAV Per Share - PV)/NAV Per Share)/Cushion, in each case
with respect to that Class (or zero in the event that the
Equity Limit for a Class of Shares is less than 0.025;
provided, that the Equity Limit for a Class of Shares shall
not exceed 100% at any time);
where,
NAV Per Share has the meaning set forth in Section 2.6(d);
PV = the product of (i) the Adjusted Discount Factor and (ii) the
Protected Amount Per Share, in each case with respect to the
relevant Class;
-16-
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 4:00 p.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 Benchmark Yield Curve as
of the date of determination and (ii) an amount, based on the
Total Fees of the relevant Class and the time (in years)
remaining to the Maturity Date, determined by the Calculation
Agent as follows:
Total Fees 360 x t
(1 - ----------)
360
Total Fees = maximum expense ratio of that Class of Shares on an annual
basis permitted by the Expense Limitation Agreement assuming a
Permanent Defeasance Event has occurred (excluding
extraordinary Fund expenses (as described in the Expense
Limitation Agreement));
Cushion = the percentage set forth opposite the applicable Volatility
in the table attached hereto as Schedule 2 (the
"Cushion/Volatility Matrix"), as adjusted pursuant to Sections
3.3(c), 3.4(d) and 4.1(c);
t = the time, in years, remaining until the Maturity Date.
(b) The Adviser shall cause the net asset value attributable to the
Equity Portfolio to be calculated as of the close of business on each Exchange
Business Day in the manner described in the Prospectus and in accordance with
the Investment Company Act (the "Equity Portfolio Value") and the Maximum Equity
Component as of the close of business on each Exchange Business Day; provided
that such determination of the Maximum Equity Component shall be subject to
review and confirmation by the Warranty Provider in its sole discretion. If the
Equity Portfolio, as a percentage of Total NAV, exceeds the Maximum Equity
Component determined in accordance with Section 3.3(a) as of the close of
business on any Exchange Business Day, then during the immediately succeeding
Exchange Business Day the Adviser must sell assets and reallocate a portion of
the Fund's assets from the Equity Portfolio to the Fixed-Income Portfolio such
that the allocation to the Equity Portfolio is less than or equal to the Maximum
Equity Component. In the event of a violation of Section 3.2(a)(i), then within
the cure period provided in Section 4.1(a)(ii), the Adviser must sell assets and
reallocate the Fund's assets to the extent necessary so that the Fund Portfolio
does not include investments other than Eligible Equity Investments and Eligible
Fixed-Income Investments and the Equity Portfolio is less than or equal to the
Maximum Equity Component. It is the intention of the parties that the formula in
Section 3.3(a) results in the Fund's Net Assets being allocated such that the
Equity Portfolio may withstand a percentage decline equal to the Cushion and
still provide for payment in full of the Aggregate Protected Amount on the
Maturity Date, net of Total Fees; provided, however, that the obligation of the
Fund and the Adviser shall be to manage the Fund Portfolio in accordance with
the terms of this Agreement.
-17-
(c) Notwithstanding any of the foregoing, if at any time on any
Exchange Business Day either the SPX or the Market Value of the Equity Portfolio
declines 10% or more from the level or value thereof as of the close of business
on the prior Exchange Business Day, then the Warranty Provider may, upon notice
to the Adviser and in its sole discretion, adjust the Cushion (and the Cushion
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 Cushion shall be adjusted to no more than 1.2 times the
percentage set forth opposite the applicable Volatility in the
Cushion/Volatility Matrix, which percentage shall be adjusted back to the
percentage set forth opposite the applicable Volatility in the
Cushion/Volatility Matrix after sixty calendar days, or such lower number as
determined by the Warranty Provider in its sole discretion). The Adviser shall
recalculate the Total NAV upon receipt of such notification and as soon as
practicable sell assets and reallocate the Fund Portfolio to the extent
necessary so that the Equity Portfolio, as a percentage of the Total NAV, is
less than or equal to the Maximum Equity Component, determined using the
adjusted Cushion and recalculated Total NAV in accordance with this Section
3.3(c), 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 1:00 p.m. (Eastern time)
(provided that should the Adviser fail to complete such rebalancing within such
time, it shall have taken steps, including being actively engaged in the sale of
portfolio securities, to achieve such rebalancing within such time) or by the
end of the next succeeding Exchange Business Day if the Adviser receives such
notification after 1:00 p.m. (Eastern time).
(d) If at any time during the Protected Period the allocation to the
Equity Portfolio 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 equity security unless such
equity security is not an Eligible Equity Investment).
(f) On each Exchange Business Day, the Calculation Agent shall
calculate the Aggregate Excess as of the close of business on the prior Exchange
Business Day based on the report received from the Custodian and shall report
such calculation to the Adviser by 4:00 p.m. on such Exchange Business Day.
Notwithstanding any of the provisions herein relating to adjustment of the
Cushion, if, as of the close of business on any Exchange Business Day, the
Aggregate Excess is greater than zero, then the Warranty Provider may, upon
notice to the Adviser and in its sole discretion, further adjust the Cushion in
effect for such day such that the Cushion, after giving effect to such
adjustment, equals the sum of (i) the Aggregate Excess and (ii) the product of
(A) the Cushion in effect prior to any adjustment under this Section 3.3(f) and
(B) 1 minus the Aggregate Excess.
Section 3.4. Reports; Access to Information.
(a) No later than 9:30 a.m. (Eastern time) on each Exchange Business
Day, the Adviser shall transmit to the Warranty Provider the Daily Report for
such date reflecting the calculations performed by the Adviser for the prior
Exchange Business Day in accordance with Section 3.3(b). Such Daily Report shall
specify whether any portion of the Total NAV has been determined pursuant to
fair
-18-
value pricing, identifying the particular portfolio security or securities that
were valued using fair value pricing and the procedures used to make such
determination.
(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 a.m. (Eastern time) on the following 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 electronically in a format reasonably acceptable to the Warranty
Provider not later than 9:00 a.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 the prior Exchange Business Day and (ii) a list of
all of the Fund's trades during such prior Exchange Business Day (such Exchange
Business Day, a "Trade Date").
(d) The Adviser shall arrange for the Warranty Provider to be able
to continuously view and monitor the Fund Portfolio by causing the Custodian to
give the Warranty Provider access to the BBID System. If the Warranty Provider
is denied such access at any time, the Warranty Provider may, in its sole
discretion, adjust the Cushion until such time as such access is restored;
provided, that the Cushion shall not be reduced if the Adviser provides the
Warranty Provider with an alternative source of the information provided by the
BBID System that is acceptable to the Warranty Provider in its sole discretion.
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 (excepting
from the scope of the term "leverage," Loans for Temporary or Emergency
Purposes). To the extent that the instruments which the Fund is permitted to
invest in have implicit, embedded or synthetic leverage, the Portfolio
Requirements are intended to prevent the Adviser from using such implicit,
embedded or synthetic leverage to materially increase the loss that the Fund
would experience in the event of a decline in the Fund's Net Assets, compared to
a fully invested portfolio that did not include such investments.
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 circumstances (an "Early Close
Exchange Business Day"), the cure periods specified in this Section 4.1(a) will
be automatically extended such that on the next Exchange Business Day following
the Early Close Exchange Business Day, the cure periods will continue for the
amount of time lost on such Early Close Exchange Business Day due to such early
close (the "Extended Cure Time") (for the avoidance of doubt, should the next
Exchange Business Day following the Early Close Exchange Business Day also be an
Early Close Exchange Business Day, the cure period will continue for as long as
Extended Cure Time remains):
(i) Any failure at any time to comply with the covenant set
forth in the first sentence of Section 3.1;
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(ii) Any failure at any time to comply with the provisions of
Section 3.2(a)(i), if such violation is not cured on the Exchange Business Day
on which the Adviser becomes aware of such violation; 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;
(iii) Any failure at any time to comply with Section 3.3(c);
(iv) Any failure at any time to comply with Section 3.2(a)(ii)
or Section 3.3 (other than Section 3.3(c)), unless cured by the end of the
Exchange Business Day following the Exchange Business Day on which such
violation occurred;
(v) The termination of, or failure to comply with, the Expense
Limitation Agreement;
(vi) Any violation of Article III (other than Sections
3.2(a)(vi) and (xi)) that is not provided for in clause (i), (ii), (iii) or (iv)
above unless cured by the end of the Exchange Business Day following the
Exchange Business Day on which the Adviser becomes aware of such violation;
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;
(vii) Any violation of Section 3.2(a)(vi) or (xi) above,
unless cured by the end of the Exchange Business Day following the Exchange
Business Day on which the Adviser becomes aware of such violation;
(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 after notice of such failure from the Warranty
Provider;
(ix) 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 any successor adviser that
agrees to be bound by the terms of this Agreement is not acceptable to the
Warranty Provider in its reasonable discretion after considering the reputation
of the successor adviser, its experience in managing large cap equity and fixed
income portfolios, its size, its financial condition, its ability to manage the
Fund Portfolio in accordance with the Registration Statement and its ability to
comply with the Adviser's obligations under this Agreement and the Transaction
Documents to which it is a party; provided, that if the successor adviser is the
Adviser or an Affiliate of the Adviser, such successor adviser shall be deemed
acceptable by the Warranty Provider;
(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 (i) the Adviser is
no longer obligated to manage the Fund pursuant to the terms of the Investment
Management Agreement and none of (A) a successor investment adviser acceptable
to the Warranty Provider, (B) the Adviser or (C) an Affiliate of the Adviser has
entered into an investment management agreement with the Fund or (ii) the
termination of the Investment Management Agreement is not yet effective but the
Board of Trustees of the Fund has indicated its intention to the Warranty
Provider, or taken any further action, to appoint a successor investment adviser
other than the Adviser or an Affiliate of the 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 based upon
the standards included in Section 4.1(a)(ix), 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;
-20-
(xi) The Adviser does not, in all material respects, manage
the assets of the Fund in accordance with the investment objective, policies and
strategies currently set forth in the Registration Statement or in accordance
with the Investment Management Agreement;
(xii) Any representation or warranty made by the Adviser or
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 in
respect of the Adviser or Fund;
(xiii) The Equity Limit for a Class of Shares is less than
0.025;
(xiv) The Adviser, 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 in respect of the
Adviser or Fund and such violation, if capable of being remedied, shall continue
unremedied for a period of three Business Days after the Adviser or the
Custodian, as the case may be, becomes aware of the occurrence of such failure;
provided, that the Adviser or the Custodian, as the case may be, shall be deemed
to be aware of such violation if such violation has been in existence for three
Exchange Business Days; or
(xv) The occurrence of any of the following: (A) a Regulatory
Event or Litigation Event or (B) an Act of Insolvency occurs with respect to the
Adviser or the Fund.
(b) Notwithstanding any other provision hereof, if an event has
occurred and is continuing, which, if not cured or waived would give rise to a
Trigger Event, then the Adviser may not cause the Fund to acquire any additional
Eligible Equity Investments until such event is cured and shall upon becoming
aware of such event immediately notify the Warranty Provider of such event,
which notice shall include a description of the manner in which the Adviser
intends to cure such event ("Curative Steps"), the Adviser's assessment of the
likelihood of success, the time the Adviser expects to elapse before such 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. If the Adviser violates this Section 4.1(b), then a Trigger
Event shall be deemed to have occurred.
(c) If a Trigger Event occurs and is continuing past the cure period
specified therein (if applicable), then, at the election of the Warranty
Provider in its sole discretion, the Warranty Provider shall have the right to
(i) direct the Adviser or the Custodian, as selected by the Warranty Provider,
to invest all of the Fund's assets in accordance with Section 4.2(a) (a
"Permanent Defeasance Event") or (ii) adjust the Cushion. Any such adjustment
shall be permanent, unless and until further adjusted by the Warranty Provider
in its sole discretion. The Warranty Provider shall notify the Adviser and the
Fund of the Warranty Provider's exercise of remedies pursuant to this Section
4.1(c).
(d) In the event of (i) an act or omission on the part of the
Adviser which constitutes negligence, recklessness, bad faith or willful
misconduct, 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
-21-
Investments in violation of Sections 3.3(d) and 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 the event of a
Permanent Defeasance Event in violation of Sections 4.1(c)(i) and 4.2(a) (such
conduct referenced in subsection (i) of this Section 4.1(d), the "Adviser
Conduct"), and (ii) the existence of a PV Shortfall, the Adviser agrees to pay
to the Warranty Provider an amount equal to the amount of such PV 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 PV 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. In making the determination of the PV 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 or sectors, as the case may be, on a pro rata basis.
The Warranty Provider shall notify (the "Determination Notice") the Adviser in
writing of its determination of such PV Shortfall directly or indirectly
attributable to the Adviser Conduct. If the Adviser disagrees with the Warranty
Provider's determination of the PV Shortfall directly or indirectly attributable
to the Adviser Conduct contained in the Determination Notice, then (i) the
Adviser shall notify (the "Objection Notice") the Warranty Provider in writing
of such disagreement within three Business Days after the delivery by the
Warranty Provider of the Determination Notice and (ii) unless the Adviser and
the Warranty Provider otherwise agree on the amount of such PV Shortfall
directly or indirectly attributable to the Adviser Conduct, the amount thereof
shall be determined by arbitration in accordance with the procedures set forth
in Section 4.1(e). If the Adviser does not provide the Warranty Provider with
the Objection Notice within such three Business Day period, then the Adviser
shall be deemed to have agreed to the Warranty Provider's determination of the
PV Shortfall directly or indirectly attributable to the Adviser Conduct
contained in the Determination Notice. Any amount payable by the Adviser under
this Section 4.1(d) with respect to certain Adviser Conduct (i) shall be paid to
the Warranty Provider within three Business Days of the delivery of the
Determination Notice or if such PV Shortfall is determined pursuant to an
arbitration proceeding, within three Business Days after such final arbitration
decision; provided that should the parties otherwise agree on such PV Shortfall,
such PV Shortfall shall be paid to the Warranty Provider within three Business
Days of such agreement; and (ii) shall be reduced by any amounts paid by the
Adviser to the Fund as a result of the same Adviser Conduct to the extent that
the Total NAV is increased and the PV Shortfall 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) within the time period specified
herein, the Shortfall Amount shall be decreased on a pro rata basis by the
percentage of the PV Shortfall directly or indirectly attributable to the
Adviser Conduct. Notwithstanding anything contained in this Section 4.1(d) to
the contrary, solely for purposes of this Section 4.1(d), the Adviser shall not
be deemed to have committed Adviser Conduct and consequently shall not be liable
for any payment under this Section 4.1(d) if (a) a Potential Trigger Event
occurs and (b) such Potential Trigger Event is cured or waived within the cure
period specified in Section 4.1(a) for the cure of such Potential Trigger Event.
The payment of the PV 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 event that the terms of Section 4.1(d) provide for
arbitration, each of the Warranty Provider and the Adviser shall select one
arbitrator within seven Business Days after the delivery by the Adviser of the
Objection Notice; provided, however, that if either of such parties shall fail
to select an arbitrator within such period, such arbitrator shall be appointed
by the American Arbitration Association. The two arbitrators selected shall
select a third arbitrator within five Business Days after each of such
arbitrators have been selected or, if they shall be unable to agree on a third
arbitrator within such time, such third arbitrator shall be appointed by the
American Arbitration Association. Each
-22-
arbitrator shall be of exemplary qualifications and stature, and no person
affiliated with any party hereto shall be eligible to be an arbitrator. The
arbitration shall be held in New York, New York and be governed by the
Commercial Arbitration Rules of the American Arbitration Association and the
decision of a majority of the arbitrators shall be final, binding and subject to
judicial enforcement and with respect to the specific Adviser Conduct that is
the subject of such arbitration decision, shall be the exclusive remedy of the
Warranty Provider; provided, however, that, notwithstanding the foregoing, the
Warranty Provider shall not be limited from seeking indemnification under
Section 5.2(a)(iii) and (a)(v) hereof. Fees and expenses of the arbitration
(including fees and expenses of the arbitrators) shall be shared by the parties
to the arbitration equally.
Section 4.2. Defeasance Portfolio. If the Warranty Provider exercises the
remedy provided by Section 4.1(c)(i) upon a Permanent Defeasance Event, the
Warranty Provider shall have the right to cause the Adviser to immediately
allocate all of the assets of the Fund to the Fixed-Income Portfolio (the
"Defeasance Portfolio"). In addition to or in lieu of the remedy provided in the
immediately preceding sentence, at any time after the occurrence of a Permanent
Defeasance Event, the Warranty Provider may, at its election in its sole
discretion, cause the Custodian to invest all of the assets of the Fund in U.S.
Zeroes (other than in connection with sales of portfolio investments for Cash
and/or Cash Equivalents after receipt by the Fund of redemption requests in
order to meet such requests or in connection with the payment of Fund fees). The
Financial Warranty Fee shall remain due and payable in accordance with Section
2.4 notwithstanding the occurrence of a Permanent Defeasance Event. The Adviser
shall provide the Warranty Provider upon the issuance of the Financial Warranty
with an irrevocable instruction, in the form of Annex A to the Service
Agreement, executed by the Adviser which shall constitute the Warranty
Provider's direction to the Custodian pursuant to this Section 4.2(a) and the
Service Agreement. The irrevocable instruction 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 instruction. If the Warranty Provider elects to provide instructions
to the Custodian pursuant to this Section 4.2(a) following a Permanent
Defeasance Event, the Warranty Provider shall do so by delivering the
irrevocable instruction to the Custodian. The Warranty Provider shall only
deliver such instruction to the Custodian following a Permanent Defeasance Event
and after notice thereof to the Adviser.
(a) In accordance with the Expense Limitation Agreement, if a
Permanent Defeasance Event shall have occurred, the Adviser shall immediately
cause maximum Fund fees and expenses to be reduced on an annual basis to 1.05%
(excluding the extraordinary expense items and distribution related expenses
described in the Expense Limitation Agreement) for each of the Class A Shares,
Class B Shares, Class C Shares and Class D Shares. In addition, upon the
occurrence of a Permanent Defeasance Event, the advisory fee paid by the Fund to
the Adviser under the Investment Management Agreement shall be reduced to an
annual rate of 0.25% of the average daily Net Assets of the Fund.
ARTICLE V
INDEMNIFICATION
Section 5.1. Survival. All representations, warranties, covenants and
other agreements contained herein, including, without limitation, the
indemnification obligations in Section 5.2 and the payment obligations of
Section 8.6, shall survive the execution and delivery of this Agreement and the
Financial Warranty, and the Termination Date.
Section 5.2. Indemnification. The Adviser agrees to indemnify and hold
harmless the Warranty Provider, its Affiliates, and their respective employees,
officers, directors and agents
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(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
in connection with or arising out of (i) any material breach or alleged breach
of any warranty, or the 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 of either
of the Adviser (including any subadviser of the Fund) or the Fund to fulfill any
agreement or covenant contained in this Agreement or any of the other
Transaction Documents to which it is a party, including the 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 improper payment of the
Aggregate Shortfall Amount, including by reason of mistake, fraud or error in
calculation, (v) the improper calculation of Total NAV of the Fund or each Class
of Shares of the Fund by reason of mistake, fraud or error in calculation
thereof, and (vi) any claim, suit or demand involving (A) the transactions
contemplated by the Transaction Documents (other than the Financial Warranty),
(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 (other than the Financial Warranty), or (C) 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 to the Warranty
Provider included in the Registration Statement, which has been provided by the
Warranty Provider in writing for inclusion therein; provided, however, that the
Adviser shall not be liable for any Losses resulting directly or indirectly from
any action or omission on the part of any of the Warranty Provider Parties prior
to the occurrence of a Permanent Defeasance Event which constitutes gross
negligence, recklessness, bad faith or willful misconduct by such Warranty
Provider Party; provided, further, that in the case of subsections (vi)(A) and
(B) of this Section 5.2(a), the Adviser shall not be liable for any Losses
incurred by the Warranty Provider in connection with any claim, suit or demand
initiated by the Warranty Provider or any of its Affiliates to the extent such
claim, suit or demand is finally adjudicated by a final non-appealable judgment
of a court of competent jurisdiction or settled in the Adviser's favor. 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.
(a) The Trust agrees to indemnify and hold harmless the Warranty
Provider Parties from and against any and all Losses incurred or suffered by any
of them in connection with or arising out of (i) any material breach or alleged
breach of any warranty, or the inaccuracy of any representation, as the case may
be, made by the Fund under this Agreement or any of the other Transaction
Documents to which it is a party, (ii) the failure of the Fund to fulfill any
agreement or covenant contained in this Agreement or any of the other
Transaction Documents to which it is a party, 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 improper payment of the
Aggregate Shortfall Amount, including by reason of mistake, fraud or error in
calculation, (v) the improper calculation of Total NAV of the Fund or each Class
of Shares of the Fund by reason of mistake, fraud or error in calculation
thereof and (vi) any claim, suit or demand involving (A) the transactions
contemplated by the Transaction Documents (other than the Financial Warranty),
(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 (other than the Financial Warranty), or (C) 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
-24-
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 to
the Warranty Provider included in the Registration Statement, which has been
provided by the Warranty Provider in writing for inclusion therein; provided,
however, that the Fund shall not be liable for any Losses resulting directly or
indirectly from any action or omission on the part of any of the Warranty
Provider Parties prior to the occurrence of a Permanent Defeasance Event which
constitutes gross negligence, recklessness, bad faith or willful misconduct by
such Warranty Provider Party; provided, further, that in the case of subsections
(vi)(A) and (B) of this Section 5.2(b), the Fund shall not be liable for any
Losses incurred by the Warranty Provider in connection with any claim, suit or
demand initiated by the Warranty Provider or any of its Affiliates to the extent
such claim, suit or demand is finally adjudicated by a final non-appealable
judgment of a court of competent jurisdiction or settled in the Fund's favor.
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.
(b) The Warranty Provider agrees to indemnify and hold harmless the
Adviser and the Trust, their Affiliates, and their respective employees,
officers, directors, trustees and agents (collectively, the "Fund Parties") from
and against any and all Losses incurred or suffered by any of them in connection
with or arising out of (i) any material breach of any warranty, or the
inaccuracy of any representation made by the Warranty Provider under this
Agreement, (ii) the failure of the Warranty Provider to fulfill any covenant
contained in this Agreement, 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
three Business Days following the Maturity Date or if the Aggregate Shortfall
Amount determined by the Calculation Agent and included in such certificate is
wrong; provided, that the Warranty Provider shall not be liable for any Losses
resulting, directly or indirectly, from any action or omission on the part of
any of the Fund Parties which constitutes negligence, recklessness, bad faith or
willful misconduct by such Fund Party. The Warranty Provider agrees to promptly
reimburse any of the Fund Parties for all Losses in respect of which
indemnification may be sought by such Fund Party hereunder as they are incurred
or suffered by such Fund Party.
Section 5.3. Indemnification Procedure. 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 ("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 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 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 notice.
(a) 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
Notice, notify the Indemnified
-25-
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 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 final non-appealable 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.
(b) 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.
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 limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware, (ii) has
the power and authority 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 have an Adverse Effect in respect of the Adviser
and (iv) is in compliance with all Requirements of Law, except where
non-compliance would not have an Adverse Effect in respect of the Adviser.
(b) The Adviser has the power and authority 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 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,
except for such consents, authorizations, filings or acts the absence of which
would not have an Adverse Effect in respect of the Adviser. This Agreement has
been, and each other Transaction
-26-
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 does 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 would not reasonably be
expected to have an Adverse Effect in respect of the Adviser. The Adviser is not
in violation of any Contractual Obligation, except where such violation would
not reasonably be expected to have an Adverse Effect in respect of the Adviser.
(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 would reasonably be expected to have an Adverse
Effect in respect of the Adviser.
(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 (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 or order, in each case applicable to the Adviser, has been enacted or
deemed applicable by any Government Authority which would make the transactions
contemplated by the Transaction Documents illegal or otherwise prevent the
consummation thereof.
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 State of Delaware; (ii) has the power
and authority 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 have an Adverse Effect in
-27-
respect of the Fund; and (iv) is in compliance with all Requirements of Law,
except where non-compliance would not have an Adverse Effect in respect of the
Fund.
(b) The Trust has the power and authority 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. No consent or authorization of, filing with, or other act by or in
respect of, any Government Authority 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 Fund's Board of
Trustees, except for such consents, authorizations, filings or acts the absence
of which would not have an Adverse Effect in respect of the Fund. This Agreement
has been, and each other Transaction Document to which 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 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 Fund of the
Transaction Documents to which it is a party does 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 would not have an
Adverse Effect in respect of the Fund.
(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 in respect
of the Fund.
(e) The 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.
(f) The Fund is a "diversified" fund within the meaning of the
Investment Company Act.
(g) Each Class of Shares of the Fund in respect of which the
Warranty Provider is providing the Financial Warranty is duly authorized and
validly issued and is outstanding, fully paid and nonassessable.
(h) All factual information prepared and furnished by or on behalf
of the Fund to the Warranty Provider (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.
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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 is a limited liability company, formed,
validly existing and in good standing under the laws of the State of Delaware.
(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 this Agreement or any other Transaction Document to which it is a
party. 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 would not reasonably be expected to have an
Adverse Effect in respect of 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, (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 would reasonably be expected to have an Adverse Effect in respect of the
Warranty Provider.
(e) To the best of the Warranty Provider's knowledge, no statute,
rule, regulation or order 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.
(f) The financial statements of the Warranty Provider and Bank of
America Corporation included in the Fund's Registration Statement when such
Registration Statement was declared effective and any financial statements
subsequently made available to the Fund pursuant to Section 7.3, fairly present
or will fairly present in all material respects the financial position of the
Warranty Provider and Bank of America Corporation as of the dates and for the
periods referred to therein and in conformity with generally accepted accounting
principles applied on a consistent basis.
-29-
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 to the Prospectus pursuant to Rules 485(b) or 497 under
the Securities Act that do not relate to portfolio investments), without the
prior written consent of the Warranty Provider; provided, that (i) such consent
shall not be withheld if any such amendment, supplement, modification,
termination or agreement does not increase the Warranty Provider's liabilities
or risks or decrease the Warranty Provider's economic bargain under this
Agreement and the Financial Warranty and (ii) such consent shall be given in a
reasonable period of time, taking into consideration among other things filing
deadlines, if any;
(b) other than in connection with the reinvestment of dividends or
other 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
offering or sale of the Shares of the Fund after the Offering Period but prior
to the Maturity Date;
(c) it shall notify the Warranty Provider promptly of (i) any
request by the Commission for 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, (ii) the issuance by the
Commission of any stop-order suspending the effectiveness of 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 (iii) receipt by the 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 Fund;
(d) 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;
(e) prior to or simultaneously upon filing with the Commission any
amendment to the Registration Statement with respect to any Class of Shares of
the Fund or supplement to the Prospectus with respect to any Class of Shares of
the Fund, it shall furnish a copy thereof to the Warranty Provider; provided,
however, that the Adviser shall obtain the prior written consent of the Warranty
Provider before filing any such amendment or supplement that modifies references
to or affects the Warranty Provider, this Agreement or the Financial Warranty;
(f) it shall comply in all material respects with the terms and
conditions of the Transaction Documents to which it is a party and shall provide
the Warranty Provider with written notice immediately upon becoming aware of any
breach by it of the provisions of any such agreements except for any such breach
that would not have an Adverse Effect in respect of the Adviser;
(g) it shall not, without the prior written consent of the Warranty
Provider, elect to terminate any Transaction Document; provided, that the
termination of the Investment Management Agreement (i) as a result of its
assignment (as such term is defined under the Investment Company Act) to an
Affiliate of the Adviser or (ii) as a result of a change of control of an
Affiliate of the Adviser shall not be deemed to be a violation of this Section
7.1(g);
-30-
(h) 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 would
reasonably be expected to have an Adverse Effect in respect of the Adviser;
(i) it shall promptly inform the Warranty Provider in writing of any
information or event that, to the knowledge of the Adviser, would be reasonably
likely to result, through the passage of time or otherwise, in the occurrence of
a Trigger Event;
(j) 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 would reasonably be expected to have an Adverse Effect in respect of
the Adviser;
(k) it shall promptly and fully perform all of 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 to the extent that such
non-performance would not reasonably be expected to have an Adverse Effect in
respect of the Adviser and shall provide the Warranty Provider with written
notice promptly upon becoming aware of any material breach by it of the
provisions of any such agreements. The Adviser and each Affiliate of the Adviser
which may in the future serve as investment adviser to the Fund shall take all
action necessary to preserve its existence and ensure that the Transaction
Documents remain in full force and effect;
(l) 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 the information referred to herein;
(m) it shall implement compliance procedures reasonably designed to
monitor the Fund Portfolio's compliance with the Portfolio Requirements on an
ongoing basis;
(n) it shall not include any material relating to the Warranty
Provider 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;
(o) it shall promptly inform the Warranty Provider in writing if it
delegates any of its management responsibilities under the Investment Management
Agreement to a subadviser or subsequent thereto terminates such delegation to
any subadviser or materially modifies any then existing subadvisory agreement
with any subadviser to which it has delegated any of its management
responsibilities under the Investment Management Agreement;
(p) 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, 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, internal controls and procedures
maintained by the Adviser; and
-31-
(q) all factual information prepared and furnished by or on behalf
of the Adviser to the Warranty Provider (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.
Section 7.2. Covenants of the Trust on behalf of the Fund. The Trust
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 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 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;
(b) it shall provide the Warranty Provider with accurate, correct
and complete semi-annual 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. Such unaudited financial statements will
fairly 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;
(c) after the Offering Period but prior to 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 outstanding Shares of the Fund;
(d) it shall promptly and fully perform all of 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 to the extent that such
non-performance would not reasonably be expected to have an Adverse Effect in
respect of the Fund and shall provide the Warranty Provider with written notice
promptly upon becoming aware of any material 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 to the Prospectus pursuant to Rules 485(b) or 497 under
the Securities Act that do not relate to portfolio investments) without the
prior written consent of the Warranty Provider, which consent shall not be
unreasonably withheld or delayed; provided, that (i) such consent shall not be
withheld if any such amendment, supplement, modification, termination or
agreement does not increase the Warranty Provider's liabilities or risks or
decrease the Warranty Provider's economic bargain under this Agreement and the
Financial Warranty and (ii) such consent shall be given in a reasonable period
of time, taking into consideration among other things filing deadlines, if any;
(f) it shall not amend, supplement, modify, terminate, or agree to
any waiver with respect to any provision of any Transaction Document or the
Declaration of Trust if such amendment,
-32-
supplement or modification would be reasonably likely in the Warranty Provider's
reasonable discretion to have a material impact on the Warranty Provider,
without the prior written consent of the Warranty Provider;
(g) it shall not include any material relating to the Warranty
Provider 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, such approval not to be unreasonably withheld or
delayed;
(h) it shall not change in any material respect the manner in which
the assets or liabilities of the Fund are allocated to any Class of Shares of
the Fund without the prior written consent of the Warranty Provider, which
consent shall not be unreasonably withheld or delayed;
(i) 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 which who does
not agree to be bound by the Services Agreement and by the provisions of
Sections 3.4(c) and (d), 4.1(c) and 4.2(a) to the extent they are relevant to
duties of the Custodian, which does not have a system in place that is
equivalent to the BBID System acceptable to the Warranty Provider in its sole
discretion or which is not acceptable to the Warranty Provider;
(j) 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 cause any successor adviser
(including the Adviser) to 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;
(k) it shall comply in all material respects with the terms and
provisions of the Acts with respect to the Fund;
(l) it promptly shall provide the Warranty Provider with a copy of
any amendment or waiver of any provision of the Investment Management Agreement
or the filing of any amendment to the Declaration of Trust;
(m) 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;
(n) all factual information prepared and furnished by or on behalf
of the Fund to the Warranty Provider (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; and
(o) 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.
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Section 7.3. Covenants of the Warranty Provider. The Warranty Provider
hereby covenants and agrees that through the Termination Date it will make its
audited annual financial statements and the audited annual financial statements
of Bank of America Corporation, together with the relevant auditor's consents,
available to the Trust on behalf of the Fund for inclusion on an annual basis in
the Registration Statement. 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 and Bank of America Corporation.
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:
(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, 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);
(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;
(c) Any statement or any other document presented in connection
herewith proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(d) The inaccuracy or alleged inaccuracy upon which any drawing
under the Financial Warranty is based;
(e) Payment by the Warranty Provider under the Financial Warranty
which does not comply with the terms hereof; provided, that such payment shall
not have constituted willful misconduct on the part of the Warranty Provider;
(f) 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; or
(g) Any other circumstance or happening whatsoever; provided, that
the same shall not have constituted willful misconduct of the Warranty Provider
and to the extent that such circumstance or happening does not result in a
default by the Warranty Provider with respect to the payment of the Aggregate
Shortfall Amount.
Section 8.2. Participations and Assignments. Subject to the prior written
consent of the Fund (which consent shall not be unreasonably withheld or
delayed), the Warranty Provider may assign its obligations under this Agreement
to an Affiliate; provided, that such Affiliate provides the Fund with audited
financial statements covering a period of at least three years and Bank of
America Corporation
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guarantees such Affiliate's obligations hereunder. The Warranty Provider shall
have the right to give 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.
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. The Adviser
and 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 (a) 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
(b) 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.
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. Fees and Expenses. The Adviser hereby agrees to pay all of
the Warranty Provider's legal fees and expenses in connection with the
preparation and negotiation of this Agreement and any of the other Transaction
Documents.
ARTICLE IX
CONFIDENTIALITY
Section 9.1. Confidentiality Obligations of the Warranty Provider. Subject
to Section 9.2, the Warranty Provider agrees, on behalf of itself and its
agents, not to disclose or use for any purpose other than the 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 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; or (ii) 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. The
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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. Notwithstanding
Section 9.1, the Warranty Provider may disclose Fund Confidential Information in
connection with the Warranty Provider's hedging arrangements to recipients
("Permitted Recipients") if such Permitted Recipients represent and warrant to
the Warranty Provider that such Permitted Recipients will treat such information
as Fund Confidential Information and comply with Section 9.1 of this Agreement.
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, (ii) obtaining the agreement of such
investment officers and compliance officers to keep such information
confidential on the terms of this Section 9.2, and (iii) complying with the
other requirements of an institutional compliance procedure in form and detail
customary in the industry and reasonably designed to be sufficient to satisfy
the Warranty Provider's obligation under this Article IX and to achieve
compliance with applicable law.
(a) 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, "Representatives") who need 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. The
Warranty Provider agrees to remain responsible for any breach of Article IX by
its Representatives and or Permitted Recipients.
Section 9.3. Confidentiality Obligations of the Adviser and the Fund.
Subject to subsection (b) below, the Adviser and the Fund each agrees, on behalf
of itself and its agents, not to disclose or use for any purpose other than the
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; or (ii) 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.
(a) Notwithstanding subsection (a) above, each of the Adviser and
the Fund may disclose Warranty Provider Confidential Information to those of its
officers, employees, directors, representatives, agents, outside counsel, and
independent auditors who need 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 Fund Confidential Information. 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, its Representatives and Permitted Recipients, will be
promptly returned to the Fund or the Adviser or destroyed; provided, however,
that any Fund Confidential
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Information retained by the Warranty Provider, its Representatives and Permitted
Recipients, shall be maintained by the Warranty Provider, its Representatives
and Permitted Recipients, subject to the confidentiality terms of this
Agreement.
ARTICLE X
TERMINATION
Section 10.1 Termination. 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) on 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 under the Financial Warranty to the
Custodian on behalf of the Fund (any such date of termination pursuant to this
Article X is referred to in this Agreement as the "Termination Date").
(a) This Agreement may be terminated by the Fund 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) if the credit rating of
Bank of America Corporation is suspended, withdrawn or downgraded below "BBB+"
by S&P or "Baa1" by Xxxxx'x (or equivalent credit rating if different rating
categories are used).
(i) This Agreement may be terminated (and in the case of
clause (B) in this subparagraph the Financial Warranty may also 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 $[___] million or (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 (other than the Adviser or an
Affiliate of the Adviser) is not elected prior to the date of such termination
or the Fund's Board of Trustees elects a successor adviser (other than the
Adviser or an Affiliate of the Adviser) which agrees to be bound by the terms of
this Agreement without first consulting with the Warranty Provider and, subject
to its fiduciary obligations and obligations under the Investment Company Act,
considering the reputation of the successor adviser, its experience in managing
large cap equity and fixed income portfolios, its size, its financial condition,
its ability to manage the Fund Portfolio in accordance with the Registration
Statement and its ability to comply with the Adviser's obligations under this
Agreement and the Transaction Documents to which it is a party; provided,
however, that if such successor adviser is a Person that is not an Affiliate of
the Adviser and such Person agrees to be bound by the terms of this Agreement
prior to such termination, the Adviser shall not be liable for any actions of
such unaffiliated successor adviser under this Agreement, (2) the Fund
terminates the Custodian Agreement with Xxxxx Brothers Xxxxxxxx & Co. and
engages a successor custodian that does not agree to be bound by the Service
Agreement and by the provisions of Sections 3.4(c) and (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 or (3)
the Fund's assets are not invested entirely in accordance with Section 4.2(a) at
all times commencing on the second Exchange Business Day following the Permanent
Defeasance Date. The written notice required to be provided by the Warranty
Provider under this Section 10.1(b)(ii) shall be delivered to the Fund and the
Adviser within 30 days after the occurrence of the relevant termination event.
(ii) Notwithstanding any of the foregoing, this Agreement
shall automatically terminate, and if such termination occurs after the
Inception Date the Financial Warranty
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shall automatically terminate, (A) prior to the Inception Date if the Fund's
Board 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)
if 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 any successor adviser (other than the Adviser or
any Affiliate of the Adviser) does not agree to be bound by the terms of this
Agreement prior to the effective date of such termination or (C) if the Fund is
involved in a merger, reorganization or sale of all or substantially all of its
assets.
(iii) 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. Except to the extent otherwise expressly provided
herein, all notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (and if, sent by mail, certified or
registered, return receipt requested) or confirmed facsimile transmission and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of facsimile
transmission, when sent, addressed as follows:
If to the Adviser:
Fund Asset Management, L.P.
Legal Advisory Department
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, General Counsel
Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000
If to the Fund:
c/o Fund Asset Management, L.P.
Legal Advisory Department
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, General Counsel
Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000
-38-
with a copy to:
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and:
Attention: Xxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Warranty Provider:
c/o Banc of America Securities LLC
0 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxx, Managing Director
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or such other address and/or addresses (and with copies to such persons) as
shall be specified in writing by any such party to the others.
(a) Prior to the Inception Date, the parties shall provide to each
other detailed notice procedures with respect to the notifications contemplated
herein to the extent they are different from those set forth above.
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 Section 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.
-39-
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 New York (including
Section 5-1401 of the New York General Obligations Law but excluding all other
choice of law and 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 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 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 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 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 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 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.
-40-
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 in 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.
-41-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all
as of the day and year first above mentioned.
FUND ASSET MANAGEMENT, L.P., as Adviser
By: Princeton Services, Inc., its general partner
By: ____________________________________
Name: Xxxxx Xxxxxxxxx
Title: Senior Vice President
XXXXXXX XXXXX PRINCIPAL PROTECTED
TRUST, as Trust, on behalf of the Fund
By: ____________________________________
Name: Xxxxx X. Xxxxx
Title: President
MAIN PLACE FUNDING, LLC, as Warranty Provider
By: ____________________________________
Name:
Title:
EXHIBIT A TO FINANCIAL WARRANTY AGREEMENT
FINANCIAL WARRANTY
No. _____________
[Date]
Xxxxxxx Xxxxx Principal Protected Trust, on behalf of
Xxxxxxx Xxxxx Basic Value Principal Protected Fund
c/o Fund Asset Management, L.P.
Legal Advisory Department
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Dear Sirs:
We hereby establish, in your favor, our Financial Warranty No. ____ (the
"Financial Warranty") in the amount of $_________ (as more fully described
below), effective immediately and expiring at the close of banking business at
our ____________________ office on [_____]. 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 [___], 2002 among Fund
Asset Management, L.P., Xxxxxxx Xxxxx Principal Protected Trust, on behalf of
its series Xxxxxxx Xxxxx Basic Value Principal Protected Fund, and Main Place
Funding, LLC.
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
_____________________ 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) Aggregate Shortfall
Amount, as reasonably determined by the Calculation Agent.
(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
at _____________________, Attention: ____________, or at any other office in the
City and State of New York which may be designated by us by written notice
delivered to you.
A-1
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 and (iv) the expiration date stated in the initial paragraph
hereof, 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.
The obligations of the Financial Warranty Provider pursuant to this Financial
Warranty will be paid strictly in accordance the terms hereof, irrespective of:
(a) Any lack of validity or enforceability of any of the Transaction Documents
other than this Financial Warranty, unless such lack of validity or
enforceability is finally determined by a final non-appealable judgment of a
court of competent jurisdiction;
(b) Any amendment, modification or waiver of, or consent to departure from any
Transaction Document other than this Financial Warranty;
(c) The existence of any claim, set-off, defense or other right the Warranty
Provider may have at any time against the Fund or any other Person or entity
whether in connection with the Transaction Documents or any unrelated
transactions;
(d) Any statement or any other document presented in connection herewith proving
to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;
(e) The performance by the Fund or the Adviser of their respective obligations
under the Transaction Documents in a manner that does not comply with the terms
thereof; provided, that such performance shall not have constituted willful
misconduct on the part of the Fund or the Adviser;
(f) Any default or alleged default of the Fund or the Adviser under the
Transaction Documents (other than this Financial Warranty); or
(g) Any other circumstance or happening whatsoever; provided, that the same
shall not have constituted willful misconduct of the Fund or the Adviser.
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 __________________, Attention: __________ 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 New York,
including the Uniform Commercial Code as in effect in the State of New York
(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
A-2
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.
Subject to the third preceding paragraph herein, we hereby agree to forthwith
honor and pay your draft drawn under and in compliance with the terms of this
Financial Warranty if presented to us on or before [_____], accompanied by the
written certificates specified above.
Very truly yours,
MAIN PLACE FUNDING, LLC
By: _____________________
A-3
EXHIBIT B TO FINANCIAL WARRANTY AGREEMENT
BANK OF AMERICA CORPORATION GUARANTEE
GUARANTEE dated as of [______________], 2002 by Bank of America
Corporation (the "Guarantor"), in favor of Xxxxxxx Xxxxx Principal Protected
Trust on behalf of its series Xxxxxxx Xxxxx Basic Value Principal Protected Fund
(the "Guaranteed Party").
To induce the Guaranteed Party to enter into the Financial Warranty
Agreement (the "Financial Warranty Agreement"), dated as of [____________], 2002
among the Guaranteed Party, Fund Asset Management, L.P., as investment adviser,
and Main Place Funding, LLC, as financial warrantor ("Warranty Provider") and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Guarantor hereby irrevocably and unconditionally guarantees to
the Guaranteed Party, with effect from the date of the Financial Warranty to be
issued by Warranty Provider under the Financial Warranty Agreement (the
"Financial Warranty"), all present and future obligations of Warranty Provider
to the Guaranteed Party arising out of the Financial Warranty Agreement and the
Financial Warranty; provided, that the Guarantor does not guarantee hereunder
any obligations of Warranty Provider arising out of other transactions not
governed by the Financial Warranty Agreement or the Financial Warranty. Upon
failure of Warranty Provider punctually to fulfill any such obligation, and upon
written demand by the Guaranteed Party to the Guarantor, the Guarantor agrees to
fulfill, or cause to be fulfilled, to the extent such obligation is not
performed, the performance of such obligation; provided, that delay by the
Guaranteed Party in giving such demand shall in no event affect the Guarantor's
obligations under this Guarantee; provided further, that any single or partial
exercise by the Guaranteed Party of any right, remedy or power granted hereunder
to the Guaranteed Party shall not impair or waive any such right, remedy or
power of the Guaranteed Party. Each and every right, remedy and power hereby
granted to the Guaranteed Party or allowed it by law or by another agreement
shall be cumulative and not exclusive of any other, and may be exercised by the
Guaranteed Party at any time or from time to time.
The Guarantor hereby agrees that its obligations hereunder shall be
continuing and unconditional and will not be discharged except by full and
complete satisfaction of all present and future obligations of Warranty Provider
to the Guaranteed Party arising out of the Financial Warranty Agreement and the
Financial Warranty, irrespective of any claim as to the validity, regularity or
enforceability of the Financial Warranty Agreement or the Financial Warranty, or
the lack of authority of Warranty Provider to execute the Financial Warranty
Agreement or the Financial Warranty; or any change in or amendment to the
Financial Warranty Agreement or the Financial Warranty; or any waiver or consent
by the Guaranteed Party with respect to any provisions thereof; or the absence
of any action to enforce the terms of the Financial Warranty Agreement or the
Financial Warranty, or the recovery of any judgment against Warranty Provider or
of any action to enforce a judgment against Warranty Provider under the terms of
the Financial Warranty Agreement or the Financial Warranty or any other
circumstance relating to the Guarantor's obligations hereunder that might
otherwise constitute a legal or equitable discharge or defense of this
Guarantee.
The Guarantor hereby waives diligence, presentment, demand on Warranty
Provider for delivery or otherwise, filing of claims, requirement of a prior
proceeding against Warranty Provider and protest or notice. This Guarantee is a
guarantee of performance and not of collection. If at any time any delivery or
payment by Warranty Provider under the Financial Warranty Agreement or the
Financial Warranty is rescinded or must be otherwise restored or returned by the
Guaranteed Party upon the receivership, insolvency, bankruptcy or reorganization
of Warranty Provider or the Guarantor or otherwise, the
B-1
Guarantor's obligations hereunder with respect to such delivery or payment shall
be reinstated upon such restoration or return being made by the Guaranteed
Party.
The Guarantor agrees to pay on demand all fees and out of pocket expenses
(including the reasonable fees and expenses of any Guaranteed Party's counsel)
in any way relating to the enforcement or protection of the rights of the
Guaranteed Party hereunder; provided, that the Guarantor shall not be liable for
any expenses of the Guaranteed Party if no delivery or payment under this
Guarantee is due. The Guarantor reserves the right to assert defenses that
Warranty Provider may have to any delivery or payment to the Guaranteed Party
under the Financial Warranty Agreement or the Financial Warranty other than
defenses arising from the bankruptcy or insolvency of Warranty Provider and
other defenses expressly waived hereby.
The Guarantor represents to the Guaranteed Party as of the date hereof
that:
1. It is duly organized and validly existing under the laws of the
jurisdiction of its incorporation and has full power and legal right to execute
and deliver this Guarantee and to perform the provisions of this Guarantee on
its part to be performed.
2. Its execution, delivery and performance of this Guarantee have been and
remain duly authorized by all necessary corporate action and do not contravene
any provision of its certificate of incorporation or by-laws, as amended, or any
law, regulation or contractual restriction binding on it or its assets.
3. All consents, licenses, authorizations, approvals and clearances
(including, without limitation, any necessary exchange control approval) and
notifications, reports and registrations requisite for its due execution,
delivery and performance of this Guarantee have been obtained from or, as the
case may be, filed with the relevant governmental authorities having
jurisdiction and remain in full force and effect and all conditions thereof have
been duly complied with and no other action by, and no notice to or filing with,
any governmental authority having jurisdiction is required for such execution,
delivery or performance.
4. This Guarantee is its legal, valid and binding obligation enforceable
against it in accordance with its terms, except as enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights or by general equity
principles.
5. By accepting this Guarantee, the Guaranteed Party agrees that the
Guarantor shall be subrogated to all rights of the Guaranteed Party against
Warranty Provider in respect of any delivery or payment made by the Guarantor
pursuant to this Guarantee; provided, however, that the Guarantor shall not
exercise or be entitled to receive any payments arising out of, or based upon
such right of subrogation until all obligations under the Financial Warranty
Agreement and the Financial Warranty shall have been paid in full to the
Guaranteed Party.
Neither the Guarantor nor the Guaranteed Party may assign its rights,
interests or obligations hereunder to any other person (except by operation of
law) without the prior written consent of the Guarantor or the Guaranteed Party,
as the case may be.
All notices or demands on the Guarantor shall be deemed effective when
received, shall be in writing and shall be delivered by hand or by registered
mail, or by facsimile transmission promptly confirmed by registered mail,
addressed to the Guarantor at:
B-2
Bank of America Corporation
c/o Banc of America Securities LLC
0 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
or to such other address or facsimile number as the Guarantor shall have
notified the Guaranteed Party in a written notice delivered to the Guaranteed
Party in accordance with the Financial Warranty Agreement.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York (including Section 5-1401 of the New York
General Obligations Laws but excluding all other choice of law and conflicts of
law rules). All capitalized terms not otherwise defined herein shall have the
respective meanings assigned to them in the Financial Warranty Agreement.
BANK OF AMERICA CORPORATION
By: _____________________________
Name:
Title:
B-3
SCHEDULE 1 TO FINANCIAL WARRANTY AGREEMENT
FORM OF DAILY REPORT
SCHEDULE 2 TO FINANCIAL WARRANTY AGREEMENT
CUSHION/VOLATILITY MATRIX
-----------------------------
Volatility Cushion
-----------------------------
<= 40 25.0%
-----------------------------
> 40 <= 45 27.5%
-----------------------------
> 45 <= 50 30.0%
-----------------------------
> 50 <= 55 32.5%
-----------------------------
> 55 <= 60 35.0%
-----------------------------
> 60 <= 65 40.0%
-----------------------------
> 65 <= 70 50.0%
-----------------------------
> 70 100.0%
-----------------------------
