Exhibit 99.(h.2)
EXPENSE REIMBURSEMENT AND UNDERWRITER PARTICIPATION AGREEMENT
This Expense Reimbursement and Underwriter Participation Agreement (the
"Agreement"), dated as of December 15, 2003, is entered into among Western
Asset/Claymore U.S. Treasury Inflation Protected Securities Fund 2, a registered
closed-end management investment company (the "Fund"), Claymore Advisors, LLC,
the investment adviser to the Fund (the "Investment Adviser"), Western Asset
Management Company, the investment subadviser to the Fund (the "Investment
Manager"), and Claymore Securities, Inc. ("Claymore," and together with the
Investment Adviser, the "Claymore Parties"), an underwriter in connection with
the initial public offering of common shares of beneficial interest (the "Common
Shares") of the Fund, with respect to (i) certain distribution assistance to be
provided by Claymore to the Fund, limited exclusively to providing offering and
marketing materials and additional information to registered broker-dealers who
are part of the underwriting syndicate publicly offering the Common Shares and
at a later date preferred shares of beneficial interest (if any) of the Fund
(collectively, the "Shares") and (ii) the payment by the Investment Adviser,
Claymore and the Investment Manager and reimbursement by the Fund of certain
expenses in connection with the organization of the Fund and the offering of the
Common Shares. In consideration of their mutual promises, the parties agree as
follows:
1. STATUS OF CLAYMORE
(a) Claymore represents and warrants to the Investment Manager and the
Fund that:
(i) Claymore is a broker-dealer registered as such with the
Securities and Exchange Commission (the "SEC") and is registered
or qualified in all capacities and jurisdictions required by
reason of any participation in the distribution of Shares by it
while providing the services described above, and each employee
or agent of Claymore who participates in the distribution of
Shares has all necessary licenses and qualifications in all
capacities and jurisdictions required by reason of any
participation in the distribution of Shares pursuant to this
Agreement.
(ii) Claymore is a member of the National Association of Securities
Dealers, Inc. (the "NASD"). Claymore agrees to abide by all
applicable law, including, without limitation, all of the rules
and regulations of the NASD (including, without limitation, the
NASD Rules of Fair Practice), in connection with the
participation in the distribution of Shares. Claymore agrees to
notify the Investment Manager and the Fund in writing
immediately in the event of (A) its expulsion or suspension from
the NASD, or (B) its being found to have violated any applicable
federal or state law, rule or regulation (1) in connection with
its activities as a broker-dealer or in connection with this
Agreement, or (2) which may otherwise affect in any material way
its ability to act in accordance with the terms of this
Agreement. Claymore's expulsion from the NASD will automatically
terminate this Agreement immediately without notice. Suspension
of Claymore from the NASD for violation of any applicable
federal or state law, rule or regulation will terminate this
Agreement effective immediately upon the Fund's or the
Investment Manager's written notice of termination to Claymore.
(iii) Claymore is familiar with and understands the requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and has
substantial experience with offers and sales of securities by
issuers involving a public offering under the 1933 Act.
(iv) Claymore is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Kansas, and
has the corporate power and authority to execute this Agreement.
(v) Each of the execution and delivery by Claymore of this Agreement
and the performance by Claymore of its obligations hereunder
have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or
other agency of government, the certificate of incorporation or
by-laws of Claymore, or any provision of any indenture,
agreement or other instrument to which Claymore is a party or by
which any of its properties or assets is bound or affected, or
conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such
indenture, agreement or other instrument.
(vi) This Agreement has been duly executed and delivered by Claymore
and constitutes the legal, valid and binding obligation of
Claymore, enforceable in accordance with its terms except (A) as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting
creditor's rights generally; and (B) as limited by laws relating
to the availability of specific performance, injunctive relief,
or other equitable remedies.
(vii) Claymore holds all governmental and other licenses, permits,
franchises and other authorizations necessary for the conduct
of its business as proposed to be conducted herein, including
all necessary registrations with respect to broker-dealer
activities.
(b) The Fund assumes no obligation or responsibility as to Claymore's
right to participate in the distribution of the Fund's Shares in any
jurisdiction. If Claymore, while performing the services it provides the Fund
hereunder, becomes subject to the laws of any jurisdiction, Claymore will take,
at its own expense, such action, if any, as may be necessary to comply with the
laws of such jurisdictions.
(c) Claymore agrees that it will maintain the registrations,
qualifications, exemptions, memberships and authorizations referred to in
paragraphs (a) and (b) in good standing and in full force and effect throughout
the term of this Agreement.
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2. CLAYMORE'S COVENANTS.
(a) Claymore covenants and agrees that, in connection with providing the
services as described in the first paragraph above ("permitted activities"),
Claymore will engage in the permitted activities solely with (i) registered
broker-dealers or (ii) persons that are not required to be registered
broker-dealers in order for Claymore to engage in the permitted activities with
such persons.
(b) Claymore covenants and agrees that it will not make any written
representations or provide any written information to any person concerning the
Fund other than those contained in the Fund's registration statement on Form N-2
relating to the Common Shares, as amended from time to time (the "Registration
Statement"), or any marketing materials approved by the Fund and the Investment
Manager.
(c) Claymore covenants and agrees to use information provided by the Fund
or the Investment Manager only in the manner intended (e.g., documents marked
"internal use only" will not be disseminated to any person other than a
registered broker-dealer).
(d) Claymore represents and agrees that, during the pendency of the
initial offering period of the Fund, Claymore has not engaged, and will not
engage, directly or indirectly, in any activities that would result in, or
otherwise assist in, the formation, registration, marketing or sale of any open-
or closed-end registered management investment company investing primarily in
U.S. Treasury Inflation Protected Securities, global linkers or other
inflation-linked bonds.
3. INDEPENDENT CONTRACTOR.
Neither the Investment Manager nor the Fund shall be liable for any
acts of Claymore or any employee or agent of Claymore, and nothing contained
herein shall be construed as creating, or be deemed to create, the relationship
of employer and employee between Claymore and the Fund or the Investment
Manager, nor any agency, joint venture, or partnership among the parties.
Claymore shall at all times be and be deemed to be an independent contractor.
Claymore, its employees and agents shall under no circumstances have any
authority to act for or to bind the Investment Manager or the Fund in any way or
to sign the name of the Investment Manager or the Fund or to represent that the
Investment Manager or the Fund is in any way responsible for the acts or
omissions of Claymore. Claymore shall not be required to devote any minimum
amount of time to performing its obligations under this Agreement.
4. REPRESENTATIONS AND WARRANTIES BY THE INVESTMENT ADVISER.
The Investment Adviser represents and warrants to the Investment
Manager and the Fund as of the date hereof to the same extent as those
representations and warranties made by the Investment Adviser set forth in
Section 1(c) of the purchase agreement dated as of February 24, 2004 (the
"Purchase Agreement") among the Fund, the Investment Adviser, the Investment
Manager and Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated as representative
of the underwriters listed on Schedule A thereto, as if set forth in full
herein; provided, however, that each such representation and warranty that
refers to "this Agreement" in such Section 1(c) shall, for purposes of this
Expense Reimbursement and Underwriter Participation Agreement, be
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deemed to refer both to the Purchase Agreement and to this Expense Reimbursement
and Underwriter Participation Agreement.
5. REPRESENTATIONS AND WARRANTIES BY THE INVESTMENT MANAGER.
The Investment Manager represents and warrants to the Investment
Adviser and the Fund as of the date hereof to the same extent as those
representations and warranties made by the Investment Manager set forth in
Section 1(b) of the Purchase Agreement, as if set forth in full herein;
provided, however, that each such representation and warranty that refers to
"this Agreement" in such Section 1(b) shall, for purposes of this Expense
Reimbursement and Underwriter Participation Agreement, be deemed to refer both
to the Purchase Agreement and to this Expense Reimbursement and Underwriter
Participation Agreement.
6. INDEMNIFICATION.
(a) Claymore shall indemnify and hold harmless the Fund, the Investment
Manager and their respective affiliates, shareholders, officers, trustees,
directors, agents and employees from and against any losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and expenses)
to which they may become subject insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon: (i) any breach by Claymore of any provision of this Agreement;
(ii) any willful misfeasance or gross negligence by Claymore in the
performance of its duties and obligations hereunder; (iii) any violation of
any applicable law by Claymore and its employees, agents or representatives;
(iv) actions or claims (for expenses or otherwise) arising out of or based
upon the Purchase Agreement, but only to the extent such actions or claims
arise out of or are based upon an act or omission by Claymore, or (v) any
acts or omissions of the Investment Manager or the Fund and their respective
affiliates, partners, shareholders, officers, directors, agents and employees
taken or not taken, as the case may be, in reliance upon any untrue statement
or alleged untrue statement of a material fact contained in the Fund's
Registration Statement or any amendment thereto, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of
any untrue statement or alleged untrue statement of a material fact included
in any preliminary prospectus or the Prospectus (as defined in the Purchase
Agreement), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, such statement or omission relates to
Claymore or the services it provides to the Fund and/or the Investment
Manager.
(b) The Fund shall indemnify and hold harmless Claymore, the Investment
Manager and the Investment Adviser and their affiliates, shareholders, officers,
directors, agents and employees from and against any and all losses, claims,
damages, liabilities or expenses (including reasonable attorneys' fees and
expenses) to which they may become subject insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise out of or
are based upon: (i) any material breach by the Fund of any provision of this
Agreement; (ii) any willful misfeasance or gross negligence by the Fund in the
performance of its duties and obligations hereunder; or (iii) any violation of
any applicable law by the Fund, its employees, agents or representatives other
than Claymore, the Investment Adviser, the Investment Manager,
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and in each case other than any such breach, willful misfeasance, gross
negligence or violation caused by an act or omission of Claymore, the Investment
Adviser or the Investment Manager.
(c) The Investment Manager shall indemnify and hold harmless Claymore and
the Investment Adviser and their affiliates, shareholders, officers, directors,
agents and employees from and against any and all losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and expenses) to
which they may become subject insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon: (i) any material breach by the Investment Manager of any provision
of this Agreement; (ii) any willful misfeasance or gross negligence by the
Investment Manager in the performance of its duties and obligations hereunder;
(iii) any violation of any applicable law in relation to the Fund by the
Investment Manager, its employees, agents or representatives; or (iv) actions or
claims (for expenses or otherwise) arising out of or based upon the Purchase
Agreement, but only to the extent such actions or claims arise out of or are
based upon an act or omission by the Investment Manager.
(d) Each Claymore Party shall indemnify and hold harmless the Fund, the
Investment Manager and their affiliates, shareholders, officers, directors,
agents and employees from and against any and all losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and expenses)
to which they may become subject insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon: (i) any material breach by the Investment Adviser of any
provision of this Agreement; (ii) any willful misfeasance or gross negligence
by the Investment Adviser in the performance of its duties and obligations
hereunder; (iii) any violation of any applicable law in relation to the Fund
by the Investment Adviser, its employees, agents or representatives; or (iv)
actions or claims (for expenses or otherwise) arising out of or based upon
the Purchase Agreement, but only to the extent such actions or claims arise
out of or are based upon an act or omission by the Investment Adviser.
(e) To the extent that a loss, claim, damage, liability or expense
described in Section 6(a)(iv) and 6(d)(iv), on the one hand, and Section
6(c)(iv), on the other hand, arises out of or is based upon an act or omission
by both a Claymore Party and the Investment Manager, each party shall indemnify
the other in such proportion as is appropriate to reflect the relative fault of
the Claymore Party (or Claymore Parties) on the one hand and of the Investment
Manager on the other hand that resulted in such loss, claim, damage, liability
or expense. The relative fault of the Claymore Party (or Claymore Parties) and
the Investment Manager shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the act or omission that resulted in such loss, claim,
damage, liability or expense. For avoidance of doubt, the Claymore Parties on
the one hand and the Investment Manager on the other hand shall be deemed to be
equally involved in the organization and offering of the Fund and the
preparation of the preliminary prospectus, the Prospectus and the Registration
Statement. Any act or omission by the Fund shall not be attributed to either a
Claymore Party or the Investment Manager, unless caused by such party.
(f) The indemnified party or parties (the "Indemnified Party") shall give
notice to the other party or parties (the "Indemnifying Party") promptly after
the summons or other first legal process is served on the Indemnified Party for
any claim, notice of claim or arbitration demand as
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to which indemnity may be sought pursuant to paragraphs (a), (b), (c) and (d) of
this Section 6. The Indemnifying Party shall assume the defense of any such
claim or any litigation resulting from it, with counsel selected by it with the
approval of the Indemnified Party, which approval shall not be unreasonably
withheld; provided that the Indemnified Party may participate in such defense at
its own expense. The failure of the Indemnified Party to give notice as provided
in this paragraph (f) shall not relieve the Indemnifying Party from any
liability unless such failure to give proper notice materially prejudices the
Indemnifying Party's ability to defend the claim. No Indemnifying Party, in the
defense of any such claim or litigation, shall, without the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect of
such claim or litigation.
7. FEES.
The parties agree that their respective costs and expenses in
connection with this Agreement shall be addressed as provided in this Section 7.
In order for any cost or expense of a party to be properly paid or reimbursed in
accordance with this Section 7, such cost or expense must have been reasonably
incurred, must be eligible for reimbursement by the Fund under its declaration
of trust and bylaws, as amended, the Investment Company Act of 1940 and any
other applicable law or regulation, must be accurately accounted for and must be
subject to review by the reimbursing or paying party. For purposes of this
Agreement, organizational and offering costs and expenses shall include
out-of-pocket expenses of the underwriters (including reasonable fees and
disbursements of counsel to the underwriters) required to be reimbursed in the
event the underwriting agreement relating to an initial public offering ("IPO")
of the Fund is terminated under certain circumstances specified therein.
The Investment Manager hereby agrees to pay 60% of the offering costs
(other than the sales load, but including a $.005 per Common Share reimbursement
of expenses to the underwriters participating in the IPO) with respect to the
Fund (the total of such offering costs being the "Offering Expenses"), and the
Investment Adviser hereby agrees to pay 40% of the Offering Expenses. The
Investment Manager hereby agrees to pay 60% of the organizational costs with
respect to the Fund (the total organizational costs being the "Organizational
Expenses"), and the Investment Adviser hereby agrees to pay 40% of the
Organizational Expenses. Each of the Investment Manager and Claymore hereby
agrees to pay its own travel and marketing costs and expenses related to the
offering of the Fund (the total of such travel and marketing costs and expenses
being the "Covered Expenses"). Each such expense is subject to reimbursement by
the Fund as described below.
If the sum of (a) Offering Expenses, (b) Organizational Expenses and
(c) Covered Expenses (the aggregate costs and expenses in (a), (b) and (c) being
the "Total Expenses") are less than or equal to $0.03 per Common Share sold in
the offering (including all Common Shares sold pursuant to the exercise of any
over-allotment option granted to the underwriting syndicate) (the "Reimbursement
Cap"), the Fund (and not the Investment Manager) will (i) reimburse all
Offering, Organizational and Covered Expenses and (ii) to the extent permitted
by law and to the extent that the Reimbursement Cap has not been exceeded by the
payments pursuant to clause (i) above, pay Claymore for distribution assistance
equal to the difference between the Total Expenses and the Reimbursement Cap.
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If (a) the Offering Expenses plus Organizational Expenses (together,
the "Offering/Organizational Expenses") are less than or equal to the
Reimbursement Cap and (b) the Total Expenses are greater than the Reimbursement
Cap, the Fund (and not the Investment Manager) will (i) reimburse all Offering
and Organizational Expenses and (ii) to the extent that the Reimbursement Cap
has not been exceeded by the payments pursuant to clause (i) above, reimburse
Covered Expenses.
If (a) the Offering Expenses are less than or equal to the
Reimbursement Cap and (b) the Offering/Organizational Expenses are greater than
the Reimbursement Cap, the Fund (and not the Investment Manager) will (i)
reimburse all Offering Expenses and (ii) to the extent that the Reimbursement
Cap has not been exceeded by the payments pursuant to clause (i) above,
reimburse Organizational Expenses.
If the Offering Expenses are greater than the Reimbursement Cap, the
Fund will reimburse all Offering Expenses in an amount equal to the
Reimbursement Cap.
Any Offering Expenses to be reimbursed will be allocated between the
Investment Manager and the Investment Adviser in the same proportion that each
such party's payment of Offering Expenses bears to the sum of the Offering
Expenses paid by the Investment Manager and the Investment Adviser. Any
Organizational Expenses to be reimbursed will be allocated between the
Investment Manager and the Investment Adviser in the same proportion that each
such party's payment of Organizational Expenses bears to the sum of the
Organizational Expenses paid by the Investment Manager and the Investment
Adviser. Any Covered Expenses to be reimbursed will be allocated between the
Investment Manager and Claymore in the same proportion that each such party's
Covered Expenses bears to the sum of the Covered Expenses of the Investment
Manager and Claymore.
The amounts paid by the Fund to Claymore for its distribution services
(including its Covered Expenses) will not exceed .10% of the public offering
price of the Common Shares sold in the offering (including all Common Shares
sold pursuant to the exercise of any over-allotment option granted to the
underwriting syndicate).
At no time will the Investment Manager be responsible for all or any
portion of any payment to Claymore for distribution assistance (even if the
Total Expenses exceed the Reimbursement Cap).
8. NOTICES.
Except as otherwise specifically provided in this Agreement, all
notices required or permitted to be given pursuant to this Agreement shall be
given in writing and delivered by personal delivery or by postage prepaid,
registered or certified first class mail, return receipt requested, nationally
recognized overnight courier service, or by facsimile, electronic mail or
similar means of same day delivery (with a confirming copy by mail as provided
herein). Unless otherwise notified in writing, all notices to the Fund, the
Investment Manager, the Investment Adviser and Claymore shall be given or sent
to the addresses set forth below.
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If to the Fund:
Western Asset/Claymore U.S. Treasury
Inflation Protected Securities Fund 2
c/o Western Asset Management Company
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxx X. XxXxxx
Telephone No.: 000.000.0000
Fax No.: 000.000.0000
If to the Investment Manager:
Western Asset Management Company
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxxx III
Telephone No.: 000.000.0000
Fax No.: 000.000.0000
If to Claymore:
Claymore Securities, Inc.
000 X. Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxx Xxxxxxx
Telephone No.: 000.000.0000
Fax No.: 000.000.0000
e-mail: xxxxxxxx@xxxxxxxxxxxxxxxxxx.xxx
If to the Investment Adviser:
Claymore Advisors, LLC
000 X. Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxx Xxxxxxx
Telephone No.: 000.000.0000
Fax No.: 000.000.0000
e-mail: xxxxxxxx@xxxxxxxxxxxxxxxxxx.xxx
9. TERMINATION AND AMENDMENT.
(a) This Agreement shall become effective as of the date set forth above
and may be terminated by the Fund or the Investment Manager upon 30 days notice
in writing to Claymore and the Investment Adviser. Sections 6 and 7 hereof shall
survive the termination of this Agreement.
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(b) This Agreement may be amended only by a writing signed by the parties
hereto; provided, however, that Section 7 hereof may not be amended without the
prior written consent of Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated, as
representative of the underwriters participating in the IPO.
10. MISCELLANEOUS.
(a) This Agreement sets forth the entire Agreement between the parties
hereto and replaces and supersedes all other understandings, commitments, and
agreements relating to the subject matter hereof.
(b) This Agreement may be assigned by any party hereto only with the prior
written consent of the other parties hereto.
(c) No waiver of any provision of this Agreement or the performance
thereof shall be effective unless in writing signed by the party making such
waiver or shall be deemed to be a waiver of any other provision or the
performance thereof or of any future performance.
(d) If any provision of this Agreement is determined to be unenforceable,
the remaining provisions shall remain enforceable to the extent permissible.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
(f) This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts, without reference to the conflict
of laws principles thereof.
(g) A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of The Commonwealth of Massachusetts, and notice is hereby
given that this Agreement has been executed on behalf of the Fund by an officer
of the Fund as an officer and not individually and the obligations of or arising
out of this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Fund individually but are binding only upon the assets and
property of the Fund.
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first set forth above.
WESTERN ASSET/CLAYMORE U.S. TREASURY
INFLATION PROTECTED SECURITIES FUND 2
By:
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Name:
Title:
CLAYMORE SECURITIES, INC.
By:
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Name: Xxxxxxxx Xxxxxxx
Title: Senior Managing Director and General Counsel
CLAYMORE ADVISORS, LLC
By:
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Name:
Title:
WESTERN ASSET MANAGEMENT COMPANY
By:
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Name:
Title:
