PURCHASE AND SALE AGREEMENT
by and among
Franklin/Xxxxxxxxx Distributors, Inc.
as Seller
and
Franklin Resources, Inc.
as Seller Parent
and
Lightning Finance Company Limited
as Purchaser
Dated as of August 1, 1999
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS AND RULES OF CONTRUCTION.............................3
SECTION 1.1. DEFINITIONS...................................................3
SECTION 1.2 RULES OF CONSTRUCTION........................................23
ARTICLE II - PURCHASE AND SALE OF PURCHASED RECEIVABLES;
ADDITIONAL FUNDS AND COLLECTIONS............................................23
SECTION 2.1 PURCHASE AND SALE............................................23
SECTION 2.2 ADDITIONAL FUNDS.............................................24
SECTION 2.3 COLLECTIONS AND SELLER COLLECTIONS...........................25
SECTION 2.4 TRANSFER OF RECORDS TO PURCHASER.............................26
SECTION 2.5 DISTRIBUTION PLAN TERMINATION................................26
SECTION 2.6 INTERIM AGREEMENT............................................26
ARTICLE III - CONDITIONS PRECEDENT..........................................26
SECTION 3.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE OF PURCHASED
RECEIVABLES...................................................26
SECTION 3.2 CONDITIONS PRECEDENT TO INITIAL SALE OF PURCHASED RECEIVABLES.28
SECTION 3.3 CONDITIONS PRECEDENT TO THE PURCHASER'S CONTINUING OBLIGATION
TO PURCHASE PURCHASED RECEIVABLES.............................28
ARTICLE IV - REPRESENTATIONS AND WARRANTIES.................................29
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SELLER
PARENT.......................................................29
SECTION 4.1A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER.....33
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..............34
ARTICLE V - COVENANTS.......................................................36
SECTION 5.1 AFFIRMATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT....36
SECTION 5.2 NEGATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT.......42
SECTION 5.4 AFFIRMATIVE COVENANTS OF THE PURCHASER.......................44
SECTION 5.5. NEGATIVE COVENANTS OF THE PURCHASER..........................46
ARTICLE VI - EVENTS OF TERMNATION...........................................46
SECTION 6.1 EVENTS OF TERMINATION........................................46
SECTION 6.2 TERMINATION OF SELLER'S OBLIGATIONS TO SELL PURCHASED
RECEIVABLES..................................................47
ARTICLE VII - MISCELLANEOUS.................................................47
SECTION 7.1 NO WAIVER; MODIFICATIONS IN WRITING..........................47
SECTION 7.2 PAYMENT......................................................47
SECTION 7.3 NOTICES, ETC.................................................48
SECTION 7.4 TAXES, COSTS, AND EXPENSES...................................49
SECTION 7.6 EXECUTION IN COUNTERPARTS....................................51
SECTION 7.7 BINDING EFFECT; ASSIGNMENT...................................51
SECTION 7.8 GOVERNING LAW; SUBMISSION TO JURISDICTION....................52
SECTION 7.9 SEVERABILITY OF PROVISIONS...................................53
SECTION 7.10 CONFIDENTIALITY..............................................53
SECTION 7.11 INTENT OF AGREEMENT..........................................54
SECTION 7.12 LIABILITIES TO ANY FUND......................................55
SECTION 7.13 MERGER.......................................................55
SECTION 7.14 FURTHER ACTS.................................................55
SECTION 7.15 OTHER RIGHTS.................................................55
SECTION 7.16 REORGANIZATION...............................................55
SECTION 7.17 [INTENTIONALLY LEFT BLANK]...................................56
SECTION 7.18 FREE REDEMPTIONS.............................................56
SECTION 7.19 [INTENTIONALLY LEFT BLANK]...................................56
SECTION 7.20 REORGANIZATION...............................................56
SCHEDULES
SCHEDULE I Applicable Percentages
SCHEDULE II Contingent Deferred Sales Charges
SCHEDULE III List of Funds, Shares and Purchase Price Percentages
SCHEDULE IV List of Conversion Features
SCHEDULE V Form of Purchaser Report
EXHIBITS
EXHIBIT A Form of Additional Eligible Fund Addendum
EXHIBIT B Form of Assignment
EXHIBIT C Form of Distribution Plan(s)
EXHIBIT D Form of Irrevocable Payment Instruction
EXHIBIT E Form of Servicing Agreement
EXHIBIT F Forms of Underwriting Agreement(s)
EXHIBIT G Prospectus for Each Fund
EXHIBIT H Form of Opinion of Fund Counsel
EXHIBIT I Form of Opinion of Counsel to Seller
EXHIBIT J Form of Opinion of Counsel to Seller Parent
EXHIBIT K Form of Officers Certificate for Seller, Seller Parent,
and Servicer
EXHIBIT L Form of Opinion of Counsel to Servicer
EXHIBIT M Form of Opinion of Counsel to Purchaser
EXHIBIT N Forms of Investment Management Agreement(s)
EXHIBIT O Form of Opinion of Counsel to Seller re: Takeout Transaction
EXHIBIT P Form of Letter Agreement
THIS PURCHASE AND SALE AGREEMENT is entered into as of August 1, 1999, by
and among Lightning Finance Company Limited, an Irish private limited liability
company (the "Purchaser"), Franklin/Xxxxxxxxx Distributors, Inc., a New York
corporation (the "Seller") and Franklin Resources, Inc., a Delaware corporation
(the "Seller Parent").
BACKGROUND
The Seller, a registered broker/dealer under the Exchange Act and
regulations of the SEC and a member of the NASD, provides distribution,
marketing and other services to the Franklin/Xxxxxxxxx family of open-end
management investment companies, commonly called mutual funds. Some members of
this Franklin/Xxxxxxxxx family of mutual funds have decided to offer to the
investment community, effective January 4, 1999, a new class of shares, named
Class B shares, which are referred to as the "Shares" in this Agreement. The
mutual funds which have made this decision are referred to as the "Funds," and
each of the Funds is referred to as a "Fund," in this Agreement.
The Seller is compensated in two ways for certain of its costs and
expenses associated with the distribution and sale of the Shares of a Fund.
First, pursuant to the Fund's distribution plan adopted under Rule 12b-1 under
the Investment Company Act, the Seller anticipates that it shall be paid amounts
drawn on a regular and periodic basis from the general assets of the Fund at an
annual percentage rate of the average daily net assets of the Fund. Second, the
Seller anticipates that it shall be paid a percentage of the proceeds payable to
the shareholder when certain of the shareholder's Shares are redeemed by the
Fund within a certain period after their purchase. The property rights and
assets which constitute the Seller's anticipation to be paid these monies are
referred to in this Agreement as the "Receivables." The Funds have agreed with
the Seller that, in exchange for the performance by the Seller of certain duties
that will benefit the Funds and their shareholders, the Seller will own the
Receivables and have the right to receive and keep the cash payments that are
collected from the Receivables.
The Seller contemplates that it will expend very considerable sums on a
monthly basis in connection with the distribution, marketing and other services
that the Seller is contractually obligated to provide in connection with the
sale and redemption of the Shares. Since the timing of the cash flow from the
Receivables will not be sufficient to permit the Seller to pay these expenses on
a timely basis, the Seller has elected to sell certain of the Receivables to the
Purchaser and the Purchaser has agreed to purchase certain of the Receivables
from the Seller. The portion of the Receivables that is sold by the Seller to
the Purchaser is referred to in this Agreement as the "Purchased Receivables."
The Purchaser desires to buy and acquire the Purchased Receivables from
the Seller and the Purchaser is willing to pay to the Seller an agreed-upon
price for the Purchased Receivables. This price is referred to in this Agreement
as the "Purchase Price." The Purchaser has arranged for a credit facility to be
established by certain banks in the Purchaser's favor to permit the Purchaser to
have the funds necessary to periodically pay amounts of the Purchase Price to
the Seller; this credit facility is referred to in this Agreement as the "Credit
Agreement." The Purchaser may elect to retain the Purchased Receivables or to
engage in subsequent transactions, involving the Purchased Receivables,
including the resale of Purchased Receivables to third parties.
The Seller Parent owns all of the issued and outstanding stock of the
Seller. The Seller and the Purchaser both desire that the Seller Parent join
this Agreement for the specific and limited purposes expressly set forth in this
Agreement. The Seller Parent is willing to join this Agreement in connection
with, and only in connection with, the specific and limited purposes expressly
set forth in this Agreement.
The Seller considered, as an alternative to the transactions contemplated
by this Agreement, obtaining the cash necessary to continue to fund its
operations pertaining to the Shares by contracting with banks or other sources
of finance for a loan secured by a pledge by the Seller of its interest in some
or all of the Receivables. The Seller has rejected such a financing alternative
and expressly desires to sell and irrevocably transfer the Purchased Receivables
to the Purchaser. The Seller, the Seller Parent, and the Purchaser all expressly
intend that the sale, transfer, conveyance and assignment of the Purchased
Receivables by the Seller to the Purchaser pursuant to this Agreement shall
constitute an outright and irrevocable sale to the Purchaser of all of the
Seller's right, title and interest in the Purchased Receivables. This intention
of the parties as to the legal characterization of this transaction is referred
to in this Agreement as a "True Sale." The Seller, the Seller Parent and the
Purchaser also intend that all sales, transfers, conveyances and assignments of
Purchased Receivables by the Seller to the Purchaser pursuant to an Interim
Agreement dated as of January 4, 1999, as amended, previously in place by and
among the Seller, the Seller Parent and the Purchaser shall be governed by all
the terms and conditions of this Agreement.
Sometime after the date of this Agreement, the Seller and the Seller
Parent may seek to reorganize each of the Funds not currently organized in
Delaware into Delaware business trusts to take advantage of certain aspects of
Delaware business trust law favoring investment companies. The reorganization of
each such Fund will typically be accomplished by creating a new Delaware
business trust or new series of shares of an existing Delaware business trust
(the "New Fund"). The Fund that is reorganizing (the "Prior Fund") will then
transfer all or substantially all of its assets and liabilities to the New Fund
in exchange for all the shares of beneficial interest of the New Fund. These
shares of the New Fund will then be distributed to the shareholders of the Prior
Fund in exchange for their shares of the Prior Fund, and the latter shares will
be cancelled. All of the service provider agreements and other material
contracts of the Prior Fund are typically assigned to the New Fund as part of
the reorganization. This Agreement is intended to cover the transfer of
Purchased Receivables to the Purchaser by both Prior Funds and New Funds.
The Seller, the Seller Parent and the Purchaser intend that all of the
foregoing business understandings and various related matters be reflected in a
detailed negotiated contract. This Agreement is that detailed negotiated
contract.
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ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated:
"ADDITIONAL EFFECTIVE DATE" shall mean with respect to any Additional
Eligible Fund, the first date on which all of the following conditions shall
have been satisfied:
a. the Purchaser shall have received a fully executed Additional Eligible
Fund Addendum, together with such signed opinions of counsel to such Additional
Eligible Fund, the Seller and the Seller Parent, each in the form of Exhibits H,
I and J, and each dated a date reasonably near the Additional Effective Date, as
the Purchaser shall have reasonably requested;
b. the Purchaser shall have received such instruments, certificates and
documents regarding the addition of such Additional Eligible Fund from the
Seller, the Seller Parent and such Additional Eligible Fund as the Purchaser
shall have reasonably requested;
c. the Purchaser and the Seller shall have agreed in writing to the
Purchase Price Percentage applicable to such Additional Eligible Fund; and
d. the Purchaser shall have received evidence satisfactory to it that (i)
the conditions set forth in Sections 3.1 and 3.3 of this Agreement shall be
satisfied in respect of such Additional Eligible Fund immediately after the
Additional Effective Date and (ii) that on such Additional Effective Date the
Receivables relating to such Additional Eligible Fund shall constitute Eligible
Receivables.
"ADDITIONAL ELIGIBLE FUND" shall mean any additional investment company or
series or portfolio thereof (each, in the context of this definition, a "fund")
for which the Seller is the principal underwriter and an Adviser is the
investment adviser where:
a. such fund shall have in full force and effect a distribution plan,
investment management agreement and underwriting agreement, which either shall
be substantially identical to the Distribution Plan, Investment Management
Agreement and Underwriting Agreement in effect in respect of the Funds on the
date hereof or shall have been approved in writing by the Purchaser;
b. the Seller shall act as the principal underwriter to such fund and an
Adviser shall act as investment adviser to such fund on such terms as are either
substantially identical to those pursuant to which the Seller acts as the
principal underwriter and an Adviser acts as investment adviser for the Funds on
the date hereof or otherwise on terms reasonably satisfactory to the Purchaser;
3
c. the fundamental investment objectives and policies of such fund shall
either be substantially identical to those of any of the Funds on the date
hereof or be reasonably satisfactory to the Purchaser;
d. the Seller shall be entitled to receive Contingent Deferred Sales
Charges from the shareholders of the Class B shares or other class of shares, as
identified in a notice to Purchaser pursuant to Section 5.1(s), of such fund on
such terms as are either substantially identical to those in respect of Shares
of any of the Funds on the date hereof or otherwise on terms reasonably
satisfactory to the Purchaser;
e. there shall be in full force and effect an Irrevocable Payment
Instruction of such fund which has been acknowledged and agreed to by the
investment company and the fund as is contemplated thereby; and
f. the Seller shall have certified in writing to the Purchaser that each
of the foregoing statements is true and correct and shall have furnished
therewith: (i) a true and complete copy of the prospectus for such fund; (ii) a
true and complete copy of the distribution plan in respect of such fund; (iii) a
true and complete copy of the underwriting agreement in respect of such fund;
and (iv) to the extent not reflected in clause (i) above, a statement of the
fundamental investment objectives and policies of such fund.
"ADDITIONAL ELIGIBLE FUND ADDENDUM" shall mean the addendum substantially
in the form of Exhibit A attached hereto, executed by the Seller and the
Purchaser.
"ADVERSE" when used alone or in conjunction with other terms (including
without limitation "Affect", "Change" and "Effect", but specifically excluding
"Claim") shall mean the occurrence or existence of any act, circumstance,
condition, event, fact or set or combination of the foregoing which, in the
reasonable judgment of the Purchaser, creates a significant possibility of (a)
any adverse effect upon (i) the timing or amount of any payment of any
Collections or (ii) the timely receipt by the Purchaser of any Collections; or
(b) any material adverse effect upon (i) the ability of the Seller, the Seller
Parent, any Adviser or any Fund to pay or perform any of its respective
obligations under any Program Document in a timely manner, (ii) the status of
the Purchased Receivables as Eligible Receivables, (iii) the remedies and the
other rights of the Purchaser under any Program Document, or (iv) the then
existing or projected financial condition of the Seller.
"ADVERSE CLAIM" shall mean any Lien of any Person (other than any such
right or claim of the Purchaser or any Master Trust created by or pursuant to
this Agreement, any other Program Document, or any Master Trust Transfer
Agreement).
"ADVISER" shall mean, as of any date, any Person that on such date (a) is
"controlled" by the Seller Parent (as defined in the definition of "Affiliate"),
(b) of which the Seller Parent owns, directly or indirectly, twenty-five percent
(25%) or more of (i) the outstanding equity security or (ii) the interests in
the capital, distributions and profits, (c) is registered as an investment
adviser in the United States, and (d) directly or indirectly, provides
investment advisory services or subadvisory services to any of the Funds.
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"AFFILIATE" of a referenced Person shall mean (a) another Person
controlling, controlled by or under common control with such referenced Person,
(b) any other Person of whom such referenced Person beneficially owns or
controls twenty-five percent (25%) or more (i) of the outstanding voting
securities or voting rights of the referenced Person or (ii) of the interest in
the capital, distributions or profits of the referenced Person, (c) any other
Person beneficially owning or controlling twenty-five percent (25%) or more (i)
of the outstanding voting securities or voting rights of the referenced Person
or (ii) of the interest in the capital, distributions or profits of the
referenced Person or (d) any officer (exclusive of a "ministerial officer" with
no authority to bind the referenced Person) or director of or partner in the
referenced Person; PROVIDED, HOWEVER, that the term "Affiliate" shall not be
deemed to include any Fund. For purposes of this Agreement, except where
expressly stated otherwise, the terms "control", "controlling", "controlled" and
the like shall mean the direct or indirect possession of the power to direct or
cause the direction of the management or policies of a Person or the disposition
of its assets or properties, whether through ownership, by contract, arrangement
or understanding, or otherwise.
"AGREEMENT" shall mean this Purchase and Sale Agreement by and among the
Purchaser, the Seller, and the Seller Parent, dated as of August 1, 1999,
including the Schedules and Exhibits attached hereto and referenced herein, as
the same may from time to time be amended, supplemented, waived or modified.
"APPLICABLE LAW" shall mean any Law of any Authority, whether domestic or
foreign, including, without limitation, all federal and state banking or
securities laws, to which the Person in question is subject or by which it or
any of its property is bound.
"APPLICABLE PERCENTAGE" shall mean, with respect to any Fund, the
applicable percentage set forth on Schedule I attached hereto.
"ASSIGNMENT" shall mean an assignment substantially in the form of Exhibit
B, attached hereto.
"AUTHORITY" shall mean any governmental or quasi-governmental authority,
whether executive, legislative, judicial, administrative or other, or any
combination thereof, including, without limitation, any federal, state or local
government or governmental or quasi-governmental agency, board, body, branch,
bureau, commission, corporation, court, department, instrumentality or other
political unit or subdivision or other entity of any of the foregoing, whether
domestic or foreign, including, without limitation, the NASD or any other
self-regulatory organization.
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code of 1978, as
amended from time to time or any similar legislation of the United States
enacted in substitution or replacement thereof.
"BANKRUPTCY EVENT" shall mean any one of the following occurrences:
a. the Seller, the Seller Parent or an Adviser shall generally fail to pay
its obligations as such obligations become due, or shall admit in writing its
inability to pay its obligations generally, or shall make a general assignment
of all or substantially all of its assets for the benefit of creditors; or
5
b. any proceeding shall be instituted by or against the Seller, the Seller
Parent or an Adviser seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its obligations under any Law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), such proceeding shall remain undismissed or unstayed
for a period of sixty (60) days; or
c. a court or other governmental authority or agency having jurisdiction
in the premises shall enter a decree or order (i) for the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Seller, the Seller Parent or an Adviser or of any material part
of its property, or for the winding-up or liquidation of its affairs, and such
decree or order shall remain in force undischarged and unstayed for a period of
more than sixty (60) days, or (ii) for the sequestration or attachment of any
material part of the property of the Seller, the Seller Parent or an Adviser
without its unconditional return to the possession of the Seller, the Seller
Parent or an Adviser or its unconditional release from such sequestration or
attachment, within sixty (60) days thereafter; or a court having jurisdiction in
the premises shall enter an order for relief in any involuntary case commenced
against the Seller, the Seller Parent or an Adviser, under the Bankruptcy Code,
and such order shall remain in force undischarged and unstayed for a period of
more than sixty (60) days; or
d. the Seller, the Seller Parent or an Adviser shall take any action to
authorize any of the actions set forth above in this definition.
"BENEFICIARY" shall mean each Person which has a beneficial interest in
any Master Trust, together with its permitted respective successors and assigns.
"BUSINESS DAY" shall mean any day (other than a Saturday or a Sunday) on
which (a) the New York Stock Exchange is open and (b) banks are not authorized
or required to close in New York City.
"CDSC COLLECTION ACCOUNT" shall mean the account of the Purchaser (Account
No. 323-114-814) maintained with The Chase Bank of Texas or such other account
as the Purchaser shall designate in writing to the Seller with respect to which
the Seller shall have no access or control.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time and the regulations promulgated and the rulings issued thereunder or any
similar legislation of the United States enacted in substitution or replacement
thereof.
"COLLECTION ACCOUNT" shall mean the account of the Purchaser (Account No.
00000000) maintained with The Chase Manhattan Bank (Ireland) PLC or such other
account as the Purchaser shall designate in writing to the Seller, with respect
to which the Seller shall have no access or control.
"COLLECTIONS" shall mean (a) all amounts paid or payable by each Fund or
each shareholder of each Fund in respect of the Purchased Receivables relating
to each such Fund and all amounts payable by the Seller or the Seller Parent
6
under the Program Documents in respect of the Purchased Receivables relating to
each such Fund, and (b) all Proceeds of the foregoing; it being understood that
the term Collections shall not include amounts paid or payable pursuant to
Section 7.4 or 7.5 of this Agreement. Without limiting the generality of the
foregoing definition, the term Collections shall include, without limitation,
all amounts deposited in the Collection Account or the CDSC Collection Account
pursuant to Sections 2.3(a) or 2.3(b), respectively.
"CONDUCT RULES" shall mean the Conduct Rules of the NASD, including
without limitation, Section 2830 thereof, as amended, and the rules, regulations
and interpretations of the NASD in respect thereto.
"CONFIDENTIAL INFORMATION" shall mean the Program Documents (and all
drafts thereof) (other than the Underwriting Agreements, the Investment
Management Agreements, the Distribution Plans and the Prospectuses), the
transactions contemplated hereby and thereby, and all confidential, non-public
information provided to a Party, concerning another Party or any of its
Affiliates, which information has been provided to such Party by another Party
and was not also available to such Party through other means.
"CONTINGENT DEFERRED SALES CHARGES" shall mean, with respect to any Fund,
the contingent deferred sales charges as set forth in Schedule II hereto, or as
identified in a notice to Purchaser pursuant to Section 5.1(s), payable, either
directly or through withholding a portion of the proceeds of the redemption of
Shares of such Fund, by the shareholders of such Fund on any redemption of
Shares of such Fund in accordance with the Underwriting Agreement and the
Prospectus relating to such Fund and pursuant to the Conduct Rules.
"CONVERSION FEATURE" shall mean, with respect to any Share of any Fund, a
mandatory or elective provision (including, without limitation, a provision
which permits or requires such Share to be converted into a share of a different
class, but excluding the scheduled reductions in Contingent Deferred Sales
Charges as set forth in Schedule II hereto and Free Redemptions) that may result
in a reduction or termination of any amount owing from any Fund or the
shareholder in respect of the Receivable relating to such Share (or the share
obtained by virtue of a conversion of such Share) at some point in the future
prior to the redemption of such Share.
"CREDIT AGREEMENT" shall mean that certain Credit Agreement dated as of
December 30, 1998 by and among the Purchaser, the several banks and other
financial institutions from time to time parties thereto, The Bank of New York
as syndication agent, Deutche Bank, N.A. as documentation agent and The Chase
Manhattan Bank as administrative agent, as amended from time to time.
"DEBT" of any Person shall mean at any date, without duplication, (a) all
obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments; (c)
all non-current liabilities of such Person to pay the deferred purchase price of
property or services; (d) all obligations of such Person as lessee under leases
or other agreements which have been or should be capitalized in accordance with
GAAP; (e) all liabilities in respect of unfunded benefits under any Plan; and
(f) all Secured or Guaranteed Debt.
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"DISTRIBUTION PLAN" shall mean, with respect to any Fund, the Distribution
Plan of the Investment Company adopted pursuant to Rule 12b-1 under the
Investment Company Act and in the form of Exhibit C attached hereto, as it
applies to such Fund pursuant to which Shares of such Fund are distributed by
the Seller, together with any successor or replacement distribution plan, as the
same may be amended, supplemented, waived or modified from time to time.
"DOLLARS" and "$" shall mean lawful money of the United States of America.
"ELIGIBLE RECEIVABLE" shall mean a Receivable which: (a) represents an
obligation of a United States obligor which obligor is not an Authority; (b)
constitutes an "account" or "general intangible" as such terms are defined in
the UCC of all applicable jurisdictions; (c) is denominated and payable in
Dollars; (d) constitutes a legal, valid and binding contractual obligation of
the obligor thereof which is not subject to any dispute, offset, counterclaim or
defense whatsoever; (e) is not subject to any Adverse Claim; (f) does not
contravene any Applicable Law applicable to any Investment Company, any Fund or
any other Person; and (g) constitutes an asset in accordance with GAAP.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"EVENT OF TERMINATION" shall mean any one of the following events:
a. the Seller, the Seller Parent, any Investment Company or any Fund shall
fail to make or fail to cause to be made in the manner and when due any payment
or deposit to be made or to be caused to be made by it to the Purchaser, or any
Investment Company or Fund shall voluntarily fail to make or fail to cause to be
made in the manner and when due any payment or deposit to be made or caused to
be made by it to any Adviser, under this Agreement, any Distribution Plan, any
Underwriting Agreement, the Servicing Agreement or any other Program Document
and such failure shall continue unremedied for ten (10) Business Days following
notice thereof from the Purchaser or the Seller, as the case may be, to the
entity obligated to make such payment; PROVIDED, HOWEVER, if (i) such event
affects only Funds which are not Substantial Funds, (ii) the Seller is able to
segregate Receivables related to Shares of the Fund(s) affected by such event
(and any Shares of other Funds into which such Shares may be exchanged in Free
Exchanges) from Purchased Receivables related to Shares of such Fund and any
unaffected Funds (and any Shares of other Funds into which such Shares may be
exchanged in Free Exchanges), and (iii) the Seller's ability to segregate
Receivables, as described above, is certified to the Purchaser by an independent
accounting firm of national standing, reasonably acceptable to the Purchaser,
such Event of Termination will only relate to the Purchaser's obligation to
purchase Receivables related to the affected Fund(s), and such Event of
Termination will not affect the Purchaser's obligation to continue to purchase
Purchased Receivables related to Shares of unaffected Funds on subsequent
Purchase Dates;
b. the Seller or the Seller Parent shall have failed to provide 90 days'
advance notice of any change in the fundamental investment objectives or
policies of any Fund from those set forth in the Prospectus for such Fund as of
the date of this Agreement; PROVIDED, HOWEVER, if (i) such event affects only
Funds which are not Substantial Funds, (ii) the Seller is able to segregate
Receivables related to Shares of the Fund(s) affected by such event (and any
Shares of other Funds into which such Shares may be exchanged in Free Exchanges)
8
from Purchased Receivables related to Shares of such Fund and any unaffected
Funds (and any Shares of other Funds into which such Shares may be exchanged in
Free Exchanges), and (iii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, such Event of
Termination will only relate to the Purchaser's obligation to purchase
Receivables related to the affected Fund(s), and such Event of Termination will
not affect the Purchaser's obligation to continue to purchase Purchased
Receivables related to Shares of unaffected Funds on subsequent Purchase Dates;
c. (i) any representation or warranty made or deemed made by the Seller,
the Seller Parent, the Servicer, or any Adviser (or any of their respective
officers) under or in connection with this Agreement, the Servicing Agreement or
any other Program Document to which it is a party shall have been false,
incorrect or misleading in any material respect when made or deemed made or (ii)
any Purchaser Report or any other statement, certificate or report delivered by
or on behalf of the Seller or the Seller Parent or any Adviser in connection
with this Agreement, the Servicing Agreement, or any other Program Document,
shall have been false, incorrect or misleading in any material respect when
delivered;
d. it shall be alleged in any proceeding of the type referred to in
paragraph (h) or paragraph (r) of this definition of Event of Termination that
any purchase of Purchased Receivables in respect of any Fund by the Purchaser
pursuant to this Agreement does not for any reason constitute a True Sale
thereof, free and clear of any Adverse Claim or any other claim and there has
been an Adverse Effect or it shall have been finally determined by a court or
other tribunal that any purchase of Purchased Receivables in respect of any Fund
by the Purchaser pursuant to this Agreement does not for any reason constitute a
True Sale thereof, free and clear of any Adverse Claim or any other claim;
e. any material adverse change shall occur in (i) the then existing or
projected financial condition of the Seller or (ii) the then existing or
projected financial condition of either the Seller Parent or any Adviser which
in the case of (ii) could reasonably be expected to have an Adverse Effect;
f. the Seller Parent shall cease to own, directly or indirectly, all of
the issued and outstanding stock (or membership interest or partnership
interest) of each class and series of the Seller;
g. any material provision of any Program Document to which the Seller, the
Seller Parent, the Servicer, any Adviser, any Fund or any Investment Company is
a party shall without the written consent of Purchaser cease to be a legal,
valid and binding obligation of any such Person, enforceable in accordance with
its terms; PROVIDED, HOWEVER, if (i) such event affects only Funds which are not
Substantial Funds, (ii) the Seller is able to segregate Receivables related to
Shares of the Fund(s) affected by such event (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) from Purchased Receivables
related to Shares of such Fund and any unaffected Funds (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges), and (iii) the
Seller's ability to segregate Receivables, as described above, is certified to
the Purchaser by an independent accounting firm of national standing, reasonably
9
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;
h. the Securities Investor Protection Corporation, established under SIPA,
shall apply for a protective decree against the Seller, and the Seller shall
have failed to obtain a dismissal of such application within thirty (30) days
after such application;
i. the Seller has knowingly failed in a material manner to meet, or the
NASD or the SEC has determined that the Seller has failed to meet, the minimum
net capital requirements prescribed from time to time by Rule 15c3-1 under the
Exchange Act and such failure is not cured within fifteen (15) Business Days
after Seller obtained such knowledge or such determination is made, as
applicable;
j. the SEC, the NASD or any other Authority with authority to interpret or
initiate proposed changes in the Investment Company Act, the Conduct Rules, the
rules and regulations under either thereof or the interpretations of any of the
foregoing, shall modify or propose to modify any of the foregoing, in a manner
that might, in the reasonable judgment of the Purchaser, give rise to an Adverse
Effect, or terminate Rule 12b-1, or the interpretation of any of the foregoing;
k. any of the Governmental Authorizations or Private Authorizations
required in connection with the Program Documents or the transactions
contemplated thereby shall cease to be in full force and effect or shall be
revoked and such revocation shall not be waived within thirty (30) days, or
there shall occur any breach or violation of or default under any such
Governmental Authorizations or Private Authorizations which shall not have been
cured or waived within thirty (30) days of the occurrence thereof, or any action
or proceeding under any Applicable Law shall in any way be brought to challenge
(and shall continue unstayed for a period of fifteen (15) Business Days) the
validity or enforceability of any such Governmental Authorizations or Private
Authorizations;
l. (i) the Seller shall cease to be registered as a broker/dealer under
the Exchange Act or shall cease to be a member of the NASD and no Affiliate of
the Seller has been substituted as the Seller hereunder, or (ii) any Adviser
shall cease to be either (A) exempt form registration as an investment adviser
under Section 202(a)(11) of the Investment Adviser Act or (B) registered as an
investment adviser under such act; PROVIDED, HOWEVER, in the case of (ii), if
(X) such event affects only Funds which are not Substantial Funds, (Y) the
Seller is able to segregate Receivables related to Shares of the Fund(s)
affected by such event (and any Shares of other Funds into which such Shares may
be exchanged in Free Exchanges) from Purchased Receivables related to Shares of
such Fund and any unaffected Funds (and any Shares of other Funds into which
such Shares may be exchanged in Free Exchanges), and (Z) the Seller's ability to
segregate Receivables, as described above, is certified to the Purchaser by an
independent accounting firm of national standing, reasonably acceptable to the
Purchaser, such Event of Termination will only relate to the Purchaser's
obligation to purchase Receivables related to the affected Fund(s), and such
Event of Termination will not affect the Purchaser's obligation to continue to
10
purchase Purchased Receivables related to Shares of unaffected Funds on
subsequent Purchase Dates;
m. any Fund or Investment Company shall have been prevented for a period
in excess of ten (10) Business Days by any Authority or by any Applicable Law
from paying Collections or amounts owed with respect to any Purchased
Receivables to the Purchaser in accordance with this Agreement and the
applicable Irrevocable Payment Instruction or any Fund shall so assert in
writing; PROVIDED, HOWEVER, if (i) such event affects only Funds which are not
Substantial Funds, (ii) the Seller is able to segregate Receivables related to
Shares of the Fund(s) affected by such event (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) from Purchased Receivables
related to Shares of such Fund and any unaffected Funds (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges), and (iii) the
Seller's ability to segregate Receivables, as described above, is certified to
the Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;
n. any one or more of the Funds or Investment Companies shall cease
(voluntarily or by the requirement of any Authority or any Applicable Law) to
regularly offer Shares to new investors (except to the extent waived in writing
by the Purchaser); PROVIDED, HOWEVER, that the foregoing shall not include the
failure of a Fund to regularly offer Shares to new investors after achieving
aggregate net assets above which the Prospectus for such Fund on the date hereof
(or on the Additional Effective Date in the case of an Additional Eligible Fund)
expressly states that sales to new investors may be suspended if a new Fund
which provides investors with a reasonable investment alternative to such closed
Fund is made available to investors within 120 days of such suspension; and
PROVIDED FURTHER, that such event affects only Funds which are not Substantial
Funds, (ii) the Seller is able to segregate Receivables related to Shares of the
Fund(s) affected by such event (and any Shares of other Funds into which such
Shares may be exchanged in Free Exchanges) from Purchased Receivables related to
Shares of such Fund and any unaffected Funds (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) and (iii) the Seller's
ability to segregate Receivables, as described above, is certified to the
Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not effect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;
o. any Fund or any Investment Company shall adopt a plan of dissolution or
liquidation; PROVIDED, HOWEVER, if (i) such event affects only Funds which are
not Substantial Funds, (ii) the Seller is able to segregate Receivables related
to Shares of the Fund(s) affected by such event (and any Shares of other Funds
into which such Shares may be exchanged in Free Exchanges) from Purchased
Receivables related to Shares of such Fund and any unaffected Funds (and any
Shares of other Funds into which such Shares may be exchanged in Free
Exchanges), and (iii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, such Event of
11
Termination will only relate to the Purchaser's obligation to purchase
Receivables related to the affected Fund(s), and such Event of Termination will
not affect the Purchaser's obligation to continue to purchase Purchased
Receivables related to Shares of unaffected Funds on subsequent Purchase Dates;
p. any Fund or any Investment Company shall propose to its shareholders or
effect a merger or other combination with another mutual fund which gives rise
to an Adverse Effect; PROVIDED, HOWEVER, if (i) such event affects only Funds
which are not Substantial Funds, (ii) the Seller is able to segregate
Receivables related to Shares of the Fund(s) affected by such event (and any
Shares of other Funds into which such Shares may be exchanged in Free Exchanges)
from Purchased Receivables related to Shares of such Fund and any unaffected
Funds (and any Shares of other Funds into which such Shares may be exchanged in
Free Exchanges), and (iii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, such Event of
Termination will only relate to the Purchaser's obligation to purchase
Receivables related to the affected Fund(s), and such Event of Termination will
not affect the Purchaser's obligation to continue to purchase Purchased
Receivables related to Shares of unaffected Funds on subsequent Purchase Dates;
q. the Seller Parent shall fail to pay any amount in respect of any of its
Debt, the outstanding principal amount of which is in excess of One Hundred
Million Dollars ($100,000,000) in the aggregate, when the same has been due and
payable for a period of five (5) Business Days;
r. there shall occur a Bankruptcy Event with respect to the Seller, the
Seller Parent or any Adviser;
s. the Underwriting Agreement, the Investment Management Agreement, the
Distribution Plan or the Prospectus in respect of any Fund, the terms of any
Conversion Feature of any Share issued by such Fund, Rule 12b-1 under the
Investment Company Act or the Conduct Rules, or the interpretation of any of the
foregoing, each as in effect on the date of this Agreement, shall have been
amended or modified in a manner which, in the reasonable judgment of the
Purchaser, gives rise to an Adverse Effect; PROVIDED, HOWEVER, if (i) such event
affects only Funds which are not Substantial Funds, (ii) the Seller is able to
segregate Receivables related to Shares of the Fund(s) affected by such event
(and any Shares of other Funds into which such Shares may be exchanged in Free
Exchanges) from Purchased Receivables related to Shares of such Fund and any
unaffected Funds (and any Shares of other Funds into which such Shares may be
exchanged in Free Exchanges), and (iii) the Seller's ability to segregate
Receivables, as described above, is certified to the Purchaser by an independent
accounting firm of national standing, reasonably acceptable to the Purchaser,
such Event of Termination will only relate to the Purchaser's obligation to
purchase Receivables related to the affected Fund(s), and such Event of
Termination will not affect the Purchaser's obligation to continue to purchase
Purchased Receivables related to Shares of unaffected Funds on subsequent
Purchase Dates;
t. the Underwriting Agreement, the Distribution Plan, the Investment
Management Agreement or the Prospectus in respect of any Fund or Rule 12b-1
under the Investment Company Act, each as in effect on the date of this
Agreement (or on the Additional Effective Date in the case of an Additional
12
Eligible Fund), shall have been terminated or shall otherwise no longer be
effective, whether voluntarily or involuntarily, by such Fund, the Seller, the
Seller Parent, an Adviser or any other Person, including without limitation by
any Authority or as a result of any Applicable Law unless in respect of such
Fund a replacement Underwriting Agreement, Distribution Plan, Investment
Management Agreement, Prospectus or the Conduct Rules, as the case may be, has
become effective and which has terms which would not result in an Adverse
Effect; PROVIDED, HOWEVER, if (i) such event affects only Funds which are not
Substantial Funds, (ii) the Seller is able to segregate Receivables related to
Shares of the Fund(s) affected by such event (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) from Purchased Receivables
related to Shares of such Fund and any unaffected Funds (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges), and (iii) the
Seller's ability to segregate Receivables, as described above, is certified to
the Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;
u. the Purchaser is unable to pay Purchase Price on any Purchase Date for
any Purchased Receivables due to a lack of Funds, as validated by a unanimous
resolution of the Purchaser's Board of Directors or by a majority resolution of
the Purchaser's shareholders to this effect;
v. the Seller, the Seller Parent or any Adviser shall fail to perform or
observe any other term, covenant or agreement on its part to be performed or
observed under this Agreement, the Servicing Agreement or any other Program
Document to which it is a party and such failure could reasonably be expected to
have an Adverse Effect and shall continue unremedied for a period of fifteen
(15) Business Days after the earlier of discovery by the Seller or the Seller
Parent or after written notice thereof by the Purchaser to the Seller; and
w. any investment adviser to any Fund shall not be an Adviser; PROVIDED,
HOWEVER, if (i) such event affects only Funds which are not Substantial Funds,
(ii) the Seller is able to segregate Receivables related to Shares of the
Fund(s) affected by such event (and any Shares of other Funds into which such
Shares may be exchanged in Free Exchanges) from Purchased Receivables related to
Shares of such Fund and any unaffected Funds (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges), and (iii) the Seller's
ability to segregate Receivables, as described above, is certified to the
Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, and the
rules and regulations of the SEC thereunder, all as from time to time in effect,
or any successor law, rules or regulations, and any reference to any statutory
or regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
13
"EXISTING INVESTMENT COMPANY" shall mean each of the investment companies
set forth on Schedule III to this Agreement, as the same may be modified
pursuant to Section 7.20 hereof, each an open-end management investment company
which is described in a Prospectus, together with its permitted successors and
assigns.
"FINAL TERMINATION DATE" shall mean the fifteenth day of the Purchaser's
fiscal quarter immediately following the fiscal quarter during which occurs the
eighth anniversary of the Sale Cutoff Date with respect to the last Monthly Pool
of Purchased Receivables purchased by the Purchaser.
"FRANKLIN SERVICES" shall mean Franklin Xxxxxxxxx Services, Inc., a
Delaware corporation.
"FRANKLIN SPONSORED FUND" shall mean any investment company or series or
portfolio thereof (each, in the context of this definition, a "fund") where (a)
such fund is not yet a Fund; (b) such fund has a class of shares that is subject
to a Contingent Deferred Sales Charge in excess of 1%; (c) the Seller, the
Seller Parent, or any Affiliate of the Seller or the Seller Parent is an
investment adviser for such fund; (d) none of the Seller or the Seller Parent or
any Affiliate of the Seller or Seller Parent is a principal underwriter for such
fund; and (e) such fund is directly or indirectly sponsored by Seller, Seller
Parent, or any Affiliate of either, without regard to the form of such
sponsorship (which shall include, without limitation, directly or indirectly
directing the marketing and/or promotion of the fund and licensing of
trademarks, logos or other intellectual property rights which would cause a
reasonable investor to conclude that such fund is in fact so sponsored).
"FREE EXCHANGE" shall mean the exchange of Shares of one Fund (the
"Redeeming Fund") for Shares of another Fund (the "Issuing Fund"), where,
pursuant to the applicable constituent documents of the Issuing Fund: (a) Shares
of the Issuing Fund are deemed for all purposes (related to the computation of
the amount of, and timing of payment of, Receivables) to have been acquired at
the time when the exchanged Shares of the Redeeming Fund were acquired (or
deemed to be acquired) by the holder thereof; (b) the exchanging shareholder
becomes obligated to pay to the Issuing Fund the same Contingent Deferred Sales
Charge in respect of the Shares of the Issuing Fund and on the same terms as
such shareholder was obligated to pay to the Redeeming Fund; (c) the date upon
which such Shares of the Issuing Fund are converted pursuant to the Permitted
Conversion Feature is the date the exchanged Shares of the Redeeming Fund were
to be converted pursuant to the Permitted Conversion Feature of the exchanged
Shares; (d) both the redemption of the Shares of the Redeeming Fund so exchanged
and the issuance of the Shares of the Issuing Fund are effected at the Net Asset
Value of such Shares at the date of the exchange without any reduction for fees
or expenses attributable to such exchange; and (e) at the time of such exchange
all of the conditions set forth in Section 3.3(d) of this Agreement would be met
for a purchase of Receivables relating to Shares of the Issuing Fund.
"FREE REDEMPTIONS" shall mean a redemption of Shares of any Fund obtained
by (a) a shareholder through reinvestment of dividends (whether ordinary,
capital gain or exempt-interest dividends) paid by such Fund or (b) a
shareholder of such Fund under any arrangement (including, without limitation,
(i) any arrangements pursuant to which a certain Person is entitled to acquire
14
such Shares of such Fund under circumstances in which no Contingent Deferred
Sales Charges will be payable by such Person and (ii) arrangements pursuant to
which Contingent Deferred Sales Charges are deferred in connection with the
redemption of Shares of such Fund because the redeeming shareholder is
reinvesting all or a portion of the proceeds of such redemption in Shares of
another Fund) which relieves or defers, in whole or in part, such shareholder's
obligation to pay the maximum Contingent Deferred Sales Charge that would have
been payable in the absence of such arrangement or reinvestment if such
shareholders were any other shareholder of such Fund redeeming Shares of such
Fund that had been held by such other shareholder for the same period the Shares
of such Fund in question had been held by the shareholder in question, but such
term shall not include any Free Exchange.
"FUND" shall mean each series or portfolio of an Investment Company, or
the Investment Company itself where the Investment Company does not have series
or more than one portfolio, as specified on Schedule III hereto, as the same may
be deemed amended, modified or supplemented pursuant to Sections 2.2 or 7.20 of
this Agreement.
"GAAP" shall mean generally accepted accounting principles in the United
States, as in effect from time to time, consistently applied; PROVIDED, HOWEVER,
that, where expressly noted, GAAP shall mean generally accepted accounting
principles in the United States, as in effect on the date hereof.
"GOVERNMENTAL AUTHORIZATIONS" shall mean all franchises, permits,
licenses, approvals, consents and other authorizations of all Authorities.
"GOVERNMENTAL FILINGS" shall mean all filings, including franchise and
similar tax filings, and the payment of all fees, assessments, interests and
penalties associated with such filings with all Authorities.
"GUARANTEE" by any Person shall mean any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
"INVESTMENT ADVISERS ACT" shall mean the Investment Advisers Act of 1940,
as amended, and the rules and regulations of the SEC thereunder, all as from
time to time in effect, or any successor law, rules or regulations, and any
reference to any statutory or regulatory provision shall be deemed to be a
reference to any successor statutory or regulatory provision.
15
"INVESTMENT COMPANY" shall mean each Existing Investment Company and each
New Investment Company, each as described on Schedule III hereto, as amended
from time to time, and its permitted successors and assigns.
"INVESTMENT COMPANY ACT" shall mean the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC thereunder, all as from time
to time in effect, or any successor law, rules or regulations, and any reference
to any statutory or regulatory provision shall be deemed to be a reference to
any successor statutory or regulatory provision.
"INVESTMENT MANAGEMENT AGREEMENT" shall mean, with respect to any Fund,
each agreement between an Adviser and such Fund or an Investment Company on
behalf of such Fund and any replacement agreement that may be adopted in the
future, pursuant to which an Adviser (or Seller Parent or any other Affiliate of
the Seller Parent) may receive advisory or other similar fees relating to such
Fund, as the same may be amended, supplemented, waived or modified from time to
time.
"IRREVOCABLE PAYMENT INSTRUCTION" shall mean the Seller's irrevocable
payment instruction to each Fund, in the form of Exhibit D attached hereto.
"ISSUE PRICE" shall mean, with respect to any Fund, the gross purchase
price of the Shares of such Fund as reported by the transfer agent for such
Fund.
"LAW" shall mean any (a) judicial, executive, legislative, administrative
or other action, code, consent decree, constitution, decree, enactment, finding,
guideline, law, injunction, interpretation, judgment, order, ordinance, policy
statement, proclamation, promulgation, regulation, requirement, rule, rule of
law, rule of public policy, settlement agreement, statute, treaty or writ, of
any Authority, whether domestic or foreign, or any particular section, part or
provision thereof, (b) common law or other legal or quasi-legal precedent, or
(c) arbitrator's, mediator's or referee's decision, finding, award or
recommendation, or, in any case, any particular section, part or provision
thereof.
"LETTER AGREEMENT" shall mean that Letter Agreement dated as of September
22, 1999 by and between Franklin Services and the Purchaser, in the form of
Exhibit P attached hereto, as the same may from time to time be amended,
supplemented, waived or modified.
"LIABILITIES" shall mean claims, damages, losses, liabilities, expenses,
obligations, penalties, actions, suits, judgments and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel).
"LIEN" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien or security interest (statutory or other), or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the UCC or comparable law of any jurisdiction),
or other charge or encumbrance, including the retained security title of a
conditional vendor or lessor.
16
"LIGHTNING BALANCE SHEET CARRYING VALUE" shall mean, with respect to any
Purchased Receivables as of any date, the value of such Purchased Receivables
determined in accordance with GAAP, including FAS 125, as in effect on the date
hereof.
"MASTER TRUST" shall mean any trust or other special purpose entity to
which any interest in any of the Purchased Receivables relating to any Fund or
the right to receive any Collections with respect thereto has been transferred
in connection with a Takeout Transaction.
"MASTER TRUST TRANSFER AGREEMENT" shall mean any agreement pursuant to
which any interest in the Purchased Receivables is transferred to a Master
Trust.
"MAXIMUM AGGREGATE SALES CHARGE ALLOWABLE" shall mean as of any date, with
respect to the Shares of any Fund, the maximum Sales Charge that may be paid by
the Investment Company with respect to such Shares pursuant to Section 2830 of
the Conduct Rules, assuming the Investment Company pays a separate Service Fee
in respect of such Fund, unreduced by payments theretofore made in respect
thereof by the Investment Company in respect of such Fund.
"MONTHLY POOL" shall mean with respect to the Purchased Receivables
relating to any Fund purchased during any calendar month, the Receivables
relating to (a) the Shares of such Fund whose Issue Price is included in the
calculation of the Purchase Price of Purchased Receivables relating to such Fund
purchased during such calendar month; (b) the Shares of such Fund issued in a
Free Exchange in exchange for (i) Shares of another Fund whose Issue Price was
included in the calculation of the Purchase Price of Purchased Receivables
relating to such other Fund purchased during such calendar month and (ii) Shares
of such other Fund issued in connection with the reinvestment of dividends
(whether ordinary, capital gain or exempt-interest dividends) paid in respect of
the Shares of such other Fund described in clause (b)(i) above or this clause
(b)(ii); and (c) the Shares of such Fund issued in connection with the
reinvestment of dividends (whether ordinary, capital gain or exempt-interest
dividends) paid in respect of the Shares of such Fund described in clause (a) or
(b) above or this clause (c).
"NASD" shall mean the National Association of Securities Dealers, Inc. or
any successor entity.
"NET ASSET VALUE" shall mean, with respect to any Fund, as of the date any
determination thereof is made, the net asset value applicable to Shares of such
Fund computed in the manner such value is required to be computed by such Fund
in its reports to its shareholders, and shall mean with respect to any Share of
such Fund as of any date, the quotient obtained by dividing the Net Asset Value
of such Fund as of such date by the number of Shares of such Fund outstanding on
such date.
"NEW INVESTMENT COMPANY" shall mean any open-end management investment
company which is an Additional Eligible Fund, together with its permitted
successors and assigns.
"OTHER TAXES" shall mean any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies (but shall not
include any charges, levies or taxes excluded from the definition of "Taxes"
herein) which arise from any payment made by or on behalf of the Seller
17
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Program Document to which the Seller is
a party.
"PARTIES" shall mean, collectively, the Seller, the Seller Parent and the
Purchaser.
"PERMITTED CONVERSION FEATURE" shall mean with respect to any Share of any
Fund, a Conversion Feature described in Schedule IV, attached hereto, in respect
of such Fund which, by its terms, may not become effective prior to the date on
which the eighth (8th) anniversary of the date of the issuance of such Share
occurs.
"PERMITTED DESIGNEE" shall mean (a) any Person designated by the Purchaser
or any Master Trust, as the case may be, which may be The Chase Manhattan Bank,
Constellation Financial Management Company LLC, FEP Holdings, L.P. or any
Affiliate of the foregoing, and (b) any other Person designated by the Purchaser
or any Master Trust, as the case may be, (i) which is not (nor is any Affiliate
of such Person) actively engaged in the sponsorship or management of any
management investment company registered under the Investment Company Act and
(ii) which has agreed to be bound by confidentiality undertakings in substance
comparable to Section 7.10.
"PERSON" shall mean an individual or a corporation (including a business
trust), partnership, trust, incorporated or unincorporated association, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
"PLAN" shall mean, in respect of any Person, any plan defined in Section
402(a) of ERISA in respect of which such Person is an "employer" or a
"substantial employer" as defined in Section 3(5) and 4001(a)(2) of ERISA,
respectively.
"POST-DEFAULT RATE" shall mean in respect of any amount payable by a Party
hereunder not paid when due, a rate per annum during the period commencing on
the due date thereof until such amount is paid in full equal to the Prime Rate
as in effect from time to time plus two percent (2%).
"PRIME RATE" shall mean the rate of interest from time to time announced
by The Chase Manhattan Bank at its principal office as its prime commercial
lending rate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer.
"PRIVATE AUTHORIZATIONS" shall mean all franchises, permits, licenses,
approvals, consents and other authorizations of all Persons (other than
Authorities) including, without limitation, those with respect to trademarks,
service marks, trade names, copyrights, computer software programs and other
intellectual property.
"PROCEEDS" shall have, with reference to any property or asset, the
meaning ascribed to such term under the UCC and, in any event, shall include,
but not be limited to, any and all amounts from time to time paid or payable
under or in respect of such property or asset.
"PROGRAM DOCUMENTS" shall mean this Agreement, each Assignment, the
Servicing Agreement, the Underwriting Agreements, the Prospectuses, the
18
Investment Management Agreements, the Distribution Plans, the Irrevocable
Payment Instruction, the Letter Agreement and the other agreements, documents,
certificates and instruments entered into or delivered in connection herewith
and therewith, including any and all Exhibits and Schedules referenced herein or
therein, and attached hereto or thereto, as the same may from time to time be
amended, supplemented, waived or modified.
"PROSPECTUS" shall mean, with respect to any Fund, the prospectus with
respect to Shares of such Fund filed with the SEC as a part of the Investment
Company's Registration Statement on Form N-1A, as amended or supplemented from
time to time, and shall include, without limitation, the related Statement of
Additional Information included in such Registration Statement.
"PURCHASE DATE" shall mean each Business Day after January 6, 1999 and
prior to and including the Termination Date, on which the Seller provides to the
Purchaser a Purchaser Report which shall set forth, among other things, the
Seller's determination of the Purchase Price for the Purchased Receivables to be
purchased on such Purchase Date.
"PURCHASE PRICE" shall mean with respect to the Purchased Receivables
relating to any Share of any Fund to be purchased on any Purchase Date, an
amount equal to the product of (a) the Purchase Price Percentage relating to the
Shares of such Fund and (b) the total Issue Price of such Shares of such Fund,
the sales of which settle (other than in connection with the reinvestment of
dividends (whether ordinary, capital gain or tax-exempt dividends or return of
capital) or Free Exchanges) during the period from (but not including) the Sale
Cutoff Date relating to the immediately preceding Purchase Date to (and
including) the Sale Cutoff Date relating to such Purchase Date. Notwithstanding
the provisions of the preceding sentence, the Purchase Price otherwise payable
by the Purchaser for such Purchased Receivables shall be reduced by the sum of
all amounts paid as Sales Charges (or in respect of Shares issued prior to such
date as a result of the Free Exchange of such Shares or the reinvestment of
dividends (whether ordinary, capital gain or tax-exempt dividends or return of
capital on any of the foregoing)) to the extent that the Purchaser does not
otherwise receive and retain the economic benefits of such payments pursuant to
this Agreement.
"PURCHASE PRICE PERCENTAGE" shall mean, with respect to any Fund, the
percentage set forth opposite the name of such Fund under the heading "Purchase
Price Percentage" on Schedule III attached hereto, as the same may be deemed
amended, modified or supplemented pursuant to Sections 2.2 or 7.20 of this
Agreement.
"PURCHASED RECEIVABLES" shall mean with respect to the Shares of any Fund:
a. the Receivables, other than Seller Receivables, relating to (i) Shares,
the sales of which settled during the period from and including January 7, 1999
(or, if later, the Additional Effective Date for such Fund) through the Business
Day to and including the most recent Sale Cutoff Date preceding or coinciding
with such date, and (ii) the Shares issued in connection with the reinvestment
of dividends (whether ordinary, capital gain or tax-exempt dividends, or return
of capital) paid in respect of the Shares described in clause (i) of this
paragraph (a); and
19
b. the Receivables, other than Seller Receivables, due from any other Fund
relating to (i) Shares of such other Fund which were acquired by the holder of
the Shares referred to in paragraph (a) above or this paragraph (b) in a Free
Exchange and (ii) Shares of such other Fund issued after such Free Exchange in
connection with the reinvestment of dividends (whether ordinary, capital gain or
tax-exempt dividends, or return of capital) paid in respect of the Shares
described in clause (i) of this paragraph (b).
"PURCHASER REPORT" shall mean the report in substantially the form of
Schedule V attached hereto, with such changes therein (and in such form) as the
Purchaser may from time to time reasonably request.
"PURCHASER'S KNOWLEDGE" shall mean the actual knowledge of any shareholder
or officer of Purchaser who is not an Affiliate of Seller, Seller Parent or
their respective Affiliates.
"PURCHASER'S REMITTANCE ACCOUNT" shall mean the account of the Purchaser
(Account No. 00000000) maintained with The Chase Manhattan Bank (Ireland) PLC or
such other account as the Purchaser shall designate in writing to the Seller.
"RECEIVABLES" shall mean, with respect to each Fund, all of the Seller's
rights under the related Underwriting Agreement, the related Distribution Plan,
the related Prospectus and the Conduct Rules to receive amounts paid or payable
in respect of Sales Charges, including the Contingent Deferred Sales Charges, as
listed on Schedule II attached hereto, in each case in respect of the issuance
(whether prior to or on or after the date hereof and including issuance in a
Free Exchange) by such Fund of Shares, including, without limitation, any
similar amounts paid or payable under any replacement Underwriting Agreement,
Distribution Plan or Conduct Rules and any continuation payments, in respect of
such Sales Charges in respect of the issuance by such Funds of Shares, that are
paid or payable in the event of a termination of the related Distribution Plan
or the related Underwriting Agreement; it being understood that such term does
not include the Service Fee payable pursuant to the related Underwriting
Agreement, the related Distribution Plan, the Prospectus and the Conduct Rules.
"RULE 12B-1" shall mean Rule 12b-1 adopted under the Investment Company
Act.
"SALE CUTOFF DATE" relating to any Purchase Date shall mean the third
Business Day preceding such Purchase Date.
"SALES CHARGE" shall have the meaning set forth in Section 2830(b)(8) of
the Conduct Rules, it being understood that such term does not include any
Service Fee.
"SEC" shall mean the United States Securities and Exchange Commission or
any other governmental authority of the United States of America at the time
primarily responsible for administering the Securities Act, the Investment
Company Act, the Investment Advisers Act or the Exchange Act.
"SECURED OR GUARANTEED DEBT" of any Person shall mean, at any date, (a)
all Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person, and (b) all Debt of others in respect of
which such Person has issued a Guarantee.
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"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as from time to time in
effect, or any successor law, rules or regulations, and any reference to any
statutory or regulatory provisions shall be deemed to be a reference to any
successor statutory or regulatory provision.
"SELLER COLLECTIONS" shall mean all amounts that become payable by a Fund
or a shareholder of a Fund, including without limitation Sales Charges, and are
paid, with respect to Shares to which Purchased Receivables relate, in an amount
which could not be paid pursuant to the Conduct Rules, calculated (a) as though
the Shares of such Fund to which Purchased Receivables relate constituted all of
the outstanding Shares of a Fund and (b) assuming such Fund pays a separate
Service Fee in respect of such Shares.
"SELLER RECEIVABLES" shall mean, as of any date of determination, the
right of the Seller to receive the Seller Collections.
"SELLER TERMINATION EVENT" shall mean each of the following events:
a. any proceeding shall be instituted by or against the Purchaser seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its obligations under any Law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order of relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it, such proceeding shall remain undismissed or
unstayed for a period of sixty (60) days;
b. the failure of the Purchaser to pay when due and payable, after
expiration of any applicable grace period, any amount with respect to its Debt
outstanding from time to time under the Credit Agreement, as amended or restated
from time to time;
c. the failure of the Purchaser to make in the manner and when due any
payment to be made by it under this Agreement, including, without limitation,
the Purchase Price with respect to any Purchased Receivables, and such failure
shall continue unremedied for ten (10) Business Days following written notice
thereof from the Seller to the Purchaser; or
d. (i) any representation or warranty made or deemed made by the Purchaser
(or any of its officers) under or in connection with this Agreement, the
Servicing Agreement or any other Program Document shall have been false,
incorrect or misleading in any material respect when made or deemed made or (ii)
any other statement, certificate or report delivered by or on behalf of the
Purchaser in connection with this Agreement, the Servicing Agreement, or any
other Program Document, shall have been false, incorrect or misleading in any
material respect when delivered.
"SELLER'S ACCOUNT" shall mean the account of the Seller (Account No.
7313201334) maintained with Bank of America, or such other account as the Seller
shall designate in writing to the Purchaser.
"SERVICE FEE" shall have the meaning set forth in Section 2830(b)(9) of
the Conduct Rules.
21
"SERVICER" shall mean Franklin/Xxxxxxxxx Investor Services, Inc., a
California corporation.
"SERVICING AGREEMENT" shall mean the Servicing Agreement dated the date
hereof by and between the Purchaser and the Servicer, in the form of Exhibit E
attached hereto, as the same may from time to time be amended, supplemented,
waived or modified.
"SETTLEMENT DATE" shall mean the eighth Business Day of each calendar
month that occurs prior to the end of the calendar month following the
Termination Date; PROVIDED, HOWEVER, that, in respect of the Settlement Date
occurring in any calendar month, the Purchaser and the Seller may agree that the
Settlement Date in such calendar month shall be on a different Business Day of
such month.
"SHARES" shall mean, in respect of any Fund any Class B shares or other
classes of shares of the Fund that are sold or issued pursuant to a Distribution
Plan adopted under Rule 12b-1 which have a Contingent Deferred Sales Charge, and
which are specified on Schedule III hereof, as the same may be deemed amended,
modified, or supplemented pursuant to Sections 2.2 or 7.20.
"SIPA" shall mean the Securities Investor Protection Act of 1970, as
amended from time to time and the regulations promulgated and the rulings issued
thereunder.
"SUBSTANTIAL FUNDS" shall mean, as of any date, any Fund or group of Funds
the Shares of which together on such date have a Net Asset Value equal to thirty
percent (30%) or more of the total Net Asset Value related to Shares of all
Funds taken together, as of such date;
"TAKEOUT TRANSACTION" shall mean any transaction pursuant to which the
Purchaser sells or otherwise transfers, or causes to be sold or transferred,
interests in the Purchased Receivables relating to any Fund (including, without
limitation, the right to receive any portion of any Collections) to any Person,
including a Master Trust which publicly or privately sells debt instruments
and/or certificates or other instruments representing ownership interests in
such Master Trust or interests in any Purchased Receivables relating to any Fund
(including, without limitation, any right to receive any portion of any
Collections).
"TAXES" shall mean any present or future taxes, levies, imposts,
deductions, charges and all liabilities with respect thereto, EXCLUDING (i)
taxes imposed on the Purchaser's income, and franchise taxes imposed on the
Purchaser, by (a) the jurisdiction under the laws of which the Purchaser is
organized or any political subdivision thereof, (b) the jurisdiction of the
Purchaser's principal executive office or any political subdivision thereof or
(c) any other jurisdiction regardless of where located; (ii) taxes required to
be withheld or subject to advance payment through withholding or otherwise; and
(iii) transfer, sales, use or value added taxes, all as required under
Applicable Law.
"TERMINATION DATE" shall mean January 15, 2002 or such subsequent date as
shall be agreed to in writing by the Parties, except that the Termination Date
may be deemed to have occurred on an earlier date pursuant to Sections 6.1 or
6.2.
22
"TRUE SALE" shall mean, with respect to any asset or property, the sale of
an absolute and complete ownership interest in such asset or property (and not
the granting of a security interest therein), within the meaning of all
Applicable Law, including, without limitation, the UCC, the Code and the
Bankruptcy Code.
"UCC" shall mean the Uniform Commercial Code, as from time to time in
effect in the applicable jurisdictions.
"UNDERWRITING AGREEMENT" shall mean, with respect to each Fund, the
agreement between the Seller and the Investment Company as it applies to such
Fund in the form attached hereto as Exhibit F, and any replacement agreement as
may be adopted in the future, pursuant to which the Seller has been appointed
the principal underwriter or distributor for such Fund, subject to the terms of
the Distribution Plan relating to such Fund, as the same may be amended,
supplemented, waived or modified from time to time.
SECTION 1.2 RULES OF CONSTRUCTION. For all purposes of this Agreement,
except as otherwise expressly provided herein or unless the context requires
otherwise (a) each use in this Agreement of a singular version of a pronoun
shall be deemed to include references to the plural, and vice versa, (b) Article
and Section headings are for convenience of reference only and shall not affect
the construction of this Agreement, and (c) the definitions of terms defined in
this Agreement shall be equally applicable to the singular and plural forms of
such terms. Except where the context requires otherwise, references to "this
section" or words of similar import shall be deemed to refer to the entire
section and not to a particular subsection, references to a Section, subsection
or Article shall be deemed to refer to the specific referenced Section,
subsection or Article of this Agreement and references to "hereunder", "herein",
"hereto" or words of similar import shall be deemed to refer to this entire
Agreement and not to any particular section or subsection. Terms defined in the
Preamble of this Agreement which are more fully defined in this Article 1 are
used herein as defined in this Article 1.
ARTICLE II
PURCHASE AND SALE OF PURCHASED RECEIVABLES;
ADDITIONAL FUNDS AND COLLECTIONS
SECTION 2.1 PURCHASE AND SALE.
a. On each Purchase Date that occurs on or prior to the Termination Date,
the Purchaser shall, subject to and upon the terms and conditions set forth in
this Agreement, purchase, and the Seller shall, subject to and upon the terms
and conditions set forth in this Agreement, sell, transfer, convey and assign to
the Purchaser, on and as of such Purchase Date, all of the Seller's right, title
and interest in, to and under the Purchased Receivables (and the Collections in
respect thereof) relating to the sales of Shares of each Fund for the period
from (but not including) the Sale Cutoff Date relating to the immediately
preceding Purchase Date (which for the initial purchase of Purchased Receivables
shall be deemed to mean January 4, 1999 and for an initial purchase of such
Purchased Receivables relating to an Additional Eligible Fund shall mean the
related Additional Effective Date) to (and including) the Sale Cutoff Date
relating to such Purchase Date, and the Purchaser shall purchase from the Seller
23
such Purchased Receivables for an amount equal to the aggregate Purchase Price
payable in respect of such Purchased Receivables. The aggregate Purchase Price
to be paid by the Purchaser to the Seller or its designee on each Purchase Date
shall be paid on the respective Purchase Date by wire transfer of immediately
available funds. Notwithstanding the foregoing, the Purchaser shall have no
obligation to purchase Receivables relating to any Fund after any change in such
Fund's fundamental investment objective or fundamental investment policies
unless such Fund is reapproved by the Purchaser as an Additional Eligible Fund
pursuant to Section 2.2 below.
b. Monthly on or before the day which is four (4) Business Days prior to
each Settlement Date, the Seller shall provide the Purchaser with a Purchaser
Report which shall set forth, among other things, the Seller's determination of
(i) the Purchase Price for the Purchased Receivables purchased during the
preceding calendar month and (ii) the computation of such Purchase Price in
reasonable detail. On each Settlement Date, the Purchaser shall pay to the
Seller or the Seller shall reimburse the Purchaser, as the case may be, for any
difference between the aggregate amount of Purchase Price previously paid to the
Seller during the preceding calendar month for Purchased Receivables sold during
such month and the actual aggregate Purchase Price of the Purchased Receivables
purchased during such month, as set forth on the Purchaser Report delivered for
such month.
c. Each purchase and sale of Purchased Receivables pursuant to Section
2.1(a) shall be evidenced by an Assignment to be delivered by the Seller to the
Purchaser on the Purchase Date related to such purchase of Purchased
Receivables.
d. It is the intention of the Parties that each purchase and sale of
Purchased Receivables to be made hereunder shall constitute a True Sale.
SECTION 2.2 ADDITIONAL FUNDS. Unless an Event of Termination (or an event
which, with the passage of time or notice, or both, would constitute an Event of
Termination) shall have occurred and be continuing, the Seller and the Seller
Parent may request that an Additional Eligible Fund become a "Fund" under this
Agreement on the Additional Effective Date for such Additional Eligible Fund. On
and as of such Additional Effective Date, (a) each Additional Eligible Fund
shall become a Fund hereunder, (b) Schedule III and Exhibits C, D, F, G and N
hereof shall be deemed to be supplemented to reflect such addition, and (c) any
reference in this Agreement to any change or modification since the date of this
Agreement to the Underwriting Agreement, Distribution Plan, Investment
Management Agreement, Prospectus or Contingent Deferred Sales Charge arrangement
of such Additional Eligible Fund shall be deemed with respect to such Additional
Eligible Fund to refer to any change or modification thereof since such
Additional Effective Date. The Seller and the Seller Parent shall provide the
Purchaser with written notice thirty (30) days prior to the anticipated
Additional Effective Date of any investment company or series or portfolio
thereof that is to become an Additional Eligible Fund, it being agreed that
without such timely prior written notice the Purchaser shall not be obligated to
purchase Purchased Receivables of such Additional Eligible Fund from the Seller
as of the Additional Effective Date. Notwithstanding anything herein to the
contrary, it is also understood that the Purchaser has the right in its
reasonable discretion (x) to reject any request that any Additional Eligible
Fund be included as a Fund hereunder or (y) as a condition to agreeing to any
such request, to require such modifications to the Program Documents as the
Purchaser may reasonably request.
24
SECTION 2.3 COLLECTIONS AND SELLER COLLECTIONS.
a. The Seller shall cause all Collections and Seller Collections, other
than Collections or Seller Collections related to Contingent Deferred Sales
Charges, in respect of Purchased Receivables relating to each Fund payable by
such Fund to be deposited directly into the Collection Account by such Fund (or
its transfer agent, if applicable) without any intermediary commingling of such
amounts with the other assets of the Seller or any of its Affiliates (other than
such transfer agent).
b. The Seller shall cause all Collections and Seller Collections related
to Contingent Deferred Sales Charges in respect of Purchased Receivables
relating to each Fund payable by the shareholders of each Fund to be deposited,
one (1) Business Days after each applicable settled trade, directly into the
CDSC Collection Account by such Fund (or its transfer agent, if applicable)
without any intermediary commingling of such amounts with the other assets of
the Seller or any of its Affiliates (other than such transfer agent).
c. If any check or other instrument in payment of Collections shall
require the endorsement of the Seller, the Seller hereby irrevocably authorizes
and empowers the Purchaser to endorse (without recourse) the same as
attorney-in-fact.
d. On the fifteenth calendar day after the last day of each of the
Purchaser's fiscal quarters, the Purchaser shall pay to Seller, in immediately
available funds by wire transfer, the amount, if any, equal to any Seller
Collections deposited in the Collection Account or the CDSC Collection Account
pursuant to the Program Documents on or prior to the last day of such preceding
fiscal quarter which have not been previously disbursed to Seller pursuant to
this Section 2.3.
e. In the event of any disagreement between the Purchaser and the Seller
as to the accuracy or completeness of the information and data provided to the
Purchaser by the Seller in the reports described on Exhibit A to the Servicing
Agreement, as such information and data relate to any calculation of, or the
method of calculating, Collections, the Purchaser and the Seller shall negotiate
in good faith to resolve the disagreement. If the disagreement is not so
resolved within thirty (30) days, either the Purchaser or the Seller, by written
notice to the other, may require that the disagreement be submitted to an
accounting firm of recognized national standing for a resolution which shall be
final and binding upon the Parties. In connection with all such disagreements
submitted for resolution pursuant to the preceding sentence, the accounting firm
shall be selected jointly by the Seller and the Purchaser and the fees of the
accounting firm shall be borne equally by the Seller and the Purchaser. Upon
resolution of any dispute, any error shall be corrected by payment to the
appropriate Party in the amount of the error plus interest calculated at the
Prime Rate for the period from the date the payment was originally due to the
date payment is actually made.
f. In the event that the sale of any Shares of any class of any Fund to
which Purchased Receivables relate shall be rescinded for any reason whatsoever,
the Seller shall promptly refund to the Purchaser an amount equal to the product
of (i) the Purchase Price Percentage relating to such Fund and (ii) the Issue
Price of such Shares of such Fund, minus the sum of all amounts theretofore paid
to the Purchaser as Sales Charges to the extent that Seller does not otherwise
25
receive and retain the economic benefits of such payments pursuant to this
Agreement, plus interest calculated at the Prime Rate on the amount of the
foregoing outstanding from time to time.
SECTION 2.4 TRANSFER OF RECORDS TO PURCHASER.
a. Each purchase of Purchased Receivables hereunder shall include the
transfer to the Purchaser of all of the Seller's right, title and interest in,
to and under the records relating to such Purchased Receivables and the
Collections, and the Seller hereby agrees that such transfer shall be effected
automatically with each such purchase, without any further documentation.
b. The Seller shall take all such actions requested by the Purchaser, from
time to time hereafter, that may be necessary or appropriate, in the reasonable
opinion of Purchaser, to ensure that the Purchaser has (i) an enforceable
ownership interest in the records relating to the Purchased Receivables and
Collections purchased from the Seller hereunder and (ii) an enforceable right
(whether by license, sublicense or otherwise) to use all of the computer
software used to account for the Purchased Receivables and Collections and/or to
recreate such records.
SECTION 2.5 DISTRIBUTION PLAN OR UNDERWRITING AGREEMENT TERMINATION. The
Seller and the Purchaser recognize that any Fund has the right to terminate a
Distribution Plan or Underwriting Agreement pertaining to such Fund. The
Purchaser, consistent with its status as a buyer of the Purchased Receivables in
a True Sale transaction, accepts, subject to all the other terms and conditions
of this Agreement (including the Seller's and the Seller's Parent's
responsibilities hereunder), the risks associated with any such termination by a
Fund of a Distribution Plan or an Underwriting Agreement.
SECTION 2.6 INTERIM AGREEMENT. The Parties recognize that prior to the
execution of this Agreement, the parties were engaging in a series of
transactions pursuant to the terms of an Interim Agreement dated as of January
4, 1999, as amended as of February 28, 1999, March 31, 1999, April 30, 1999, May
28, 1999, June 7, 1999, June 30, 1999, and July 30, 1999 which transactions were
similar to the transactions contemplated by this Agreement pertaining to the
Purchased Receivables. The Parties intend that all of the transactions
consummated under and governed by the Interim Agreement shall be deemed
transactions governed by, and subject to all of the terms and conditions of,
this Agreement.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE OF PURCHASED
RECEIVABLES. The obligation of the Purchaser to make the initial purchase of
Purchased Receivables pursuant to this Agreement shall be subject to the prior
or concurrent fulfillment (or waiver by the Purchaser) of each of the following
conditions precedent:
a. the Servicing Agreement shall have been duly executed by the parties
thereto and shall be in full force and effect, and the Purchaser shall have
received a fully executed copy thereof;
26
b. the Purchaser shall have received the signed opinions of counsel to
each of the Funds, the Seller, the Seller Parent and the Servicer which shall
each be substantially in the form attached hereto as Exhibits H, I, J and L,
respectively, and be dated contemporaneously with the execution of this
Agreement;
c. the Purchaser shall have received (i) a subsistence certificate, dated
on or after July 15, 1999 from the Secretary of State of the State of New York
with respect to the Seller; (ii) a good standing certificate, dated on or after
July 15, 1999 from the Secretary of State of the State of Delaware with respect
to the Seller Parent; (iii) a certificate of status, dated on or after July 15,
1999 from the Secretary of State of the State of California with respect to the
Servicer; (iv) copies of the certificates of incorporation, with all amendments
thereto, for the Seller, the Seller Parent and the Servicer, certified by the
Secretary of State of the State of New York, the State of Delaware, or the State
of California, as applicable; and (v) a signed certificate of the President or a
Vice President and a Secretary or Assistant Secretary of each of the Seller, the
Seller Parent and the Servicer, in the form of Exhibit K attached hereto;
d. the Purchaser shall have received a copy of each Governmental
Authorization and each Private Authorization which may be required to be
obtained by the Seller, the Seller Parent, each Investment Company and each Fund
in connection with this Agreement and the other Program Documents and the
transactions contemplated hereby and thereby, each of which shall be in form,
scope and substance satisfactory to the Purchaser;
e. the Seller shall have caused the Purchaser to receive duly executed
financing statements which have been filed, before the execution of this
Agreement, under the UCC of all jurisdictions that the Purchaser may deem
necessary or desirable in order to perfect the interests of the Purchaser in the
Purchased Receivables as contemplated by this Agreement, each of which shall be
in form, scope and substance satisfactory to the Purchaser;
f. the Seller shall have caused the Purchaser to receive time stamped
receipt copies of proper UCC termination statements, if any, necessary to
release all security interests and other rights of any Person in the Purchased
Receivables;
g. the Seller shall have caused the Purchaser to receive certified copies
of requests for information (Form UCC-11) (or a similar search report certified
by a party acceptable to the Purchaser), dated, before the execution of this
Agreement (but after April 1, 1999), listing all effective financing statements
which name the Seller (under its present name or any previous name), as debtor
and which are filed in the jurisdictions in which filings are required to be
made pursuant to Section 3.1(e), together with copies of such financing
statements (none of which shall cover any of the Purchased Receivables);
h. the Seller shall have caused the Purchaser to receive a duplicate
original of each Irrevocable Payment Instruction, in the form attached hereto as
Exhibit D, executed and delivered by the Seller to each Investment Company on
behalf of each Fund which has been acknowledged and agreed to by each Investment
Company on behalf of each Fund as contemplated by the terms thereof;
i. the initial Purchase Date shall have occurred prior to September 30,
1999;
27
j. the Purchaser shall have received evidence that the items attached
hereto as Exhibits C and F were filed with the SEC and have been approved by the
directors or trustees of each Fund or each Investment Company by a vote in
person of a majority of its directors (including a majority of its directors or
trustees who are not parties to such Fund's Distribution Plans(s) or
Underwriting Agreement(s) or interested persons of any such party within the
meaning of the Investment Company Act), by resolution(s) acceptable to the
Purchaser;
k. the Seller shall have caused the Purchaser to receive copies of the
relevant portions of the minutes of the meeting(s) of the Board of Directors or
Trustees of each Fund or each Investment Company at which a majority of such
directors or trustees (including a majority of such directors or trustees who
are not parties to such Fund's Distribution Plans(s) or Underwriting
Agreement(s) or interested persons of any such party within the meaning of the
Investment Company Act) approved the transactions contemplated by the Program
Documents;
l. each of the investment advisers to each Fund shall be an Adviser; and
m. the conditions set forth in Section 3.3 shall have been fulfilled.
SECTION 3.2 CONDITIONS PRECEDENT TO INITIAL SALE OF PURCHASED RECEIVABLES.
The obligation of the Seller to sell any Purchased Receivables pursuant to this
Agreement shall be subject to the prior or concurrent fulfillment (or waiver by
the Seller) of each of the following conditions precedent:
a. receipt by the Seller of the signed opinion of counsel to the Purchaser
which shall be in the form attached hereto as Exhibit M and be dated
contemporaneously with the execution of this Agreement; and
b. the Purchaser shall have paid to the Seller and the Seller Parent the
costs and expenses required to be paid by it under Section 7.4(c).
SECTION 3.3 CONDITIONS PRECEDENT TO THE PURCHASER'S CONTINUING OBLIGATION
TO PURCHASE PURCHASED RECEIVABLES. The continuing obligation of the Purchaser to
purchase Purchased Receivables relating to any Fund on any Purchase Date shall
be subject to the prior or concurrent fulfillment (or waiver by the Purchaser),
at or prior to the time of such Purchase Date, of each of the following
conditions precedent:
a. both immediately before and immediately after giving effect to the
purchase of Purchased Receivables on such Purchase Date (i) no Event of
Termination (or event which, with the passage of time or notice, or both, would
constitute an Event of Termination) shall have occurred and be continuing and
(ii) the representations and warranties of each of the Seller, each Adviser and
the Seller Parent set forth in the Program Documents to which it is a party
shall be true and correct in all material respects with the same effect as if
then made (unless stated to relate solely to an earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date);
b. the Assignment to be delivered by the Seller on each Settlement Date
shall have been duly executed and delivered;
28
c. the Seller shall have delivered all Purchaser Reports as and when
required to be delivered prior to or on such Purchase Date pursuant to this
Agreement and the Servicing Agreement, which shall be in form and substance
reasonably satisfactory to the Purchaser;
d. the Purchased Receivables relating to Shares of each Fund shall
constitute Eligible Receivables on such Purchase Date;
e. there shall have occurred no change in the fundamental investment
objective or fundamental investment policies of such Fund from those set forth
in the Prospectus for such Fund attached hereto as part of Exhibit G;
f. the Purchaser shall have received from the Seller and the Seller Parent
such instruments and documents as the Purchaser may have reasonably requested in
connection with the Purchased Receivables relating to any Fund and any Purchase
Price payable on any such Purchase Date;
g. the purchase of Purchased Receivables hereunder shall constitute a True
Sale thereof, free and clear of any Adverse Claim or any other claim;
h. each of the investment advisers for each of the Funds continues to be
an Adviser; and
i. the conditions specified in Section 3.1 shall, as to the applicable
Fund, be fully satisfied or waived on or prior to the initial Purchase Date.
The acceptance by the Seller of the proceeds of a purchase of Purchased
Receivables shall constitute a representation and warranty by the Seller that,
on the date of such purchase, the conditions precedent set forth in this Section
3.3 have been fulfilled.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SELLER
PARENT. The Seller, with respect to the Seller and any Person other than the
Seller Parent, represents and warrants to the Purchaser as set forth in Sections
4.1(a) through 4.1(w) and the Seller Parent, only with respect to the Seller
Parent, separately and not jointly with the Seller or any other Person,
represents and warrants to the Purchaser as set forth in Sections 4.1(a) through
4.1(w) (it being agreed by the Parties that the words "separately, and not
jointly" mean that only the Seller and not the Seller Parent is responsible to
the Purchaser for the representations and warranties pertaining to any Person
other than the Seller Parent, and that only the Seller Parent (and not the
Seller) is responsible to the Purchaser for the representations and warranties
pertaining to the Seller Parent):
a. each of the Seller, the Seller Parent and each Adviser is duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with (i) full corporate power and authority
29
and all Governmental Authorizations and Private Authorizations necessary to
execute and deliver and to perform its obligations under the Program Documents
to which it is a party, with such exceptions, if any, as could not and will not
give rise to an Adverse Effect and (ii) all Governmental Authorizations and
Private Authorizations necessary to conduct the business in which it is now
engaged with such exceptions, if any, as could not and will not give rise to an
Adverse Effect;
b. each of the Seller, the Seller Parent and each Adviser is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of its business or the performance of its
obligations under this Agreement and the other Program Documents to which it is
a party requires such qualification except where the failure to be so qualified
will not give rise to an Adverse Effect;
c. the execution, delivery and performance by each of the Seller, the
Seller Parent and each Adviser, as applicable, of this Agreement, the other
Program Documents to which it is a party and the other instruments and
agreements contemplated hereby or thereby have been duly authorized by all
requisite corporate action and have been duly executed and delivered by it and
constitute the legal, valid and binding obligations enforceable against it in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy laws and any other similar laws affecting the
rights and remedies of creditors generally and by equitable principles;
d. the Seller has the requisite corporate power and authority and legal
right to from time to time sell Purchased Receivables relating to each Fund and
any other property to be sold or assigned hereunder to the Purchaser in
accordance with the terms of this Agreement and the Seller has duly authorized
each such sale to the Purchaser by all necessary corporate action;
e. neither the execution nor delivery of this Agreement, the other Program
Documents to which either of the Seller, the Seller Parent or any Adviser is a
party, or any instrument or agreement referred to herein or therein or
contemplated hereby or thereby to which any of the Seller, the Seller Parent or
any Adviser is a party, nor the consummation of the transactions herein or
therein contemplated, nor compliance with the terms, conditions and provisions
hereof or thereof (i) will conflict with, or result in a breach or violation of,
or constitute a default under, such Person's certificate of incorporation or
by-laws or any Applicable Law (applicable to the Seller, the Seller Parent, any
Adviser or any Fund); (ii) will conflict with, or result in a breach or
violation of, or constitute a default under, or permit the acceleration of any
obligation or liability in, or, but for any requirement of the giving of notice
or the passage of time (or both), would constitute such a conflict with, breach,
or violation of, or default under, or permit any such acceleration in (A) any
Prospectus, any Underwriting Agreement, any Distribution Plan or any Investment
Management Agreement or (B) with such exceptions, if any, as could not and will
not give rise to an Adverse Effect, any other contractual obligation or any
agreement or document to which it is a party or by which it or any of its
properties is bound; (iii) will result in or permit the creation or imposition
of any Adverse Claim upon any Purchased Receivables relating to any Fund; or
(iv) will result in the termination of any Underwriting Agreement or any
Distribution Plan or any Investment Management Agreement in any such case with
respect to the Sales Charges applicable to the Shares of the related class
unless a replacement of such terminated document has become effective which in
30
any such case with respect to the Sales Charges applicable to the Shares of the
related class (A) is identical to the terminated document in all material
respects or (B) in the reasonable opinion of the Purchaser, is at least as
favorable to the Purchaser as the terminated document including, without
limitation, in respect of timing and amount payable in respect of any Purchased
Receivables and the Purchaser's rights in respect thereof;
f. this Agreement and the actions of the Seller required to be taken
pursuant to the terms hereof are, and at all times shall be, effective to
transfer to the Purchaser all of the Seller's right, title and interest in the
Purchased Receivables free and clear of any claim other than the rights and
claims of the Purchaser hereunder;
g. neither the Seller nor the Seller Parent is incorporated under the laws
of any state within any district in the jurisdiction of the United States Court
of Appeals for the Tenth Circuit;
h. immediately prior to each purchase of Purchased Receivables relating to
each Fund by the Purchaser, (i) no party other than the Seller will have any
right, title or interest in such Purchased Receivables, including any payments
or proceeds in respect thereto, (ii) the Seller will own and have good and
marketable title to such Purchased Receivables free and clear of all Liens or
other restrictions on transfer and (iii) such Purchased Receivables and payments
made in respect thereto will not have been sold, transferred or assigned to any
other Person;
i. each of the Seller, the Seller Parent and each Adviser has obtained all
necessary Governmental Authorizations and Private Authorizations, and made all
Governmental Filings required under Applicable Law for the execution, delivery
and performance by the Seller, the Seller Parent and each Adviser of the Program
Documents to which it is a party, and the agreements and instruments
contemplated thereby, and no consents which have not been obtained or waivers
under any instruments to which the Seller, the Seller Parent or any Adviser is a
party or by which it or any of its properties is bound are required by the
Seller or the Seller Parent to be obtained in connection with the execution,
delivery or performance of the Program Documents;
j. the Purchased Receivables conveyed by the Seller to the Purchaser
pursuant to this Agreement will at all times constitute Eligible Receivables (it
being understood that this representation and warranty shall not be deemed to
have been breached with respect to any Purchased Receivables which, when sold,
were Eligible Receivables and thereafter ceased to satisfy the provisions of
clause (f) of the definition of such term because of a change in law or in the
interpretation thereof);
k. with such exceptions, if any, as could not reasonably be expected to
and will not have an Adverse Effect, none of the Seller, the Seller Parent nor
any Adviser, is in violation of any Applicable Law;
l. no Fund is prohibited by any Applicable Law from making the payments
contemplated by this Agreement in respect of the Purchased Receivables;
m. the Seller's principal place of business and principal executive
office, and the place where its records concerning the Purchased Receivables
relating to each Fund are kept is at the address first set forth for the Seller
31
in Section 7.3 or such other address of which the Purchaser has received notice
pursuant to Section 5.2(b);
n. since December 31, 1998 there has been (i) no material adverse change
in the financial condition or the results of operations of the Seller and (ii)
no material adverse change in the financial condition or results of operations
of the Seller Parent or any Adviser, which, in the case of clause (ii) could
reasonably be expected to cause an Adverse Effect;
o. none of the Seller, the Seller Parent or any Adviser is in default on
any of its obligations under any Program Document to which it is a party which
could reasonably be expected to, or will, have an Adverse Effect;
p. there are no proceedings or, to the best knowledge of the Seller and
the Seller Parent, investigations pending or, threatened before any Authority
(i) asserting the invalidity of this Agreement or any other Program Document,
(ii) seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or any other Program Document, (iii) seeking any determination
or ruling which could adversely affect the performance by the Seller, the Seller
Parent or any Adviser of its obligations under, or the validity or
enforceability of, this Agreement, if any, any other Program Document to which
it is a party, or any agreement, certificate or document executed by the Seller,
the Seller Parent or any Adviser in connection herewith or therewith, or (iv)
which otherwise could reasonably be expected to give rise to an Adverse Effect;
q. the Seller is a registered broker/dealer under the regulations of the
SEC and a member of the NASD and not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act;
r. the Seller is not engaged principally in the business of extending, or
arranging for the extension of, credit, for the purpose of purchasing or
carrying (i) any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or (ii) any margin security within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System
and no part of the proceeds of the Purchase Price paid to the Seller will be
used to purchase or carry any margin stock or any margin securities,
respectively, within the meaning of said regulations or to extend credit to
others for such purpose;
s. all information provided by or on behalf of the Seller, the Seller
Parent, Franklin Services, the Servicer or any Adviser, to the Purchaser or any
other Person for purposes of or in connection with this Agreement, the other
Program Documents, or the transactions contemplated hereby or thereby is, and
all such information hereafter provided by or on behalf of the Seller, the
Seller Parent, Franklin Services, the Servicer or any Adviser to the Purchaser
or any other Person pursuant to or in connection with any Program Document or
the transactions contemplated thereby will be, true, correct and complete in all
material respects on the date such information is stated or certified and no
such information contains, or will contain, any material misrepresentation or
any omission to state therein matters necessary to make the statements made
therein not misleading in any material respect, in light of the circumstances
under which they were made;
32
t. the Seller and the Seller Parent have furnished to the Purchaser their
balance sheets as of December 31, 1998 and the related consolidated statements
of income and cash flows for the year then ended; such statements and any
financial statements delivered pursuant to Section 5.1(r) present fairly, in
conformity with GAAP, the financial position of the Seller and the Seller Parent
at the dates indicated and the results of their operations and cash flows for
the period then ended;
u. there has been no action by the Board of Directors of the Seller, the
Board of Directors of the Seller Parent, the Board of Directors of any Adviser,
or the Board of Directors or Trustees of any Investment Company or of any Fund,
to make any modification or amendment to, or any waiver of any provisions of, or
any termination of, any Distribution Plan, any Investment Management Agreement,
any Contingent Deferred Sales Charge arrangement, any Underwriting Agreement,
any Prospectus or the interpretation of any thereof, each as in effect on the
date of this Agreement, or any modification in the amounts payable or actually
being paid thereunder, except, in each case, as has been previously disclosed in
writing by the Seller to the Purchaser;
v. each Fund has complied with the fundamental investment objectives and
policies of such Fund as set forth in the Prospectus for such Fund and the
Seller or the Seller Parent have provided 90 days' advance notice of any change
in the fundamental investment objectives or policies of any Fund from those set
forth in the Prospectus for such Fund as of the date of this Agreement; and
w. the Seller Parent owns, directly or indirectly, all of the issued and
outstanding stock of each class or series of the Seller and each investment
adviser to each Fund is an Adviser.
SECTION 4.1A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER. The
Seller, in addition to the representations and warranties of the Seller provided
in Section 4.1, represents and warrants to the Purchaser as follows:
a. attached hereto as Exhibits G, C, F and N are true, correct and
complete copies of the Prospectus and forms of the Distribution Plan, the
Underwriting Agreement and the Investment Management Agreement, respectively,
relating to each Fund which are each in full force and effect, and such
Prospectuses, Distribution Plans, Underwriting Agreements, and Investment
Management Agreements have not been amended in any manner from the forms
attached hereto in the referenced exhibits, except as consented to in writing by
the Purchaser or for any such amendments of which the Seller has provided to the
Purchaser copies prior to execution of this Agreement;
b. the Distribution Plans, Underwriting Agreements, Prospectuses and
Investment Management Agreements are in compliance, in all material respects,
with Applicable Law, including, without limitation, Rule 12b-1 and the Conduct
Rules;
c. no Share to which a Purchased Receivable relates has the benefit of any
Conversion Feature other than a Permitted Conversion Feature;
d. the Sales Charge, including the Contingent Deferred Sales Charge,
arrangement relating to each Fund and the payments provided for in, and actually
being made pursuant to, the Underwriting Agreement or Distribution Plan and the
33
Prospectus for each such Fund are fairly and accurately described in the
Underwriting Agreement or Distribution Plan and the Prospectus relating to such
Fund;
e. on each date on which Purchased Receivables are purchased under this
Agreement, (i) the Maximum Aggregate Sales Charge Allowable in respect of the
sales of Shares of such Fund, subject to the effect of any future Permitted
Conversion Feature and any Free Redemption, will be not less than the sum of (A)
6.25% of the total Issue Price of the Shares of such Fund, plus (B) interest on
the amount in clause (A) above at the prime rate in effect plus one percent (1%)
per annum, and (ii) the amount of the asset-based Sales Charge in clause (i)
will accrue daily and be payable monthly in an amount (on the average) not less
than (on the average) the daily equivalent of 0.75% per annum of the average
daily Net Asset Value of such Fund (provided, however, that the foregoing
provisions of this Section 4.1(A)(e) shall be subject to the maximum sales
charges permitted from time to time by the Conduct Rules);
f. (i) the aggregate Sales Charges paid and payable by each Investment
Company with respect to the Shares, subject in each case to the effect of any
Permitted Conversion Feature and any Free Redemption, will equal the lesser of
(A) the maximum Sales Charges payable in respect of the sales of such Shares
under the terms of the related Underwriting Agreement, Distribution Plan and
Prospectus on the date such Sales Charges were purchased by the Purchaser, and
(B) the Maximum Aggregate Sales Charge Allowable in respect of such sales,
calculated as though the Shares of such Fund to which Purchased Receivables
relate constituted all of the outstanding Shares of such Fund and (ii) the
amount of the asset-based Sales Charge in clause (i) above will accrue daily and
be payable monthly in an amount, subject to clause (i) above, not less than (on
the average) the daily equivalent of the Applicable Percentage of the average
daily Net Asset Value for each Fund; and
g. all information in respect of the Purchased Receivables set forth in
each Purchaser Report will be true and correct.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to the Seller and the Seller Parent
as follows:
a. the Purchaser is duly organized and is validly existing and in good
standing as a private limited liability company under the laws of Ireland, with
full company power and authority and all Governmental Authorizations and Private
Authorizations necessary to own and operate its property, to conduct the
business in which it is now engaged and to execute and deliver and to perform
its obligations under this Agreement and the other Program Documents to which
the Purchaser is a party;
b. the Purchaser is duly qualified to do business as a foreign entity and
is in good standing in each jurisdiction in which the nature of its business or
the performance of its obligations under this Agreement and the other Program
Documents to which the Purchaser is a party requires such qualification except
where the failure to be so qualified will not give rise to an adverse effect on
the Purchaser's ability to pay or to perform any of its material obligations
under this Agreement or any such other Program Document in a timely manner;
34
c. the execution, delivery and performance by the Purchaser of this
Agreement, the other Program Documents to which the Purchaser is a party, and
the other instruments and agreements contemplated hereby or thereby, have been
duly authorized by all requisite company action by the Purchaser and have been
duly executed and delivered by the Purchaser and constitute the legal, valid and
binding obligations of the Purchaser, enforceable against the Purchaser in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy laws and any other similar laws affecting the
rights and remedies of creditors generally and by equitable principles;
d. the Purchaser has the requisite company power and authority and legal
right to (i) execute and deliver this Agreement and the other Program Documents
to which the Purchaser is a party and to perform its obligations hereunder and
thereunder and (ii) from time to time, purchase Purchased Receivables relating
to each Fund and any other property to be sold or assigned hereunder to the
Purchaser in accordance with the terms of this Agreement and the Purchaser has
duly authorized each such purchase from the Seller by all necessary action;
e. neither the execution nor delivery of this Agreement, the other Program
Documents to which the Purchaser is a party, or any instrument or agreement
referred to herein or therein, or contemplated hereby or thereby, to which the
Purchaser is a party, nor the consummation by the Purchaser of the transactions
herein or therein contemplated nor compliance with the terms, conditions and
provisions hereof or thereof, (i) will conflict with, or result in a breach or
violation of, or constitute a default under, the Memorandum and Articles of
Association or other charter documents or by-laws of the Purchaser or any
Applicable Law applicable to the Purchaser, (ii) will conflict with, or result
in a breach or violation of, or constitute a default under, the Credit Agreement
or (iii) will conflict with, or result in a breach or violation of, or
constitute a default under, or permit the acceleration of any obligation or
liability in, or but for any requirement of the giving of notice or the passage
of time (or both) would constitute such a conflict with, breach or violation of,
or default under, or permit any such acceleration in, any contractual obligation
or any agreement or document to which it is a party or by which it or any of its
properties is bound;
f. there are no proceedings to which the Purchaser is a party and, to the
Purchaser's Knowledge there are no investigations pending or threatened before
any Authority (i) asserting the invalidity of this Agreement or any other
Program Document, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any other Program Document or
(iii) seeking any determination or ruling which could materially adversely
affect the performance or obligations of the Purchaser under, or the validity or
enforceability of, this Agreement or any other Program Document to which the
Purchaser is a party, in each case, which would give rise to any material
adverse effect upon the Purchaser's ability to pay or to perform any of its
material obligations under this Agreement or any such other Program Document in
a timely manner;
g. the Purchaser has obtained all necessary Governmental Authorizations
and Private Authorizations, and made all Governmental Filings required under
Applicable Law applicable to the Purchaser for the execution, delivery and
performance by the Purchaser of the Program Documents to which it is a party,
and the agreements and instruments contemplated thereby, and no consents which
have not been obtained or waivers under any instruments to which the Purchaser
35
is a party or by which it or any of its properties is bound are required by the
Purchaser to be obtained in connection with the execution, delivery or
performance of the Program Documents;
h. all information provided by or on behalf of the Purchaser to the
Seller, the Seller Parent or any other Person for purposes of or in connection
with this Agreement, the other Program Documents, or the transactions
contemplated hereby or thereby is, and all such information hereafter provided
by or on behalf of the Purchaser to the Seller, the Seller Parent or any other
Person pursuant to or in connection with any Program Document or the
transactions contemplated thereby will be, true, correct and complete in all
material respects on the date such information is stated or certified and no
such information contains, or will contain, any material misrepresentation or
any omission to state therein matters necessary to make the statements made
therein not misleading in any material respect, in light of the circumstances
under which they are made, except no warranty is made with respect to
information that the Purchaser has obtained from an Affiliate of the Seller or
the Seller Parent; and
i. the Purchaser is not in material violation of any Applicable Law.
ARTICLE V
COVENANTS
SECTION 5.1 AFFIRMATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT.
The Seller and the Seller Parent each separately, and not jointly,
covenant and agree as follows (it being agreed by the Parties that the words
"separately, and not jointly" mean that only the Seller (and not the Seller
Parent) is responsible to the Purchaser for the covenants and agreements
pertaining to any Person other than the Seller Parent, and that only the Seller
Parent (and not the Seller) is responsible to the Purchaser for the covenants
and agreements pertaining to the Seller Parent):
a. the Seller and the Seller Parent shall each (i) obtain, maintain and
keep in full force and effect all Governmental Authorizations and Private
Authorizations which are necessary or appropriate to properly carry out the
transactions contemplated to be performed by it under this Agreement and the
other Program Documents and (ii) with such exceptions, if any, as could not and
will not have an Adverse Effect, (A) obtain, maintain and keep in full force and
effect all other Governmental Authorizations and Private Authorizations, (B)
duly observe and conform to all requirements of Applicable Law relative to the
conduct of its business or to its properties or assets and (C) preserve and keep
in full force and effect its existence, rights, privileges and franchises;
b. each of the Seller and the Seller Parent shall duly fulfill all
obligations on its part to be performed under or in connection with, this
Agreement, the Underwriting Agreements, the Distribution Plans, the Investment
Management Agreements and the other Program Documents to which it is a party and
the agreements and instruments entered into in connection herewith or therewith;
36
c. the Seller shall keep proper books of record and account in accordance
with normal business practice in which full and appropriate entries shall be
made of all dealings or transactions in relation to the Purchased Receivables
relating to each Fund and to its business and activities in connection with this
Agreement and the other Program Documents, and the transactions contemplated
hereby and thereby, and shall xxxx any data processing or other records it
maintains so as to clearly indicate that the Purchased Receivables relating to
each Fund have been sold to the Purchaser;
d. the Seller and the Seller Parent shall promptly deliver to the
Purchaser copies of any amendments or modifications to their respective
certificates of incorporation or by-laws certified, with respect to the
certificate of incorporation, by the Secretary of State of its state of
incorporation, and, with respect to the by-laws, by an authorized officer;
e. the Seller and the Seller Parent shall (i) promptly give written notice
to the Purchaser of (A) any known Event of Termination or event which, with the
passage of time or notice or both, would constitute an Event of Termination, (B)
any litigation or proceedings with respect to the Seller or the Seller Parent or
any of their assets or properties, which, if adversely determined, could give
rise to an Adverse Effect, (C) the failure of any representation or warranty of
the Seller or the Seller Parent contained in any Program Document to at all
times be true and correct in all material respects, or (D) the failure to
satisfy any of its condition precedents set forth in Article III and (ii) upon
obtaining actual knowledge thereof, promptly give written notice of any
litigation or proceedings not required to be disclosed pursuant to the preceding
clause (i)(B) which, if adversely determined, could give rise to an Adverse
Effect;
f. upon written request by the Purchaser, the Seller and the Seller Parent
shall furnish or cause to be furnished to the Purchaser a copy of any Private
Authorizations or Governmental Authorizations obtained or required to be
obtained by it or any of its subsidiaries in connection with the transactions
contemplated by this Agreement or any other Program Document;
g. the Seller and the Seller Parent shall cause to be paid and discharged
all taxes, assessments and other charges or levies of any Authority imposed upon
it, or upon any of its income or assets, prior to the day on which penalties are
attached thereto, if the failure to pay and discharge such tax, assessment or
other charges or levies could reasonably be expected to give rise to an Adverse
Effect, except where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided for on the books of the Seller or the
Seller Parent;
h. the Seller and the Seller Parent shall promptly deliver to the
Purchaser a copy of all (i) notices of or waivers of material payment or
covenant defaults delivered to or received from any lenders of the Seller or the
Seller Parent and (ii) material agreements or amendments entered into with such
lenders which could have an Adverse Effect (A) on the ability of the Seller or
the Seller Parent to perform any of its obligations under any Program Document
or (B) on the Purchaser or the Purchaser's collection of Eligible Receivables;
i. if at any time the Servicer is no longer the servicer under the
Servicing Agreement, the Seller shall cooperate with the successor servicer
thereunder in order for such successor servicer to fully perform its duties and
37
obligations under the Servicing Agreement and shall permit the inspections
provided by clause (a) of Section 8.4 of the Servicing Agreement, shall cause
the audits provided by clause (b) of Section 8.4 of the Servicing Agreement, and
shall perform the covenants and duties set forth in Section 7.2 and clause (vi)
of Section 2.1 of the Servicing Agreement, all as if the Servicer were still
servicer thereunder; it being understood that the Seller shall not be obligated
to compel a replacement servicer to perform the obligations of the Servicer
under the Servicing Agreement or be liable for any breach by a replacement
servicer of any such obligations;
j. the Seller and the Seller Parent shall permit the Purchaser or any
Permitted Designee to visit its properties and inspect its properties, files,
books and records relating to the Receivables, the Program Documents and the
transactions contemplated thereby, and its financial condition, results of
operations and cash flows and to discuss the foregoing with the officers,
partners, employees and accountants of each of the Seller and the Seller Parent
all at such reasonable times during normal business hours upon giving the Seller
or the Seller Parent, as applicable, two (2) Business Days' prior written
notice;
k. each of the Seller and the Seller Parent shall promptly, at its
expense, execute and deliver to the Purchaser such further instruments and
documents, and take such further action, as the Purchaser may from time to time
reasonably request, in order to further carry out the intent and purpose of this
Agreement and the other Program Documents to which it is a party and to
establish and protect the rights, interests and remedies created, or intended to
be created, hereby and thereby, including, without limitation, the execution,
delivery, recordation and filing of financing statements and continuation
statements under the UCC of any applicable jurisdiction;
l. the Seller and the Seller Parent shall promptly deliver to the
Purchaser copies of all notices, requests, agreements, amendments, supplements,
waivers and other documents received or delivered by it under or with respect to
any of the Program Documents;
m. in the event that, notwithstanding the Irrevocable Payment Instruction,
the Seller shall receive any Collections from a Fund, immediately upon its
receipt of any such Collections, the Seller shall remit the same to the
Purchaser in the form received and ensure that such amounts are not commingled
with any other funds of the Seller;
n. the Seller and the Seller Parent (to the extent applicable) shall
provide to the directors or trustees of each Fund in connection with (i) the
annual reapproval of or any amendment to such Fund's Distribution Plan or
Underwriting Agreement, or (ii) a meeting of the directors or trustees of such
Fund at which there exists a scheduled agenda item relating to the conversion
period of the Shares of such Fund or the Contingent Deferred Sales Charge
arrangement of such Fund, the following to permit the directors or trustees of
such Fund to determine that the continuation of such Fund's Distribution Plan or
Underwriting Agreement is likely to benefit such Fund and its shareholders: (a)
a description of sales and redemption figures on an aggregate and net basis for
the Class B shares of such Fund for the previous fiscal year of such Fund; (b) a
description of all payments made under such Fund's Distribution Plan including
the amount and purpose for such payments and the recipients of such payments;
(c) comparative Rule 12b-1 fee and other expense materials for such Fund
prepared by an independent third party; (d) a written recommendation that such
Fund continue its Distribution Plan, Underwriting Agreement, Contingent Deferred
38
Sales Charge arrangement and conversion period of the Shares of such Fund as
presently constituted, to the extent applicable; and (e) such other information
as is reasonably requested by the directors or trustees of such Fund from time
to time. If the Seller and/or the Seller Parent has actual knowledge that the
directors or trustees of a Fund propose to vote in favor of an amendment or
termination of any of the items described in clause (d) above, the Seller and/or
the Seller Parent, as applicable, shall recommend to the directors or trustees
of such Fund that the Purchaser be permitted to make a presentation to the
directors or trustees of such Fund prior to the taking of such vote;
o. each of the Seller and the Seller Parent shall provide prompt written
notice to the Purchaser of any modification or amendment to, or any waiver of
any provisions of, or any termination of any Distribution Plan, any Investment
Management Agreement, any Contingent Deferred Sales Charge arrangement, any
Underwriting Agreement or any Prospectus, each as in effect on the date of this
Agreement, or any modification in the amounts payable or actually being paid
thereunder, provided that such modification, amendment, waiver, or termination
results or may result in an Adverse Effect, or, if a new distribution plan,
management agreement, contingent deferred sales charge arrangement, prospectus
or underwriting agreement is approved and entered into, the Seller shall provide
the Purchaser with copies of any such modification or such newly adopted plan or
agreement, as adopted, promptly after such modification or adoption has been
made;
p. each of the Seller and the Seller Parent shall promptly notify the
Purchaser of any change in any Fund's sales commission structure or
arrangements, distribution fees or Contingent Deferred Sales Charges, and any
change with respect to the business, properties, conditions (financial or
otherwise), results of operations or prospects of the Seller or the Seller
Parent since December 31, 1998 which could reasonably be expected to have an
Adverse Effect;
q. the Seller shall keep each Irrevocable Payment Instruction in full
force and effect;
r. the Seller Parent shall furnish to the Purchaser:
i. annually within 90 days after the end of each fiscal year,
audited consolidated financial statements of the Seller Parent and its
consolidated subsidiaries (including the Seller) prepared in accordance
with GAAP for such fiscal year;
ii. quarterly within 45 days after the end of each fiscal quarter,
unaudited consolidated financial statements of the Seller Parent and its
consolidated subsidiaries (including the Seller) prepared in accordance
with GAAP for such quarter, subject to ordinary year-end adjustments;
iii. promptly, (A) information from the results of examinations of
the Seller Parent or the Seller by the SEC or the NASD that are material
for purposes of this Agreement or the NASD, including such material
information in any written deficiency letters and management's written
responses thereto, if applicable; (B) information on a daily basis with
respect to the number of outstanding Shares, the number and kind of other
outstanding shares, sales, redemptions and exchanges; and (C) (not less
39
frequently than monthly) calculations of commissions and compliance with
NASD sales charge rules, including the NASD maximum sales charge limits,
with respect to the Funds; and
iv. promptly, such other information as the Purchaser may from time
to time reasonably request; it being understood that the reasonableness of
any Purchaser request shall be determined in view of the extent of the
relationships established by the Program Documents;
s. if the Seller is the principal underwriter and an Adviser is the
investment adviser for a mutual fund or an Additional Eligible Fund that has a
class of shares that is subject to a contingent deferred sales charge in excess
of 1%, the Seller shall promptly notify the Purchaser; if, within 30 days after
receipt of this notice from the Seller, the Purchaser consents to make such
class of shares of such mutual fund into Shares or to make the additional
Additional Eligible Fund a Fund, the Seller and the Seller Parent shall promptly
treat such shares of such class of such mutual fund as Shares or treat the
Additional Eligible Fund as a Fund, as the case may be; if, at the time the
Purchaser gives its consent, another means of financing the distribution
expenses of such class of such mutual fund or the Additional Eligible Fund that
is more economically advantageous to the class (a "Competing Bid") is available
and the Puchaser does not, within thirty (30) days of notice of such Competing
Bid offer a financing package which is at least as economically advantageous to
the Shares as the Competing Bid, the Seller and the Seller Parent do not have to
treat such shares of such class of such mutual fund as Shares or treat the
Additional Eligible Fund as a Fund;
t. if any Adviser or any Affiliate of the Seller Parent shall be the
principal investment adviser for any mutual fund for which the Seller is not the
principal underwriter and which is a Franklin Sponsored Fund, the Seller Parent
shall use its best efforts to cause the principal underwriter for such mutual
fund to make sales of receivables relating to such mutual fund available to the
Purchaser, if the Purchaser agrees to purchase such receivables, on terms and
conditions substantially similar to those of this Agreement and the other
Program Documents or on such other terms and conditions as may be agreed upon by
such principal underwriter and the Purchaser;
u. in addition to complying with the provisions of paragraphs (s) and (t)
above, the Seller Parent shall not, and shall cause its Affiliates not to,
register with the SEC any Franklin Sponsored Fund which is not then a Fund
unless such Franklin Sponsored Fund does not engage in Free Exchanges with any
Fund; PROVIDED, HOWEVER, such Franklin Sponsored Fund which is not then a Fund
may engage in Free Exchanges with any Fund if (i) the Seller is able to
segregate Receivables related to Shares of the Franklin Sponsored Funds (and any
Shares of other Funds into which such Shares may be exchanged in Free Exchanges)
from Purchased Receivables related to Shares of Funds (and any Shares of other
Funds or Franklin Sponsored Funds into which such Shares may be exchanged in
Free Exchanges), (ii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, and (iii) the
Seller preserves the Purchaser's continuing right to the Purchased Receivables
as if such Free Exchanges had not occurred;
40
v. the Seller shall, within a reasonable period of time (not in excess of
30 days) after being requested to do so, cause to be delivered to the Purchaser
in connection with a Takeout Transaction an opinion of counsel to the Seller,
such counsel to be reasonably satisfactory to the Purchaser, substantially in
the form of Exhibit O attached hereto, provided however, if there has been a
change in Applicable Law such that the Seller's counsel is unable to deliver an
opinion in such form, the Seller shall cause such counsel to deliver an opinion
in form, scope and substance reasonably satisfactory to the Purchaser, taking
into account any such change in Applicable Law;
w. all information provided by or on behalf of the Seller, the Seller
Parent, the Servicer or Franklin Services after the date hereof to the Purchaser
or any of its agents for purposes of or in connection with this Agreement, the
other Program Documents or the transactions contemplated hereby or thereby will
be true, correct and complete in all respects material to the Purchased
Receivables and the transactions contemplated by this Agreement and the other
Program Documents (taken as a whole) and no such information will contain any
material misrepresentation or material omission to state therein matters
necessary to make statements made therein not misleading in any respect material
to the Purchased Receivables and the transactions contemplated by this Agreement
and the other Program Documents, in light of the circumstances under which they
are made; PROVIDED, HOWEVER, that this covenant shall apply only to such
misrepresentations or omissions as would give rise to an Adverse Effect;
x. the Seller and the Seller Parent shall provide ninety (90) days' prior
written notice (or in any event no later than the time of filing of such change
with the SEC) to the Purchaser if any Fund intends to initiate a change in the
fundamental investment objective and policies of such Fund;
y. the Seller and the Seller Parent shall provide prompt written notice to
the Purchaser of any proposed action which if taken by the board of directors of
any Investment Company will, or could reasonably be expected to, have an Adverse
Effect or, upon such Person obtaining actual knowledge, of any action of the
board of directors of any Investment Company to make any modification or
amendment to, or any waiver of any provisions of, or any termination of, any
Distribution Plan, any Investment Management Agreement (other than in respect of
any waiver of any management fee payable to it under any Investment Management
Agreement), any Contingent Deferred Sales Charge arrangement, any Underwriting
Agreement, any Prospectus or any interpretation of any thereof, each as in
effect on the date hereof, or any modification in the amounts payable or
actually being paid thereunder, which action may result in an Adverse Effect,
or, if a new distribution plan, investment management agreement, contingent
deferred sales charge arrangement, prospectus or underwriting agreement is
proposed to be approved and entered into with respect to any Fund, the Seller
and the Seller Parent shall provide the Purchaser with copies of any such
proposed modification, as adopted, and a newly adopted distribution plan,
contingent deferred sales charges arrangement, investment management agreement,
prospectus or underwriting agreement promptly after such proposal, modification
or adoption has been made;
z. the Seller Parent shall from time to time, as necessary, transfer and
convey to the Seller funds in such amounts as to enable the Seller to at all
times have and maintain net capital in an amount equal to or greater than the
amount of net capital required by Rule 15c3-1 under the Exchange Act, whether or
not the Seller is subject to Rule 15c3-1;
41
aa. in the event of a change in "control" (as such term is defined in
Section 2(a)(9) of the Investment Company Act) in the operations of the Seller
or the Seller Parent which results in the termination of the Underwriting
Agreement, Investment Management Agreement or Distribution Plan with respect to
any Fund, or any "assignment" (as such term is defined in Section 2(a)(4) of the
Investment Company Act or Section 202(a) of the Investment Advisers Act) of the
Underwriting Agreement or the Investment Management Agreement with respect to
any Fund which would result in a termination of such Underwriting Agreement or
Investment Management Agreement with respect to such Fund, the Seller and the
Seller Parent shall use their best efforts to cause a replacement underwriting
agreement, investment management agreement, and/or distribution plan, as
applicable, to become effective which provides for the continued payment to
Purchaser of Collections in respect of the Purchased Receivables related to such
Fund as though such termination had not occurred and without an Adverse Effect;
and
bb. for any Fund which has terminated or amended its Distribution Plan or
Underwriting Agreement in a manner which adversely affects the amount or rate of
payment of any Purchased Receivables related to the Shares of such Fund, the
Seller shall pay to the Purchaser an amount equal to any such Service Fee which
is paid by such Fund (but such payments shall not exceed the difference between
the Collections actually paid with respect to such Purchased Receivables, if
any, and the amount that would have been payable with respect to such Purchased
Receivables had such termination or amendment not occurred).
SECTION 5.2 NEGATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT.
The Seller and the Seller Parent each separately, and not jointly,
covenant and agree as follows (it being agreed by the Parties that the words
"separately and not jointly" mean that only the Seller (and not the Seller
Parent) is responsible to the Purchaser for the covenants and agreements
pertaining to any Person other than the Seller Parent, and that only the Seller
Parent (and not the Seller) is responsible to the Purchaser for the covenants
and agreements pertaining to the Seller Parent):
a. the Seller shall not permit to exist (as a result of any act or
omission of the Seller) any Adverse Claim on, or (except pursuant to this
Agreement) attempt to transfer any interest in, any Purchased Receivables or the
Proceeds to be derived therefrom;
b. the Seller shall not move its chief executive office, principal place
of business, or the principal place where it keeps its records concerning the
Receivables from the addresses specified in Section 4.1(m) or change its name or
the name under or by which it conducts its business, unless (i) it shall have
given to the Purchaser not less than fifteen (15) Business Days' prior written
notice of its intention to do so and of any new location, (ii) it shall have
taken such action, satisfactory to the Purchaser, as may be necessary or
desirable to maintain the title or ownership of the Purchaser in the Purchased
Receivables relating to each Fund at all times fully perfected and in full force
and effect, and (iii) any new location is in the contiguous continental United
States and is not in the States of Louisiana or Tennessee;
c. the Seller shall not amend, waive, terminate or otherwise modify the
terms of any Irrevocable Payment Instruction or take any action inconsistent
with any Irrevocable Payment Instruction;
42
d. to the extent that the Seller or the Seller Parent is a party to a
Program Document, the Seller and the Seller Parent shall not cancel, terminate,
amend, modify or waive any term or condition of any Program Document (to the
extent the same gives rise to an Adverse Effect), each as in effect as of the
date hereof;
e. [INTENTIONALLY LEFT BLANK]
f. to the extent that the Seller or the Seller Parent is a party to a
Program Document, the Seller and the Seller Parent shall not (i) cancel,
terminate, amend, modify or waive any term or condition of the Contingent
Deferred Sales Charge obligations of any shareholders of any Fund, each as in
effect on the date hereof, or (ii) propose that, or take any action that causes,
any reduction or termination of the Contingent Deferred Sales Charges;
g. neither the Seller nor the Seller Parent shall change its state of
incorporation to a jurisdiction which would result in the representation in
Section 4.1(g) no longer being correct;
h. the Seller Parent shall not permit any of its Affiliates other than the
Seller to become the principal distributor for any Fund unless such Affiliate
shall, to the reasonable satisfaction of the Purchaser, specifically assume the
responsibilities of the Seller under this Agreement;
i. neither the Seller nor the Seller Parent shall serve as an investment
adviser, or perform, directly or indirectly, the functions of an investment
adviser, for any class of Shares of any mutual fund or investment company that
engages a distributor for such fund or investment company which is not an
Affiliate of the Seller or the Seller Parent unless such relationship (i) does
not involve a mutual fund offering shares with a contingent deferred sales
charge greater than one (1%) percent, (ii) does not involve a Franklin Sponsored
Fund or (iii) is consented to by the Purchaser, which consent shall not be
unreasonably withheld;
j. the Seller and the Seller Parent shall not (except as required by
applicable accounting standards and Applicable Laws pertaining to Taxes) on its
books, records, tax returns or financial statements reflect the Purchased
Receivables as being owned by the Seller, any Affiliate of the Seller, or other
Person other than the Purchaser;
k. the Seller shall not file a voluntary petition, or consent to the
filing of an involuntary petition, in any proceeding with respect to itself
under the Bankruptcy Code in a Bankruptcy Court sitting in the jurisdiction of
the United States Court of Appeals for the Tenth Circuit;
l. unless required by a change, if any, in Applicable Law after the date
hereof under the Investment Company Act or other Applicable Law, the Seller and
the Seller Parent shall not take any action designed to encourage any Fund to
cancel, terminate, amend, modify or waive any term or condition of any Program
Document to which the Seller or the Seller Parent is a party in regard to any
matter related to the transactions contemplated herein (other than to permit
Free Redemptions or Free Exchanges as contemplated by the Prospectus of such
Fund), in each case to the extent such cancellation, termination, amendment,
modification, or waiver would, or could reasonably be expected to, give rise to
an Adverse Effect;
43
m. unless required by a change, if any, in Applicable Law after the date
hereof, under the Investment Company Act or other Applicable Law, and without
limiting the generality of paragraph (l) above, neither the Seller nor the
Seller Parent shall take any action that could result in either (i) the
aggregate Sales Charge paid or payable by any Fund in respect of the sales of
Shares of such Fund pursuant to the related Underwriting Agreement, Distribution
Plan and Prospectus and pursuant to the Conduct Rules being less than the lesser
of (A) the maximum Sales Charges payable in respect of the sales of such Shares
under the related Underwriting Agreement, Distribution Plan and Prospectus on
the date such Sales Charges were purchased by the Purchaser and (B) the Maximum
Aggregate Sales Charge Allowable in respect of such Shares, plus interest
thereon at the prime rate in effect, plus one percent (1%) per annum) or (ii)
the amount in clause (i) above being payable in installments less frequently
than monthly or in amounts that are less on the average than the daily
equivalent of the Applicable Percentage of the average daily Net Asset Value for
each Fund; PROVIDED THAT each of the Seller and Seller Parent shall not be
required, pursuant to this Section 5.2(m), to take any action inconsistent with
Sections 5.1(n) and 5.1(s); and
n. With respect to any Fund for which the Purchaser has terminated its
purchase obligation pursuant to either Section 6.1 or Section 2.1(a) (a
"Non-Purchased Fund"), the Seller and the Seller Parent shall not take any
actions designed to permit any Fund to continue to permit its shareholders to
engage in Free Exchanges with such Non-Purchased Fund; PROVIDED THAT if the
board of directors or trustees of the Fund determines that the shareholders of
the Fund shall continue to be permitted to engage in Free Exchanges with such
Non-Purchased Fund, then the shareholders of the Fund shall be permitted to
engage in Free Exchanges with such Non-Purchased Fund and either (x) the
following three conditions are met: (i) the Seller is able to segregate
Purchased Receivables related to Shares of the Fund(s) (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges) from
Receivables related to Shares of such Non-Purchased Funds (and any Shares of
other Funds into which such Shares may be exchanged in Free Exchanges), (ii) the
Seller's ability to segregate Purchased Receivables, as described above, is
certified to the Purchaser by an independent accounting firm of national
standing, reasonably acceptable to the Purchaser, and (iii) the Seller preserves
the Purchaser's continuing right to the Purchased Receivables as if such Free
Exchanges had not occurred; or (y) the Seller shall have the same obligations
under this Agreement with respect to Shares that are exchanged from a Fund to a
Non-Purchased Fund in a Free Exchange as Shares that are sold in a Free
Redemption under Section 7.18.
SECTION 5.3 [INTENTIONALLY LEFT BLANK]
SECTION 5.4 AFFIRMATIVE COVENANTS OF THE PURCHASER.
The Purchaser hereby covenants and agrees as follows:
a. prior to the Final Termination Date, the Purchaser shall furnish to the
Seller (i) quarterly within sixty (60) days after the end of each fiscal quarter
unaudited financial statements of the Purchaser prepared in accordance with GAAP
for such quarter and (ii) annually within ninety (90) days after the end of each
fiscal year, audited financial statements of the Purchaser prepared in
accordance with GAAP for such fiscal quarter or year;
44
b. the Purchaser shall provide notice to the Seller of any material
adverse change in its financial condition or of any other event which would, in
either instance, materially and adversely affect the Purchaser's ability to
purchase Purchased Receivables;
c. the Purchaser shall (i) obtain, maintain and keep in full force and
effect all Governmental Authorizations and Private Authorizations required by
Applicable Law which are necessary or appropriate for it to properly carry out
the transactions contemplated to be performed by it under this Agreement and the
other Program Documents; (ii) duly observe and conform to all requirements of
Applicable Law relative to the conduct of its business or to its properties or
assets, where the failure to so conform could reasonably be expected to have a
material adverse effect on the Purchaser's ability to perform hereunder; and
(iii) preserve and keep in full force and effect its existence, rights,
privileges and franchises;
d. the Purchaser shall duly fulfill all obligations on its part to be
performed under or in connection with this Agreement and the other Program
Documents to which it is a party, and any agreements and instruments entered
into in connection herewith or therewith;
e. the Purchaser shall keep proper books of record and account in
accordance with normal business practice in which full and appropriate entries
shall be made of all dealings or transactions in relation to the Purchased
Receivables relating to each Fund, and to its business and activities in
connection with this Agreement and the other Program Documents, and the
transactions contemplated hereby and thereby, and shall xxxx any data processing
or other records it maintains so as to clearly indicate that the Purchased
Receivables relating to each Fund have been sold to the Purchaser and are, prior
to any relevant Takeout Transaction, owned by the Purchaser;
f. the Purchaser shall (i) promptly give written notice to the Seller of
(A) any Seller Termination Event or event which, with the passage of time or
notice or both, would constitute a Seller Termination Event, (B) any litigation
or proceedings with respect to the Purchaser or any of its assets or properties,
which, if adversely determined, could reasonably be expected to give rise to any
material adverse effect upon the Purchaser's ability to purchase the Purchased
Receivables hereunder or perform any of its obligations under any Program
Document or (C) the failure of any representation or warranty of the Purchaser
contained in any Program Document to be true and correct in all material
respects; and (ii) upon obtaining Purchaser's Knowledge thereof, promptly give
written notice of any litigation or proceedings not required to be disclosed
pursuant to the preceding clause (i)(B) which, if adversely determined, could
give rise to any material adverse effect upon the Purchaser's ability to
purchase the Purchased Receivables hereunder or perform any of its obligations
under any Program Document;
g. upon written request by the Seller, the Purchaser (excluding
information provided by or on behalf of any Affiliate of the Seller or the
Seller Parent) shall furnish or cause to be furnished to the Seller a copy of
any Private Authorizations or Governmental Authorizations obtained or required
to be obtained by it under Applicable Law applicable to the Purchaser in
connection with the transactions contemplated by this Agreement or any other
Program Document;
45
h. all information provided by or on behalf of the Purchaser (excluding
information provided by or on behalf of any Affiliate of the Seller or the
Seller Parent or their respective Affiliates) after the date hereof to the
Seller or the Seller Parent or any of their agents for purposes of or in
connection with this Agreement, the other Program Documents, or the transactions
contemplated hereby or thereby will be true, correct and complete in all
respects material to the transactions contemplated by this Agreement and the
other Program Documents (taken as a whole) and no such information will contain
any material misrepresentation or material omission to state therein matters
necessary to make statements made therein not misleading in any respect material
to the transactions contemplated by this Agreement and the other Program
Documents, in light of the circumstances under which they are made; PROVIDED,
HOWEVER, that this covenant shall apply only to such misrepresentations or
omissions as would give rise to a material adverse effect upon the Purchaser's
ability to purchase the Purchased Receivables or perform any of its obligations
under any Program Document;
i. the Purchaser shall promptly deliver to the Seller a copy of all (i)
notices of or waivers of material payment or covenant defaults delivered to or
received from any lenders of the Purchaser, including without limitation any
lenders under the Credit Agreement and (ii) material agreements or amendments
entered into with such lenders which would have a material adverse effect upon
the Purchaser's ability to purchase the Purchased Receivables hereunder or
perform any of its obligations under any Program Document; and
j. upon the consummation of any Free Exchange, the Purchaser shall cause
(i) the Lightning Balance Sheet Carrying Value in respect of the applicable
Monthly Pool of Purchased Receivables of the issuing Fund to be increased on the
effective date of the exchange by the portion of the Lightning Balance Sheet
Carrying Value on such date in respect of the applicable Monthly Pool of
Purchased Receivables of the redeeming Fund attributable to the Shares of the
redeeming Fund so exchanged and (ii) the Lightning Balance Sheet Carrying Value
in respect of the applicable Monthly Pool of Purchased Receivables of the
redeeming Fund to be reduced on the effective date of the exchange by the
Lightning Balance Sheet Carrying Value on such date in respect of the applicable
Monthly Pool of Purchased Receivables attributable to the Shares of the
redeeming Fund so exchanged.
SECTION 5.5. NEGATIVE COVENANTS OF THE PURCHASER.
The Purchaser shall not on its books and records, tax returns or financial
statements reflect the Purchased Receivables relating to any Fund as being owned
by the Seller, any Affiliate of the Seller, or, prior to a related Takeout
Transaction, by any other Person other than the Purchaser.
ARTICLE VI
EVENTS OF TERMINATION
SECTION 6.1 EVENTS OF TERMINATION. If any Event of Termination shall occur
and be continuing then the Purchaser may, by notice to the Seller and the Seller
Parent, declare the Termination Date to have occurred (in which case the
Termination Date shall be deemed to have occurred as of the date such notice is
effective pursuant to the provisions of Section 7.3); PROVIDED, HOWEVER, that
46
upon the occurrence of any event (without any requirement for the passage of
time or the giving of notice, or both) described in subsection (r) of the
definition of Event of Termination, the Termination Date shall be deemed to have
automatically occurred; and PROVIDED FURTHER, that upon the occurrence of any
event described in subsections (a), (b), (g), (l)(ii), (m), (n), (o), (p), (s),
(t) and (w) of Event of Termination, the Termination Date shall be deemed to
have occurred as of the date which is six (6) months from the date such notice
is effective pursuant to the provisions of Section 7.3; and PROVIDED, FURTHER,
that, with respect to an Event of Termination which affects only certain Funds,
the Purchaser may, by notice to the Seller and the Seller Parent, terminate only
its obligation to purchase Receivables related to such Funds.
SECTION 6.2 TERMINATION OF SELLER'S OBLIGATIONS TO SELL PURCHASED
RECEIVABLES. If any Seller Termination Event shall occur and be continuing then
the Seller may, by notice to the Purchaser, declare the Termination Date to have
occurred (in which case the Termination Date shall be deemed to have occurred as
of the date such notice is effective pursuant to the provisions of Section 7.3);
PROVIDED, HOWEVER, that upon the occurrence of any event (without any
requirement for the passage of time or the giving of notice or both) described
in subsection (a) of the definition of Seller Termination Event, the Termination
Date shall be deemed to have automatically occurred.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay on
the part of a Party in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or future exercise thereof or the
exercise of any other right, power or remedy. No amendment, modification,
supplement, termination or waiver of this Agreement shall be effective unless
the same shall be in writing and signed by all of the Parties. Any waiver of any
provision of this Agreement, and any consent to any departure by any Party from
the terms of any provision of this Agreement, shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 7.2 PAYMENT. Unless otherwise provided herein, whenever any
payment to be made hereunder shall be due on a non-Business Day, such payment
shall be made on the next succeeding Business Day. All amounts owing and payable
to a Party under this Agreement shall be paid in immediately available funds
without counterclaim, setoff, deduction, defense, abatement, suspension or
deferment. All amounts payable by the Seller, the Seller Parent or the Purchaser
pursuant to Section 7.4 or Section 7.5, as applicable, shall be paid to the
Purchaser's Remittance Account or the Seller's Account, respectively. The
Seller, the Seller Parent and the Purchaser hereby agree to pay interest at the
Post-Default Rate on any amounts payable by the Seller, the Seller Parent or the
Purchaser, respectively, under this Agreement, which shall not be paid in full
when due, for the period commencing on the due date thereof until, but not
including, the date the same is paid in full; PROVIDED, HOWEVER, that for such
period not in excess of thirty (30) days during which the Parties are attempting
to resolve a disagreement as to the amount owed, interest shall be payable at
the Prime Rate. For purposes of calculating interest, any amount received by or
47
on behalf of the Seller, the Seller Parent, or the Purchaser, as applicable,
after 3:00 p.m. (New York City time) shall be deemed to have been received on
the next succeeding Business Day.
SECTION 7.3 NOTICES, ETC. Except where telephonic instructions are
authorized herein to be given, all notices, demands, instructions and other
communications required or permitted to be given to or made upon any Party
hereto shall be in writing and shall be personally delivered or sent by
registered, certified or express mail, postage prepaid, or by prepaid telegram
(with messenger delivery specified in the case of a telegram), or by telecopier,
or by prepaid courier service, and shall be deemed to be given for purposes of
this Agreement on the day that such writing is received by the intended
recipient thereof in accordance with the provisions of this Section 7.3. Unless
otherwise specified in a notice sent or delivered in accordance with the
foregoing provisions of this Section 7.3, notices, demands, instructions and
other communications in writing shall be given to or made upon the Parties at
their respective addresses (or to their respective telecopier numbers) indicated
below, and, in the case of telephonic instructions or notices, by calling the
telephone number or numbers indicated for such Party below:
If to the Purchaser: Lightning Finance Company Limited
Chase Manhattan House
International Financial Services Center
Dublin, Ireland
Attention: Global Trust Services / Xxxxxx Xxxxxxx
Telephone No.: 000-0-000-0000
Facsimile No.: 00-353-1-612-5777
With a copy to: Xxxxxxxxxxx Xxxxx, Esquire
Xxxxxxxx Xxxxxx Xxxxxxxx
00 Xxxxxxx Xxxxxx
Xxxxxx 0, Xxxxxxx
Telephone No.:
Facsimile No.:
Constellation Financial Management Company LLC
00 Xxxxxxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
Xxxxxx X. Xxxx, Esquire
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
48
If to the Seller: Franklin/Xxxxxxxxx Distributors, Inc.
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
With a copy to: Xxxx X. Xxxxxxx, Esquire
Stradley, Ronon, Xxxxxxx & Young, LLP
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If to the Seller Parent:Franklin Resources, Inc.
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
With a copy to: Xxxx X. Xxxxxxx, Esquire
Stradley, Ronon, Xxxxxxx & Xxxxx LLP
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
SECTION 7.4 TAXES, COSTS, AND EXPENSES.
a. Any and all payments by the Seller under this Agreement or any other
Program Document shall be made free and clear of and without deduction for any
and all Taxes. If the Seller shall be required by Law to deduct any Taxes from
or in respect of any sum payable hereunder or under any other Program Document,
(i) the sum payable hereunder or thereunder shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 7.4(a)) the Purchaser
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Seller shall make such deductions and (iii) the
Seller shall pay the full amount deducted to the relevant taxation authority or
other authority in accordance with Applicable Law. In addition, the Seller
agrees to pay any Other Taxes. Notwithstanding any other provisions of this
Agreement, in the event that the Seller is required to withhold any taxes from
any payments or transfers of receivables to be paid to, or transferred to, the
Purchaser pursuant to this Agreement, the Seller shall do so without any
recourse by, or claim against, the Seller by the Purchaser. In the event that
the Seller is assessed a deficiency by any taxing authority under Applicable Law
for the failure of the Seller to withhold any taxes or other amounts with
respect to any payments to be made by, or transfers to be accomplished to the
Purchaser by the Seller under this Agreement, the Seller shall be permitted to
withhold any such deficiency from any current or future payments or transfers to
49
be made by the Seller to the Purchaser under this Agreement until such
deficiency, (but not including any interest and penalties thereon), is paid by
the Purchaser; the Purchaser shall have no recourse or claim against the Seller
with respect to any such payments or withholdings.
b. The Seller agrees to pay all UCC filing fees in connection with the
transactions contemplated by this Agreement, the Servicing Agreement and the
other Program Documents.
c. Subject to subsection (b) above, regardless of whether any of the
transactions contemplated hereby are actually consummated, the Purchaser agrees
to promptly pay to the Seller and the Seller Parent, as applicable, on written
demand (i) all reasonable costs and expenses incurred by the Seller or the
Seller Parent in connection with the preparation, review, negotiation,
reproduction, execution or delivery of this Agreement and (ii) all reasonable
fees and disbursements of counsel to the Seller and the Seller Parent in
connection with any of the foregoing. Any costs or expenses reasonably incurred
by a Party in good faith for the purpose of enforcing such Party's rights under
this Agreement, and all reasonable fees and disbursements of counsel to such
Party in connection with the enforcement of such rights, shall be promptly paid
to such party, upon written demand, by the Party or Parties against whom
enforcement is granted, unless otherwise ordered in a judgment in a court of
competent jurisdiction or as mutually agreed upon by the Parties.
d. The Purchaser shall pay any additional Taxes which may be imposed due
to the non-existence of any present or former connection between such Purchaser
(or through any of its Affiliates) and the country in which the Purchaser is (i)
organized, (ii) being or having been a citizen or resident of the country or
treated as a resident thereof, (iii) being or having been engaged in a trade or
business or present therein, (iv) being or having had a permanent establishment
therein or (v) making or having made an election the effect of which is subject
such Purchaser such tax, assessment or other governmental charge.
SECTION 7.5 INDEMNIFICATION.
a. Each of the Seller and the Seller Parent, separately and not jointly,
agrees to indemnify and hold harmless the Purchaser and each of its Affiliates
and their respective officers, directors, employees, agents, advisors of, and
any Person controlling any of, the foregoing (each an "Indemnified Party") from
and against (collectively, but without duplication) any and all Liabilities that
may be incurred by or asserted or awarded against an Indemnified Party, in each
case arising out of, relating to or by reason of, any claim brought by any
Person not a party to this Agreement in connection with the transactions
contemplated hereby; PROVIDED, HOWEVER, the Seller and the Seller Parent shall
not be required to indemnify any Indemnified Party in respect of any Liability
if and to the extent such Liability resulted primarily from (i) such Indemnified
Party's gross negligence or willful misconduct, or (ii) in the case of an
Indemnified Party which is the Purchaser, any failure of the Purchaser to
perform its covenants, if any, set forth herein or in the other Program
Documents to which it is a party, or any failure of any of the Purchaser's
representations and warranties, if any, set forth herein or in the other Program
Documents to which it is a party, to be true and correct as of the time such
representation or warranty spoke. Furthermore, the Seller and the Seller Parent
shall not be required to indemnify any Indemnified Party in respect of (A) any
50
liability under applicable securities laws arising out of a Takeout Transaction,
except to the extent such liability is attributable to or would not have
occurred but for (i) the violation at the time of, or prior to, such Takeout
Transaction of any covenant, representation or warranty made by the Seller, the
Seller Parent, the Servicer or any Adviser contained in this Agreement or any
other Program Document, or (ii) any information furnished by or on behalf of the
Seller, the Seller Parent or the Servicer being false or misleading in any
material respect, or (B) any Liabilities arising as a result of a claim by an
Indemnified Party against the Seller or the Seller Parent or as a result of a
claim by the Seller or the Seller Parent against an Indemnified Party where it
is determined that the position of the Seller or the Seller Parent in respect of
such claim is correct in all material respects.
b. The Seller's obligation, if any, to indemnify and hold harmless an
Indemnified Party under this Section 7.5 shall not extend to Liabilities arising
out of or relating to the actions of the Seller Parent in connection with any of
the events described in the first sentence of subsection (a) above, and the
Seller Parent's obligation, if any, to indemnify and hold harmless an
Indemnified Party under this Section 7.5 shall extend only to Liabilities
arising out of or relating to the actions of the Seller Parent (and not the
actions of the Seller or any other Person) in connection with any of the events
described in the first sentence of subsection (a) above. In the event a
Liability arises out of or relates to actions of both the Seller Parent and
another Person in connection with any of the events described in the first
sentence of subsection (a) above, each of the Seller and the Seller Parent shall
indemnify and hold harmless the Indemnified Party to the extent such Person's
actions are attributable to the occurrence of such event.
c. The Purchaser agrees to indemnify and hold harmless the Seller, the
Seller Parent, each of their Affiliates and their respective officers,
directors, employees, agents, advisors of, and any Person controlling any of,
the foregoing (collectively, the "Seller Indemnities") from and against
(collectively, but without duplication) any and all Liabilities that may be
incurred by or asserted or awarded against a Seller Indemnitee, in each case
arising out of, relating to or by reason of, any claim brought by any Person not
a party to this Agreement in connection with the transactions contemplated
hereby; provided, HOWEVER, the Purchaser shall not be required to indemnify a
Seller Indemnitee in respect of any Liability to the extent such Liability
resulted from (i) such Seller Indemnitee's gross negligence or willful
misconduct, or (ii) in the case of a Seller Indemnitee that is a party to any
Program Document, any failure of such Seller Indemnitee to perform its covenants
set forth in the Program Documents to which it is a party or any failure of any
of its representations and warranties set forth in the Program Documents to
which it is a party to be true and correct in all material respects at the time
such representation or warranty spoke.
SECTION 7.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which, when so executed and delivered, shall
be deemed to be an original and all of which taken together, shall constitute
one and the same document.
SECTION 7.7 BINDING EFFECT; ASSIGNMENT.
a. This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective permitted successors and permitted assigns.
51
b. The Seller may not assign its rights or obligations hereunder or in
connection herewith or any interest herein or under any other Program Document
or with respect to any Purchased Receivables or the Proceeds thereof without the
Purchaser's prior written consent.
c. The Purchaser may not (except as is appropriate in connection with a
Takeout Transaction) assign its rights or obligations hereunder or in connection
herewith or any interest herein or under any other Program Documents without the
Seller's prior written consent.
d. The Purchaser, as the owner of the Purchased Receivables, shall have
the right to sell, transfer, convey and assign to any Person, as a part of and
in connection with a Takeout Transaction, all or a portion of the Purchaser's
right, title and interest in the Purchased Receivables and the Proceeds thereof;
PROVIDED, HOWEVER, that the Purchaser shall not assign to any Person the benefit
of the representations and warranties of the Seller, the Seller Parent or any
Adviser contained in this Agreement or any other Program Document. The Purchaser
shall give the Seller thirty (30) days' advance notice of any sale, transfer,
conveyance or assignment of the Purchased Receivables or the Proceeds thereof.
Notwithstanding the foregoing, the Purchaser may (i) pledge all of its rights
under this Agreement or any other Program Document and all of its rights with
respect to the Purchased Receivables to a major financial institution as
security for money borrowed by the Purchaser or (ii) make representations and
warranties to another Person, as a part of and in connection with a Takeout
Transaction, which are similar to the representations and warranties agreed to
by the Seller in this Agreement or any other Program Document.
e. In the event of any sale, transfer, conveyance or assignment of the
Purchased Receivables or the Proceeds thereof pursuant to Section 7.7(d) above,
the Seller shall execute and deliver such instruments and documents and shall
take all such actions as the Purchaser or any Master Trust shall reasonably deem
necessary in order to confer upon any such Person ownership of the Purchased
Receivables, including, without limitation, using its commercially reasonable
efforts to cause the reapproval of each Underwriting Agreement (in the manner
required by the Investment Company Act) by the Board of Directors of the related
Fund at its next regularly scheduled meeting if such transferee shall deem such
action necessary to avoid the termination of such agreements.
SECTION 7.8 GOVERNING LAW; SUBMISSION TO JURISDICTION.
a. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF SAID JURISDICTION WITHOUT REGARD TO ITS CONFLICTS
OF LAWS PROVISIONS.
b. THE SELLER, THE SELLER PARENT AND THE PURCHASER EACH HEREBY IRREVOCABLY
SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA AND TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT OF THE
UNITED STATES LOCATED IN SUCH JURISDICTION, FOR THE PURPOSES OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE OTHER PROGRAM DOCUMENTS
52
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
c. THE SELLER, THE SELLER PARENT AND THE PURCHASER EACH HEREBY AGREE TO
FILE SUCH NOTICES NECESSARY TO APPOINT CT CORPORATION SYSTEM, 000 XXXX XXXXXXX
XXXXXX, XXX XXXXXXX, XX 00000, AND THE SUCCESSORS IN SUCH OFFICE, ITS REGISTERED
AGENT IN THE STATE OF CALIFORNIA UPON WHOM MAY BE SERVED ANY NOTICE, PROCESS OR
PLEADING IN ANY SUIT, ACTION OR PROCEEDING AGAINST EACH OF THE SELLER, THE
SELLER PARENT OR THE PURCHASER, RESPECTIVELY, ARISING OUT OF THIS AGREEMENT OR
THE OTHER PROGRAM DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, AND EACH OF THE SELLER, THE SELLER PARENT AND THE PURCHASER DOES HEREBY
CONSENT THAT SUCH SUIT, ACTION OR PROCEEDING AGAINST IT MAY BE COMMENCED IN ANY
COURT OF COMPETENT JURISDICTION AND PROPER VENUE WITHIN SUCH STATE BY SERVICE OF
PROCESS UPON SAID OFFICER WITH THE SAME EFFECT AS IF SUCH PARTY WAS ORGANIZED OR
CREATED UNDER THE LAWS OF SAID STATE AND HAD BEEN LAWFULLY SERVED WITH PROCESS
IN SAID STATE.
SECTION 7.9 SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 7.10 CONFIDENTIALITY. Unless otherwise required by Applicable Law,
the Seller and the Purchaser agree to maintain the confidentiality of the
Confidential Information; provided that nothing in this Section 7.10 shall
prohibit disclosure of such Confidential Information by the Seller or the
Purchaser, as the case may be,
a. pursuant to an order under Applicable Law or pursuant to a subpoena or
other legal process;
b. (i) to the officers, directors, partners, employees, legal counsel, or
auditors of, or lenders to, such Person or (ii) to an insurance company or its
agents, solely with respect to errors and omissions insurance coverage;
c. in the case of the Purchaser, to a Master Trust, any then directors,
trustees or officers of such Master Trust, counsel for the Master Trust, or
independent accountants for the Master Trust;
d. in the case of the Seller, to any Fund, any then current directors,
trustees or officers of such Fund, Fund counsel, counsel for the Seller or
independent accountants for the Fund or the Seller;
e. to any permitted assignee or permitted pledgee of all or any portion of
such Person's right, title or interest in this Agreement and the Servicing
Agreement, the Purchased Receivables or the Collections, provided that such
permitted assignee or pledgee agrees in a writing delivered to and for the
53
benefit of all Parties and the parties to the Servicing Agreement to be bound by
the terms of this Section 7.10; or
f. to any proposed permitted assignee or permitted pledgee of all or any
portion of such Person's right, title and interest in this Agreement and the
Servicing Agreement, the Purchased Receivables or the Collections, provided that
such Person advises such proposed permitted assignee or pledgee in writing that
such Confidential Information is confidential, non-public information and
requests that such proposed permitted assignee or pledgee keep it confidential
and use it only for purposes of evaluating the proposed assignment or pledge and
such proposed permitted assignee or pledgee agrees in a writing delivered to and
for the benefit of all Parties and the parties to the Servicing Agreement to be
bound by the provisions of this Section 7.10, and provided, further that the
Purchaser shall not disclose such Confidential Information pursuant to
subsection (e) above or this subsection (f) to any assignee or pledgee which is
an affiliate of an investment adviser, principal underwriter, administrator or
subadvisor to any registered, open-end management investment company (as defined
under the Investment Company Act).
Notwithstanding anything to the contrary contained herein, the Purchaser
shall keep, and shall use its best efforts to cause its officers, directors,
partners, employees, advisers, legal counsel, auditors, lenders and Affiliates
to keep, confidential all Confidential Information concerning the Seller, the
Seller Parent, the Funds and the Investment Companies, delivered or made
available by the Seller or any of its Affiliates to the Purchaser or such other
Persons, including without limitation the Program Documents (to the extent not
publicly available), shareholder records, shareholder transaction records,
information concerning the composition of the Funds' and the Investment
Companies' respective portfolios, information concerning the identity of any
Person acting as a broker or dealer for the sale of any Fund shares, and
information concerning the financial condition of the Seller (and the Purchaser
shall not, and shall cause each of the foregoing other Persons not to, use such
information to sell securities to or purchase securities from any such Fund or
other Investment Company or to trade for its own account or recommend such
trading to any other Person on the basis of such information).
SECTION 7.11 INTENT OF AGREEMENT. It is the intention of this Agreement
that each purchase of Purchased Receivables hereunder shall absolutely and
irrevocably convey to the Purchaser an ownership interest in such Purchased
Receivables on the Purchase Date therefor and that such transactions shall
constitute a True Sale and not a secured loan. If, notwithstanding such
intention, any conveyance of Purchased Receivables from the Seller to the
Purchaser shall ever be recharacterized as a secured loan and not a sale, it is
the intention of this Agreement that this Agreement shall constitute a security
agreement under Applicable Law, and that the Seller shall be deemed as of the
date of this Agreement to have granted, and does hereby grant, to the Purchaser
a duly perfected first priority security interest in all of the Seller's right,
title and interest in, to and under such Purchased Receivables including without
limitation all payments on or with respect to such Purchased Receivables, all
other rights relating to and payments made in respect of such Purchased
Receivables and all Proceeds thereof free and clear of any Adverse Claim, as
security for its obligations to the Purchaser under or in connection with this
Agreement and the other Program Documents.
54
SECTION 7.12 LIABILITIES TO ANY FUND. No obligation or liability to any
Fund, any shareholder of any Fund or any Person contracting with or related to
any Fund is intended to be assumed by the Purchaser under or as a result of this
Agreement or the other Program Documents and the transactions contemplated
hereby and thereby and, to the maximum extent permitted under provisions of Law,
the Purchaser expressly disclaims any such assumption.
SECTION 7.13 MERGER. The Program Documents taken as a whole incorporate
the entire agreement among the parties thereto concerning the subject matter
thereof. The Program Documents supersede any prior agreements among the parties
relating to the subject matter thereof.
SECTION 7.14 FURTHER ACTS. Each Party agrees that at any time, and from
time to time, it will do all such things and execute and deliver all such
instruments, assignments, releases, other documents and assurances, as any other
Party or its counsel reasonably deems necessary or desirable in order to carry
out the intent, purpose and conditions of this Agreement and the other Program
Documents, and the transactions contemplated hereby and thereby, to facilitate
the enjoyment of any of the rights created or contemplated hereby or thereby or
to facilitate compliance with any changes in Applicable Law. Without limiting
the generality of the foregoing, to the extent permitted by Applicable Law, upon
the Purchaser's written request from time to time, the Seller shall make,
execute, acknowledge and deliver and file and record in the proper filing and
recording places all such instruments, and take all such actions, as the
Purchaser may reasonably deem necessary or advisable for assuring or confirming
to the Purchaser its rights and interest in and to, and remedies in respect of,
the Purchased Receivables relating to each Fund. In addition, the Seller agrees
to consent to any Amendment or supplements to this Agreement and any other
Program Document which is, in the opinion of the Purchaser, necessary or
appropriate in order to effect any Takeout Transaction; PROVIDED, HOWEVER, that
the Seller shall not be obligated to give any such consent if it would thereby
incur any material obligations or liabilities not contemplated by the Program
Documents to which the Seller, the Seller Parent or the Servicer is a party; and
provided further, that the Seller shall not be required by this Section 7.14 to
consent to any change in any Underwriting Agreement, any Distribution Plan or
any Prospectus.
SECTION 7.15 OTHER RIGHTS. The rights and remedies of the Parties
hereunder are cumulative and are not in lieu of, but are in addition to, any
other rights and remedies which the Parties may have under or by virtue of any
Applicable Law, or in equity, or any other agreement or obligations to which the
Parties are a party. The rights and remedies of the Parties and the parties to
the other Program Documents may be exercised from time to time and as often as
such exercise is deemed expedient. The Parties agree that it is expected that
the Purchaser will (a) enter into hedging transactions in order to hedge the
risks associated with the Purchased Receivables, and (b) rely on the
representations, warranties and covenants provided herein in making
representations and warranties in Takeout Transactions, and that losses related
to the foregoing are, with the exception of losses in hedging transactions which
are not attributable to a breach of the representations, warranties and
covenants herein, a reasonably foreseeable result of any breach by the Seller,
the Seller Parent, or the Servicer of this Agreement or other Program Document
to which it is a party.
SECTION 7.16 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Each
55
of the representations, warranties, covenants and other agreements of the
Parties contained or reaffirmed in this Agreement (a) shall survive the
execution and delivery of this Agreement and the purchase of and payment for the
Purchased Receivables relating to each Fund and (b) shall remain and continue in
full force and effect without regard to any waiver, modification, extension,
renewal, consolidation, amendment or restatement of any term or provision,
except as specifically provided in such waiver, modification, extension,
renewal, consolidation, amendment or restatement.
SECTION 7.17 [INTENTIONALLY LEFT BLANK]
SECTION 7.18 FREE REDEMPTIONS. In addition to all other amounts payable to
the Purchaser pursuant to this Agreement and the other Program Documents,
promptly following each Free Redemption which is not provided for in the
applicable Fund's Prospectus on the date hereof, or on the Additional Effective
Date in the case of an Additional Eligible Fund, the Seller shall pay to the
Purchaser an amount equal to the maximum Contingent Deferred Sales Charge that
would have been payable in connection with such redemption if such redemption
had not been a Free Redemption.
SECTION 7.19 [INTENTIONALLY LEFT BLANK]
SECTION 7.20 REORGANIZATION. Notwithstanding anything to the contrary
contained herein, the shareholders of any Fund shall have the right, upon thirty
(30) days' notice to the Purchaser, to cause any Existing Investment Company to
transfer all or substantially all of its assets, including without limitation
all of its rights and obligations in or pursuant to any Underwriting Agreement,
Investment Management Agreement or Distribution Plan to which it is a party, to
a New Investment Company, or merge with or otherwise combine with a new
Investment Company, for the main purpose of changing such Existing Investment
Company's state of incorporation or organization. Upon such transfer, merger or
combination (a) each such Existing Investment Company shall cease to be an
Investment Company hereunder; (b) each such New Investment Company shall be
deemed to be an Investment Company hereunder; and (c) Schedule III and Exhibits
C, D, E, and F shall be deemed to be amended to reflect the changes described in
subsections (a) and (b) of this Section 7.20; PROVIDED, HOWEVER, that such
merger or combination shall not have an Adverse Effect.
56
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective officers, or other authorized signatories, thereunto duly
authorized, on the date indicted below effective as of the date first above
written.
Lightning Finance Company Limited
as Purchaser
Date: August 1, 1999 By: /s/ Xxxxx Xxxxx
Name: XXXXX XXXXX
Title: Director
Franklin/Xxxxxxxxx Distributors, Inc.
as Seller
Date: August 1, 1999 By: /s/ Xxxxxxx Xxxxxx
Name: XXXXXXX XXXXXX
Title: Senior Vice President
Franklin Resources, Inc.
as Seller Parent
Date: August 1, 1999 By: /s/ Xxxxxx X. Xxxxxxxx
Name: XXXXXX X. XXXXXXXX
Title: Senior Vice President
