SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
---------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number: 1-13654
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LIBERTY FINANCIAL COMPANIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3260640
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 Atlantic Avenue, Boston, Massachusetts 02210-2214
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 722-6000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
There were 46,150,643 shares of the registrant's Common Stock, $.01 par
value, and 324,759 shares of the registrant's Series A Convertible Preferred
Stock, $.01 par value, outstanding as of October 15, 1998.
Exhibit Index - Page 21 Page 1 of 135
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997
Consolidated Income Statements for the Three Months
and Nine Months Ended September 30, 1998 and 1997
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
<TABLE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
<CAPTION>
September 30 December 31
1998 1997
------------ -------------
Unaudited
ASSETS
<S> <C> <C>
Assets:
Investments $12,580.8 $12,343.5
Cash and cash equivalents 1,387.6 1,290.1
Accrued investment income 162.3 165.0
Deferred policy acquisition costs 281.5 232.0
Value of insurance in force 55.3 53.3
Deferred distribution costs 124.3 108.1
Intangible assets 297.7 199.0
Other assets 272.3 131.4
Separate account assets 1,433.5 1,329.2
----------- -----------
$16,595.3 $15,851.6
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policyholder balances $12,342.5 $12,086.1
Notes payable to affiliates 229.0 229.0
Revolving credit facilities 123.5 26.5
Payable for investments purchased
and loaned 931.4 722.1
Other liabilities 280.2 310.4
Separate account liabilities 1,395.1 1,264.0
----------- ------------
Total liabilities 15,301.7 14,638.1
----------- ------------
Series A redeemable convertible preferred
stock, par value $.01; authorized, issued
and outstanding 324,759 shares in 1998 and
327,006 shares in 1997 15.1 14.6
----------- ------------
Stockholders' Equity:
Common stock, par value $.01; authorized
100,000,000 shares, issued 45,987,826
shares in 1998 and 44,706,398 shares in 1997 0.5 0.4
Additional paid-in capital 896.5 866.5
Accumulated other comprehensive income 54.7 83.0
Retained earnings 331.3 251.5
Cost of common stock held in treasury
(9,465 shares at December 31, 1997) 0.0 (0.3)
Unearned compensation (4.5) (2.2)
----------- ------------
Total stockholders' equity 1,278.5 1,198.9
----------- ------------
$16,595.3 $15,851.6
=========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED INCOME STATEMENTS
(in millions, except per share data)
Unaudited
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment income $202.7 $212.0 $612.4 $632.2
Interest credited to policyholders (143.3) (150.9) (425.6) (445.4)
-------- -------- -------- --------
Investment spread 59.4 61.1 186.8 186.8
-------- -------- -------- --------
Net realized investment gains 4.2 6.1 4.0 22.1
-------- -------- -------- --------
Fee income:
Investment advisory and administrative
fees 58.4 56.1 174.5 161.8
Distribution and service fees 13.2 12.6 39.0 36.6
Transfer agency fees 11.9 12.3 36.6 35.6
Surrender charges and net commissions 8.2 9.5 26.2 27.0
Separate account fees 5.4 4.7 15.5 12.7
-------- -------- -------- --------
Total fee income 97.1 95.2 291.8 273.7
-------- -------- -------- --------
Expenses:
Operating expenses (78.5) (77.8) (238.5) (229.2)
Amortization of deferred policy
acquisition costs (15.5) (18.3) (52.8) (54.0)
Amortization of deferred distribution
costs (9.8) (8.5) (27.9) (25.4)
Amortization of value of insurance in
force (1.2) (2.2) (3.9) (7.3)
Amortization of intangible assets (3.6) (3.7) (10.7) (10.2)
Interest expense, net (2.7) (4.1) (10.5) (13.0)
-------- -------- -------- --------
Total expenses (111.3) (114.6) (344.3) (339.1)
-------- -------- -------- --------
Pretax income 49.4 47.8 138.3 143.5
Income tax expense (15.9) (14.9) (43.6) (45.6)
-------- -------- -------- --------
Net income $33.5 $32.9 $94.7 $97.9
======== ======== ======== ========
Net income per share - basic $0.73 $0.74 $2.08 $2.23
======== ======== ======== ========
Net income per share - assuming
dilution $0.71 $0.70 $2.00 $2.10
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Unaudited
<CAPTION>
Nine Months Ended
September 30
--------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $94.7 $97.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 54.3 54.3
Interest credited to policyholders 425.6 445.4
Net realized investment gains (4.0) (22.1)
Net amortization on investments 101.9 22.0
Change in deferred policy acquisition costs (25.8) (10.3)
Net change in other assets and liabilities (26.1) 0.3
--------- --------
Net cash provided by operating activities 620.6 587.5
--------- --------
Cash flows from investing activities:
Investments purchased available for sale (5,207.4) (3,006.4)
Investments sold available for sale 4,060.6 1,414.2
Investments matured available for sale 938.2 1,230.5
Change in policy loans, net (24.8) (15.0)
Change in mortgage loans, net 4.3 4.6
Acquisitions, net of cash acquired (96.4) 0.0
Other 11.3 (15.7)
--------- --------
Net cash used in investing activities (314.2) (387.8)
--------- --------
Cash flows from financing activities:
Withdrawals from policyholder accounts (1,371.6) (948.9)
Deposits to policyholder accounts 1,089.3 738.4
Securities lending (25.0) 415.9
Change in revolving credit facilities 97.0 (20.0)
Exercise of stock options 5.8 6.3
Dividends paid (4.4) (3.5)
--------- --------
Net cash (used in) provided by financing
activities (208.9) 188.2
--------- --------
Increase in cash and cash equivalents 97.5 387.9
Cash and cash equivalents at beginning of period 1,290.1 875.8
--------- ---------
Cash and cash equivalents at end of period $1,387.6 $1,263.7
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
Unaudited
<CAPTION>
Accum.
Addt'l. Other Total
Common Paid-In Comprehen. Retained Treas. Unearned Stockholders'
Stock Capital Income Earnings Stock Compen. Equity
------- ------- ---------- -------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December
31, 1997 $0.4 $866.5 $83.0 $251.5 $(0.3) $(2.2) $1,198.9
Effect of
stock-based
compensation
plans 0.1 11.1 0.3 (2.3) 9.2
Common stock
issued for
acquisitions 9.0 9.0
Accretion to
face value of
preferred stock (0.6) (0.6)
Common stock
dividends 9.9 (13.6) (3.7)
Preferred
stock
dividends (0.7) (0.7)
Net income 94.7 94.7
Other
comprehensive
income,
net of tax (28.3) (28.3)
------- ------- ---------- -------- ------ --------- ------------
Balance,
September
30, 1998 $0.5 $896.5 $54.7 $331.3 $0.0 $ (4.5) $1,278.5
======= ======= ========== ======== ====== ========= ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. General
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, that management
considers necessary for a fair presentation of the Company's financial
position and results of operations as of and for the interim periods
presented. Certain footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Therefore, these
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements contained in the Company's 1997
Annual Report to Stockholders. The results of operations for the three
months and nine months ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full year. Certain
previously reported amounts have been reclassified to conform to the
current period presentation.
2. Industry Segment Information
The Company is an asset accumulation and management company which
operates in two industry segments: retirement-oriented insurance
(principally annuities) and asset management. The annuity insurance
business is conducted at Keyport Life Insurance Company ("Keyport").
Keyport generates investment spread income from the investment portfolio
which supports policyholder balances associated with its fixed and indexed
annuity business and its closed block of single premium whole life
insurance. The annuity insurance business also derives fee income from the
administration of fixed, indexed and variable annuity contracts. The asset
management business is conducted principally at The Colonial Group, Inc.
("Colonial"), an investment advisor, distributor and transfer agent to
mutual funds, Stein Roe & Farnham Incorporated ("Stein Roe"), a diversified
investment advisor, Newport Pacific Management, Inc. ("Newport"), an
investment advisor to mutual funds and institutional accounts specializing
in Asian equity markets, The Crabbe Huson Group, Inc. ("Crabbe Huson"), an
investment advisor to mutual funds and institutional accounts, Progress
Investment Management Company, an investment advisor to institutional
accounts, and Liberty Asset Management Company ("LAMCO"), an investment
advisor to mutual funds. The asset management business derives fee income
from investment products and services.
Approximately 66% of the Company's income before interest expense,
amortization of intangible assets, net realized gains and income taxes for
the nine months ended September 30, 1998 was attributable to the Company's
annuity insurance business, with the remaining 34% attributable to the
Company's asset management activities. This compares to approximately 63%
and 37%, respectively, for the nine months ended September 30, 1997.
3. Investments
Investments, all of which pertain to the Company's annuity insurance
operations, were comprised of the following (in millions):
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
Fixed maturities $11,447.2 $11,246.5
Equity securities 55.5 40.8
Mortgage loans 56.4 60.7
Policy loans 579.5 554.7
Other invested assets 442.2 440.8
------------ -----------
Total $12,580.8 $12,343.5
============ ===========
</TABLE>
The Company's general investment policy is to hold fixed maturity assets
for long-term investment and, accordingly, the Company does not have a
trading portfolio. To provide for maximum portfolio flexibility and enable
appropriate tax planning, the Company classifies its entire fixed
maturities investments as "available for sale" which are carried at fair
value.
<PAGE>
4. Net Income Per Share
On December 10, 1997, the Company effected a three-for-two common stock
split in the form of a 50 percent stock dividend. The following table sets
forth the computation of net income per share-basic and net income per
share-assuming dilution:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- ---------------------
1998 1997 1998 1997
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income $33.5 $32.9 $94.7 $97.9
Preferred stock dividends (0.2) (0.2) (0.7) (0.7)
----------- ---------- ---------- ---------
Numerator for net
income per share - basic
- income available to common
stockholders 33.3 32.7 94.0 97.2
Effect of dilutive securities:
Preferred stock dividends 0.2 0.2 0.7 0.7
----------- ---------- ---------- ----------
0.2 0.2 0.7 0.7
----------- ---------- ---------- ----------
Numerator for net income per
share - assuming dilution -
income available to common
stockholders after assumed
conversions $33.5 $32.9 $94.7 $97.9
Denominator:
Denominator for
net income per
share - basic - weighted -
average shares 45,440,311 44,093,736 45,110,661 43,606,920
Effect of dilutive securuties:
Employee stock options 1,339,023 2,436,131 1,651,337 2,410,223
Convertible preferred stock 514,493 517,929 516,090 518,130
----------- ---------- ---------- ----------
Dilutive potential common shares 1,853,516 2,954,060 2,167,427 2,928,353
----------- ---------- ---------- ----------
Denominator for net income per
share - assuming dilution
- adjusted weighted-average
shares and assumed
conversions 47,293,827 47,047,796 47,278,088 46,535,273
=========== ========== ========== ==========
Net income per share - basic $0.73 $0.74 $2.08 $2.23
=========== ========== ========== ==========
Net income per share - assuming
dilution $0.71 $0.70 $2.00 $2.10
=========== ========== ========== ==========
</TABLE>
5. Recent Accounting Change
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS 130
had no impact on the Company's net income or stockholders' equity. SFAS
130 requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in
stockholders' equity, to be included in accumulated other comprehensive
income. Prior year financial statements have been reclassified to conform
to the requirements of SFAS 130.
Comprehensive income was comprised of the following (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1998 1997 1998 1997
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Net income $33.5 $32.9 $94.7 $97.9
Other comprehensive income, net of tax:
Change in net unrealized
investment gains (30.8) 24.5 (28.3) 26.7
--------- -------- -------- --------
Comprehensive income $2.7 $57.4 $66.4 $124.6
========= ======== ======== ========
</TABLE>
<PAGE>
6. Recent Accounting Pronouncement
In June 1998, Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities," was
issued. This statement standardizes the accounting for derivative
instruments and the derivative portion of certain other contracts that have
similar characteristics by requiring that an entity recognize those
instruments at fair value. This statement also requires a new method of
accounting for hedging transactions, prescribes the type of items and
transactions that may be hedged, and specifies detailed criteria to be met
to qualify for hedge accounting. This statement is effective for fiscal
years beginning after June 15, 1999. Earlier adoption is permitted. The
Company is evaluating the impact of this statement. Upon adoption, the
Company will be required to record a cumulative effect adjustment to
reflect this accounting change. At this time, the Company has not
completed its analysis and evaluation of the requirements and the impact of
this statement.
7. Acquisitions
On August 13, 1998, the Company entered into an agreement to acquire
100% of the capital stock of Societe Generale Asset Management Corp.
("SGAM"), a registered investment advisor with approximately $4.1 billion
of assets under management as of September 30, 1998. The purchase price
for this transaction is $205.0 million, subject to adjustment in certain
circumstances, consisting of $198.0 million in cash and $7.0 million in the
Company's common stock. In addition, the Company has agreed to pay up to
an additional $11.0 million in deferred payments contingent upon the
attainment of certain earnings objectives by SGAM. The acquisition, which
is subject to certain closing conditions, is expected to be completed in
early 1999 and will be accounted for as a purchase.
On August 31, 1998, the Company completed an agreement to acquire
certain assets and assume certain liabilities of Progress Investment
Management Company, a registered investment advisor to institutional
accounts with approximately $2.1 billion in assets under management as
of September 30, 1998. On September 30, 1998, the Company completed an
agreement to acquire certain assets and assume certain liabilities of Crabbe
Huson, a registered investment advisor with approximately $3.3 billion in
assets under management as of that date. The combined purchase price for
these transactions was approximately $104.6 million, including costs of
acquisitions, and consisted of $95.6 million in cash and $9.0 million
in the Company's common stock. In addition, the Company has agreed to
pay up to an additional $61.5 million in cash and common stock over five
years, contingent upon the attainment of certain earnings objectives. These
transactions were accounted for as purchases and resulted in the recording
of goodwill and other intangible assets of approximately $102.1 million.
8. Credit Facility
In connection with the Crabbe Huson acquisition, the Company entered
into a $100.0 million revolving credit facility with a commercial bank (the
"Bridge Facility"). The Bridge Facility matures on March 30, 1999 and
bears interest at a per annum rate equal to LIBOR plus twenty-five basis
points. The Company borrowed $90.0 million under the Bridge Facility to
finance the acquisition of Crabbe Huson.
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of Operations
Net Income was $33.5 million or $0.71 per share for the quarter ended
September 30, 1998 compared to $32.9 million or $0.70 per share for the
quarter ended September 30, 1997. For the first nine months of 1998, net
income was $94.7 million or $2.00 per share compared to $97.9 million or
$2.10 per share for the first nine months of 1997. The decrease for the nine
months resulted largely from lower net realized investment gains in 1998
compared to 1997 and higher operating expenses. Partially offsetting these
items were higher fee income and lower interest expense, net and income tax
expense.
Pretax Income was $49.4 million for the quarter ended September 30, 1998
compared to $47.8 million for the quarter ended September 30, 1997. For the
first nine months of 1998, pretax income was $138.3 million compared to
$143.5 million for the first nine months of 1997. The decrease for the nine
months resulted largely from lower net realized investment gains in 1998
compared to 1997 and higher operating expenses. Partially offsetting these
items were higher fee income and lower interest expense, net.
Investment Spread is the amount by which investment income earned on the
Company's investments exceeds interest credited on policyholder balances.
Investment spread was $59.4 million for the quarter ended September 30, 1998
compared to $61.1 million for the quarter ended September 30, 1997. The
amount by which the average yield on investments exceeds the average interest
credited rate on policyholder balances is the investment spread percentage.
The investment spread percentage for the quarter ended September 30, 1998 was
1.63% compared to 1.80% for the quarter ended September 30, 1997. For the
first nine months of 1998 and 1997, investment spread was $186.8 million. The
investment spread percentage was 1.76% for the first nine months of 1998
compared to 1.89% for the first nine months of 1997.
Investment income was $202.7 million for the quarter ended September 30,
1998 compared to $212.0 million for the quarter ended September 30, 1997. The
decrease of $9.3 million in 1998 compared to 1997 primarily relates to a
$16.9 million decrease resulting from a lower average investment yield,
partially offset by a $7.6 million increase as a result of the higher level
of average invested assets. The 1998 investment income was net of $17.9
million of S&P 500 Index call option amortization expense related to the
Company's equity-indexed annuities compared to $13.6 million in 1997. The
average investment yield was 6.27% for the quarter ended September 30, 1998
compared to 6.82% for the quarter ended September 30, 1997. For the first
nine months of 1998, investment income was $612.4 million compared to $632.2
million for the first nine months of 1997. The decrease of $19.8 million in
1998 compared to 1997 primarily relates to a $45.8 million decrease resulting
from a lower average investment yield, partially offset by a $26.0 million
increase as a result of the higher level of average invested assets. The 1998
investment income was net of $53.1 million of S&P 500 Index call option
amortization expense related to the Company's equity-indexed annuities
compared to $31.2 million in 1997. The average investment yield was 6.41% for
the first nine months of 1998 compared to 6.91% for the first nine months of
1997.
Interest credited to policyholders totaled $143.3 million for the quarter
ended September 30, 1998 compared to $150.9 million for the quarter ended
September 30, 1997. The decrease of $7.6 million in 1998 compared to 1997
primarily relates to an $11.5 million decrease resulting from a lower average
interest credited rate, partially offset by a $3.9 million increase as a
result of a higher level of average policyholder balances. Policyholder
balances averaged $12.4 billion (including $10.6 billion of fixed products,
consisting of fixed annuities and the closed block of single premium whole
life insurance, and $1.8 billion of equity-indexed annuities) for the quarter
ended September 30, 1998 compared to $12.0 billion (including $10.7 billion
of fixed products and $1.3 billion of equity-indexed annuities) for the
quarter ended September 30, 1997. The average interest credited rate was
4.64% (5.31% on fixed products and 0.85% on equity-indexed annuities) for the
quarter ended September 30, 1998 compared to 5.02% (5.52% on fixed products
and 0.85% on equity-indexed annuities) for the quarter ended September 30,
1997. Keyport's equity-indexed annuities credit interest to the policyholder
at a "participation rate" equal to a portion (ranging for existing policies
from 40% to 95%) of the change in value of the S&P 500 Index. Keyport's
equity-indexed annuities also provide full guarantee of principal if held to
term, plus interest at 0.85% annually. For each of the periods presented, the
interest credited to equity-indexed policyholders related to the
participation rate is reflected net of income recognized on the S&P 500 Index
call options resulting in a 0.85% net credited rate. For the first nine
months of 1998, interest credited to policyholders totaled $425.6 million
compared to $445.4 million for the first nine months of 1997. The decrease of
$19.8 million in 1998 compared to 1997 primarily relates to a $32.5 million
decrease resulting from a lower average interest credited rate, partially
offset by a $12.7 million increase as a result of a higher level of average
policyholder balances. Policyholder balances averaged $12.2 billion
(including $10.5 billion of fixed products, consisting of fixed annuities and
the closed block of single premium whole life insurance, and $1.7 billion of
equity-indexed annuities) for the first nine months of 1998 compared to $11.8
billion (including $10.7 billion of fixed products and $1.1 billion of
equity-indexed annuities) for the first nine months of 1997. The average
interest credited rate was 4.65% (5.31% on fixed products and 0.85% on
equity-indexed annuities) for the first nine months of 1998 compared to 5.02%
(5.44% on fixed products and 0.85% on equity-indexed annuities) for the first
nine months of 1997.
Average investments in the Company's general account (computed without
giving effect to SFAS 115), including a portion of the Company's cash and
cash equivalents, were $12.9 billion for the quarter ended September 30, 1998
compared to $12.4 billion for the quarter ended September 30, 1997. For the
first nine months of 1998, such average investments were $12.7 billion
compared to $12.2 billion for the first nine months of 1997. These increases
primarily relate to net insurance cash flows for the twelve months ended
September 30, 1998.
Net Realized Investment Gains were $4.2 million for the quarter ended
September 30, 1998 compared to $6.1 million for the quarter ended September
30, 1997. For the first nine months of 1998, net realized investment gains
were $4.0 million, which is net of losses of $7.6 million for certain fixed
maturity investments where the decline in value was determined to be other
than temporary, compared to $22.1 million for the first nine months of 1997.
Sales of fixed maturity investments generally are made to maximize total
return.
Investment Advisory and Administrative Fees are based on the market value
of assets managed for mutual funds, private clients and institutional
investors. Investment advisory and administrative fees were $58.4 million for
the quarter ended September 30, 1998 compared to $56.1 million for the
quarter ended September 30, 1997. For the first nine months of 1998,
investment advisory and administrative fees were $174.5 million compared to
$161.8 million for the first nine months of 1997. These increases during 1998
compared to 1997 primarily reflect a higher level of average fee-based assets
under management.
Average fee-based assets under management were $40.7 billion for the
quarter ended September 30, 1998 compared to $38.4 billion for the quarter
ended September 30, 1997. For the first nine months of 1998, average
fee-based assets were $40.2 billion compared to $36.9 billion for the first
nine months of 1997. These increases during 1998 compared to 1997 resulted
from both acquisitions and net sales for the twelve months ended September
30, 1998. Investment advisory and administrative fees were 0.57% and 0.58% of
average fee-based assets under management for the quarters ended September
30, 1998 and 1997, respectively. For the first nine months of 1998 and 1997,
such percentages were 0.58%.
The amount of fee-based assets under management is affected by product
sales and redemptions and by changes in the market values of such assets
under management. Fee-based assets under management and changes in such
assets are set forth in the tables below (in billions).
<TABLE>
Fee-Based Assets Under Management
<CAPTION>
As of September 30
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Mutual Funds:
Intermediary-distributed $16.7 $16.6
Direct-marketed 6.5 7.2
Closed-end 2.2 2.2
Variable annuity 1.2 1.3
--------- ---------
26.6 27.3
Private Capital Management 7.0 6.4
Institutional 10.7 5.4
--------- ---------
Total Fee-Based Assets Under Management* $44.3 $39.1
========= =========
______________
* As of September 30, 1998 and 1997, Keyport's insurance
assets of $13.2 billion and $12.8 billion, respectively,
bring total assets under management to $57.5 billion and
$51.9 billion, respectively.
</TABLE>
<PAGE>
<TABLE>
Changes in Fee-Based Assets Under Management
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fee-based assets under management
- beginning $41.0 $37.5 $38.7 $35.9
Sales and reinvestments 2.1 1.9 6.2 5.2
Redemptions and withdrawals (1.7) (1.5) (4.8) (5.0)
Acquisitions 5.4 0.0 5.4 0.0
Market appreciation (depreciation) (2.5) 1.2 (1.2) 3.0
--------- --------- --------- ---------
Fee-based assets under management
- ending $44.3 $39.1 $44.3 $39.1
========= ========= ========= =========
</TABLE>
Distribution and Service Fees are based on the market value of the
Company's intermediary-distributed mutual funds. Distribution fees of 0.75%
are earned on the average assets attributable to such funds sold with
contingent deferred sales charges, and service fees of 0.25% (net of amounts
passed on to selling brokers) are generally earned on the total of such
average mutual fund assets. These fees totaled $13.2 million for the quarter
ended September 30, 1998 compared to $12.6 million for the quarter ended
September 30, 1997. For the first nine months of 1998, distribution and
service fees were $39.0 million compared to $36.6 million for the first nine
months of 1997. These increases during 1998 compared to 1997 were primarily
attributable to the higher asset levels of mutual funds with contingent
deferred sales charges. As a percentage of weighted average assets,
distribution and service fees were approximately 0.71% for the quarters ended
September 30, 1998 and 1997. For the first nine months of 1998 and 1997, such
percentages were 0.72% and 0.70%, respectively.
Transfer Agency Fees are based on the market value of assets managed in
the Company's intermediary-distributed and direct-marketed mutual funds. Such
fees were $11.9 million on average assets of $24.4 billion for the quarter
ended September 30, 1998 and $12.3 million on average assets of $24.8 billion
for the quarter ended September 30, 1997. For the first nine months of 1998,
transfer agency fees were $36.6 million on average assets of $24.8 billion
and $35.6 million on average assets of $24.1 billion for the first nine
months of 1997. As a percentage of total average mutual fund assets under
management, transfer agency fees were approximately 0.20% for the quarters
ended September 30, 1998 and 1997. For the first nine months of 1998 and
1997, such percentages were also 0.20%.
Surrender Charges and Net Commissions are revenues earned on: a) the early
withdrawal of annuity policyholder balances and redemptions of the
intermediary-distributed mutual funds which were sold with contingent
deferred sales charges; b) the distribution of the Company's
intermediary-distributed mutual funds (net of the substantial portion of such
commissions that is passed on to the selling brokers); and c) the sales of
non-proprietary products in the Company's bank marketing businesses (net of
commissions that are paid to the Company's client banks and brokers). Total
surrender charges and net commissions were $8.2 million for the quarter ended
September 30, 1998 compared to $9.5 million for the quarter ended September
30, 1997. For the first nine months of 1998, total surrender charges and net
commissions were $26.2 million compared to $27.0 million for the first nine
months of 1997.
Surrender charges on fixed, equity-indexed and variable annuity withdrawals
generally are assessed at declining rates applied to policyholder withdrawals
during the first five to seven years of the contract; contingent deferred
sales charges on mutual fund redemptions are assessed at declining rates on
amounts redeemed generally during the first six years. Such charges totaled
$5.5 million for the quarters ended September 30, 1998 and 1997. For the
first nine months of 1998, surrender charges were $17.3 million compared to
$15.6 million for the first nine months of 1997. Total annuity withdrawals
represented 12.4% and 10.9% of the total average annuity policyholder and
separate account balances for the quarters ended September 30, 1998 and 1997,
respectively. For the first nine months of 1998 and 1997, the corresponding
percentages were 13.7% and 11.0%, respectively. Net commissions were $2.7
million for the quarter ended September 30, 1998 and $4.0 million for the
quarter ended September 30, 1997. For the first nine months of 1998, net
commissions were $8.9 million compared to $11.4 million for the first nine
months of 1997.
Separate Account Fees are primarily mortality and expense charges earned on
variable annuity and variable life policyholder balances. These fees, which
are based on the market values of the assets in separate accounts supporting
the contracts were $5.4 million for the quarter ended September 30, 1998
compared to $4.7 million for the quarter ended September 30, 1997. For the
first nine months of 1998, separate account fees were $15.5 million compared
to $12.7 million for the first nine months of 1997. Such fees represented
1.54% and 1.61% of average variable annuity and variable life separate
account balances for the quarters ended September 30, 1998 and 1997,
respectively. For the first nine months of 1998 and 1997, such percentages
were 1.50% and 1.56%, respectively.
Operating Expenses primarily represent compensation, marketing, and other
general and administrative expenses. These expenses were $78.4 million for
the quarter ended September 30, 1998 compared to $77.8 million for the
quarter ended September 30, 1997. For the first nine months of 1998,
operating expenses were $238.4 million compared to $229.2 million for the
first nine months of 1997. These increases during 1998 compared to 1997 were
primarily due to increases in compensation and marketing expenses. Operating
expenses expressed as a percent of average total assets under management were
0.59% for the quarter ended September 30, 1998 compared to 0.61% for the
quarter ended September 30, 1997. For the first nine months of 1998 and 1997,
such percentages were 0.60% and 0.62%, respectively.
Amortization of Deferred Policy Acquisition Costs relates to the costs of
acquiring new business which vary with, and are primarily related to, the
production of new annuity business. Such costs include commissions, costs of
policy issuance and underwriting and selling expenses. Amortization was $15.5
million for the quarter ended September 30, 1998 compared to $18.3 million
for the quarter ended September 30, 1997. For the first nine months of 1998,
amortization of deferred policy acquisition costs was $52.8 million compared
to $54.0 million for the first nine months of 1997. Amortization expense
represented 26.1% and 30.0% of investment spread for the quarters ended
September 30, 1998 and 1997, respectively. For the first nine months of 1998
and 1997, the corresponding percentages were 28.3% and 28.9%, respectively.
Amortization of Deferred Distribution Costs relates to the deferred sales
commissions acquired in connection with the Colonial acquisition and the
distribution of mutual fund shares sold with contingent deferred sales
charges. Amortization was $9.8 million for the quarter ended September 30,
1998 compared to $8.5 million for the quarter ended September 30, 1997. For
the first nine months of 1998, amortization of deferred distribution costs
was $27.9 million compared to $25.4 million for the first nine months of
1997. These increases during 1998 compared to 1997 were primarily
attributable to the continuing sales of such fund shares during 1998 and 1997.
Amortization of Value of Insurance in Force relates to the
actuarially-determined present value of projected future gross profits from
policies in force at the date of acquisition. Amortization totaled $1.2
million for the quarter ended September 30, 1998 compared to $2.2 million for
the quarter ended September 30, 1997. For the first nine months of 1998,
amortization of value of insurance in force was $3.9 million compared to $7.3
million for the first nine months of 1997. These decreases during 1998
compared to 1997 were primarily due to reduced amortization related to a
change in mortality assumptions.
Amortization of Intangible Assets relates to goodwill and certain
identifiable intangible assets arising from business combinations accounted
for as purchases. Amortization was $3.6 million for the quarter ended
September 30, 1998 compared to $3.7 million for the quarter ended September
30, 1997. For the first nine months of 1998, amortization of intangible
assets was $10.7 million compared to $10.2 million for the first nine months
of 1997.
Interest Expense, Net was $2.7 million for the quarter ended September 30,
1998 compared to $4.1 million for the quarter ended September 30, 1997. For
the first nine months of 1998, interest expense, net was $10.5 million
compared to $13.0 million for the first nine months of 1997. These decreases
during 1998 compared to 1997 were due to lower interest expense related to
Colonial's credit facility which is utilized to finance the sale of shares of
mutual funds which have contingent deferred sales charges and to higher
interest income which is netted against interest expense.
Income Tax Expense was $15.9 million or 32.2% of pretax income for the
quarter ended September 30, 1998 compared to $14.9 million, or 31.2% of
pretax income for the quarter ended September 30, 1997. For the first nine
months of 1998, income tax expense was $43.6 million or 31.5% of pretax
income compared to $45.6 million, or 31.8% of pretax income for the first
nine months of 1997.
Financial Condition
Stockholders' Equity as of September 30, 1998 was $1.28 billion compared to
$1.20 billion as of December 31, 1997. Net income for the first nine months
of 1998 was $94.7 million and cash dividends on the Company's preferred and
common stock totaled $4.4 million. Common stock totaling $9.0 million was
issued in connection with the acquisition of Crabbe Huson and $5.7 million
was issued in connection with the exercise of stock options. In addition, the
exercise of certain stock options resulted in a federal income tax benefit to
the Company of $2.5 million which was credited to additional paid-in capital.
A decrease in accumulated other comprehensive income, net unrealized
investment gains, net of adjustments to deferred policy acquisition costs and
value of insurance in force, during the period decreased stockholders' equity
by $28.3 million.
Book Value Per Share amounted to $27.80 at September 30, 1998 compared to
$26.82 at December 31, 1997. Excluding net unrealized gains on investments,
book value per share amounted to $26.61 at September 30, 1998 and $24.97 at
December 31, 1997. As of September 30, 1998, there were 46.0 million common
shares outstanding compared to 44.7 million shares as of December 31, 1997.
Investments not including cash and cash equivalents totaled $12.6 billion
at September 30, 1998 compared to $12.3 billion at December 31, 1997. The
increase primarily reflects general account investment earnings.
The Company manages the substantial majority of its invested assets
internally. The Company's general investment policy is to hold fixed maturity
assets for long-term investment and, accordingly, the Company does not have a
trading portfolio. To provide for maximum portfolio flexibility and
appropriate tax planning, the Company classifies its entire fixed maturities
investments as "available for sale" and accordingly carries such investments
at fair value. The Company's total investments at September 30, 1998 and
December 31, 1997 reflected net unrealized gains of $204.6 million and $280.2
million, respectively, relating to its fixed maturity and equity portfolios.
Approximately $11.3 billion, or 81.6%, of the Company's general account
investments at September 30, 1998, was rated by Standard & Poor's
Corporation, Moody's Investors Service or under comparable statutory rating
guidelines established by the National Association of Insurance Commissioners
("NAIC"). At September 30, 1998, the carrying value of investments in below
investment grade securities totaled $1.2 billion, or 8.3% of general account
investments of $13.8 billion. Below investment grade securities generally
provide higher yields and involve greater risks than investment grade
securities because their issuers typically are more highly leveraged and more
vulnerable to adverse economic conditions than investment grade issuers. In
addition, the trading market for these securities may be more limited than
for investment grade securities.
Management of the Company's Investments
Asset-liability duration management is utilized by the Company to minimize
the risks of interest rate fluctuations and policyholder withdrawals. The
Company believes that its fixed and equity-indexed policyholder balances
should be backed by investments, principally comprised of fixed maturities,
that generate predictable rates of return. The Company does not have a
specific target rate of return. Instead, its rates of return vary over time
depending on the current interest rates, the slope of the yield curve and the
excess at which fixed maturities are priced over the yield curve. Its
portfolio strategy is designed to achieve acceptable risk-adjusted returns by
effectively managing portfolio liquidity and credit quality.
The Company conducts its investment operations to closely match the
duration of the assets in its investment portfolio to its policyholder
balances. The Company seeks to achieve an acceptable spread between what it
earns on its assets and interest credited on its policyholder balances by
investing principally in fixed maturities. The Company's fixed-rate products
incorporate surrender charges to encourage persistency and to make the cost
of its policyholder balances more predictable. Approximately 80.5% of the
Company's fixed annuity policyholder balances were subject to surrender
charges at September 30, 1998.
As part of its asset-liability management discipline, the Company conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer simulations, the investment portfolio has been
constructed with a view toward maintaining a desired investment spread
between the yield on portfolio assets and the interest credited on
policyholder balances under a variety of possible future interest rate
scenarios. At September 30, 1998, the effective duration of the Company's
fixed maturities investments (including certain cash and cash equivalents)
was approximately 2.9. Effective duration is a common measure for the price
sensitivity of a fixed-income portfolio to changes in interest rates. It
measures the approximate percentage change in the market value of a portfolio
when interest rates change by 100 basis points. This measure includes the
impact of estimated changes in portfolio cash flows from features such as
prepayment and bond calls.
As a component of its investment strategy and to reduce its exposure to
interest rate risk, the Company utilizes interest rate swap agreements ("swap
agreements") and interest rate cap agreements ("cap agreements") to match
assets more closely to liabilities. Swap agreements are agreements to
exchange with a counterparty interest rate payments of differing character
(e.g. fixed-rate payments exchanged for variable-rate payments) based on an
underlying principal balance (notional principal) to hedge against interest
rate changes. The Company currently utilizes swap agreements to reduce asset
duration and to better match interest rates earned on longer-term fixed rate
assets with interest credited to policyholders. The Company had 38
outstanding swap agreements with an aggregate notional principal amount of
$2.3 billion and 45 outstanding swap agreements with an aggregate notional
principal amount of $2.6 billion as of September 30, 1998 and December 31,
1997, respectively.
Cap agreements are agreements with a counterparty which require the payment
of a premium for the right to receive payments for the difference between the
cap interest rate and a market interest rate on specified future dates based
on an underlying principal balance (notional principal) to hedge against
rising interest rates. The Company had interest rate cap agreements with an
aggregate notional amount of $250.0 million as of September 30, 1998 and
December 31, 1997.
With respect to the Company's equity-indexed annuities, the Company buys
call options on the S&P 500 Index to hedge its obligation to provide returns
based upon this index. The Company had call options with a book value of
$329.6 million and $323.3 million as of September 30, 1998 and December 31,
1997, respectively.
There are risks associated with some of the techniques the Company uses to
match its assets and liabilities. The primary risk associated with swap, cap
and call option agreements is counterparty nonperformance. The Company
believes that the counterparties to its swap, cap and call option agreements
are financially responsible and that the counterparty risk associated with
these transactions is minimal. In addition, swap and cap agreements have
interest rate risk and call options have stock market risk. These swap and
cap agreements hedge fixed-rate assets and the Company expects that any
interest rate movements that adversely affect the market value of swap and
cap agreements would be offset by changes in the market values of such fixed
rate assets. However, there can be no assurance that these hedges will be
effective in offsetting the potential adverse effects of changes in interest
rates. Similarly, the call options hedge the Company's obligations to
provide returns on equity-indexed annuities based upon the S&P 500 Index, and
the Company believes that any stock market movements that adversely affect
the market value of S&P 500 Index call options would be substantially offset
by a reduction in policyholder liabilities. However, there can be no
assurance that these hedges will be effective in offsetting the potentially
adverse effects of changes in S&P 500 Index levels. Keyport's profitability
could be adversely affected if the value of its swap and cap agreements
increase less than (or decrease more than) the change in the market value of
its fixed rate assets and/or if the value of its S&P 500 Index call options
increase less than (or decrease more than) the value of the guarantees made
to equity-indexed policyholders.
In June 1998, Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities," was issued.
This statement standardizes the accounting for derivative instruments and the
derivative portion of certain other contracts that have similar
characteristics by requiring that an entity recognize those instruments at
fair value. This statement also requires a new method of accounting for
hedging transactions, prescribes the type of items and transactions that may
be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting. This statement is effective for fiscal years beginning after
June 15, 1999. Earlier adoption is permitted. The Company is evaluating the
impact of this statement. Upon adoption, the Company will be required to
record a cumulative effect adjustment to reflect this accounting change. At
this time, the Company has not completed its analysis and evaluation of the
requirements and the impact of this statement.
The Company routinely reviews its portfolio of investment securities. The
Company identifies monthly any investments that require additional
monitoring, and carefully reviews the carrying value of such investments at
least quarterly to determine whether specific investments should be placed on
a nonaccrual basis and to determine declines in value that may be other than
temporary. In making these reviews, the Company principally considers the
adequacy of collateral (if any), compliance with contractual covenants, the
borrower's recent financial performance, news reports, and other externally
generated information concerning the borrower's affairs. In the case of
publicly traded fixed maturities investments, management also considers
market value quotations if available.
Liquidity
The Company is a holding company whose liquidity needs include the
following: (i) operating expenses; (ii) debt service; (iii) dividends on
Preferred Stock and Common Stock; (iv) acquisitions; and (v) working capital
where needed by its operating subsidiaries. The Company's principal sources
of cash are dividends from its operating subsidiaries, and, in the case of
funding for acquisitions and certain long-term capital needs of its
subsidiaries, long-term borrowings, which to date have been from affiliates
of Liberty Mutual Insurance Company ("Liberty Mutual"). In connection with
the Crabbe Huson acquisition, the Company borrowed $90.0 million under the
Bridge Facility.
Current Rhode Island insurance law applicable to Keyport permits the
payment of dividends or distributions, which, together with dividends and
distributions paid during the preceding 12 months, do not exceed the lesser
of (i) 10% of Keyport's statutory surplus as of the preceding December 31 or
(ii) Keyport's statutory net gain from operations for the preceding fiscal
year. Any proposed dividend in excess of this amount is called an
"extraordinary dividend" and may not be paid until it is approved by the
Commissioner of Insurance of the State of Rhode Island. As of September 30,
1998, the amount of dividends that Keyport could pay without such approval
was an additional $65.3 million. Keyport had not paid any dividends since
its acquisition in 1988, until Keyport paid a $5.0 million dividend on
September 30, 1998.
The terms of Colonial's existing credit facility place certain restrictions
on Colonial's ability to pay dividends. Under the terms of the facility,
Colonial could pay dividends of up to $42.4 million as of September 30,
1998. No assurances can be given that future regulatory changes and credit
agreements will not create additional limitations on the ability of the
Company's subsidiaries to pay dividends.
Based upon the historical cash flow of the Company, the Company's current
financial condition and the Company's expectation that there will not be a
material adverse change in the results of operations of the Company and its
subsidiaries during the next twelve months, the Company believes that cash
flow provided by operating activities over this period will provide
sufficient liquidity for the Company to meet its working capital, capital
investment and other operational cash needs, its debt service obligations,
its obligations to pay dividends on the Preferred Stock and its intentions to
pay dividends on the Common Stock. The Company will require additional
external financing in order to finance the acquisition of SGAM. Such
acquisition, which is subject to the satisfaction of certain conditions, is
scheduled to close in early 1999. The Company anticipates that it would
require external sources of liquidity in order to finance material
acquisitions where the purchase price is not paid in equity.
Each of the Company's business segments has its own liquidity needs and
financial resources. In the Company's annuity insurance operations,
liquidity needs and financial resources pertain to the management of the
general account assets and policyholder balances. In the Company's asset
management business, liquidity needs and financial resources pertain to the
investment management and distribution of mutual funds, wealth management and
institutional accounts. The Company expects that, based upon their
historical cash flow and current prospects, these operating subsidiaries will
be able to meet their liquidity needs from internal sources and, in the case
of Colonial, from its credit facility used to finance sales of mutual fund
shares sold with contingent deferred sales charges.
Keyport uses cash for the payment of annuity and life insurance benefits,
operating expenses and policy acquisition costs, and the purchase of
investments. Keyport generates cash from annuity premiums and deposits, net
investment income and from the sales and maturities of fixed investments.
Annuity premiums, maturing investments and net investment income have
historically been sufficient to meet Keyport's cash requirements. Keyport
monitors cash and cash equivalents in an effort to maintain sufficient
liquidity and has strategies in place to maintain sufficient liquidity in
changing interest rate environments. Consistent with the nature of its
obligations, Keyport has invested a substantial amount of its general account
assets in readily marketable securities. As of September 30, 1998, $10.2
billion, or 73.6% of Keyport's general account investments are considered
readily marketable.
To the extent that unanticipated surrenders cause Keyport to sell for
liquidity purposes a material amount of securities prior to their maturity,
such surrenders could have a material adverse effect on the Company. Although
no assurances can be given, Keyport believes that liquidity to fund
anticipated withdrawals would be available through incoming cash flow and the
sale of short-term or floating-rate instruments, thereby precluding the sale
of fixed maturity investments in a potentially unfavorable market.
Year 2000
Many companies and organizations have computer programs that use only two
digits to identify a year in the date field. These programs were designed
and developed without considering the impact of the upcoming change in the
century. If not corrected, this could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions.
In addressing the Year 2000 issue, the Company has substantially completed
an inventory of its computer programs and assessed its Year 2000 readiness.
The Company's computer programs include internally developed programs,
third-party purchased programs and third-party custom developed programs.
For programs which were identified as not being Year 2000 ready, the Company
is in the process of implementing a remedial plan which includes repairing or
replacing the programs and appropriate testing for Year 2000. The Company is
also in the process of identifying and reviewing its non-information
technology systems with respect to Year 2000 issues. In addition, the
Company has initiated communication with third parties to determine the
extent to which the Company's interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000 issues.
The Company is developing, and will continue to develop, contingency plans
for dealing with any adverse effects that become likely in the event the
Company's remediation plans are not successful or third parties fail to
remediate their own Year 2000 issues. If necessary modifications and
conversions are not made, or are not timely completed, or if the systems of
the companies on which the Company's interface system relies are not timely
converted, the Year 2000 issues could have a material impact on the
operations of the Company. However, the Company believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will not pose significant operational problems for its computer
systems.
In the opinion of management, the cost of addressing the Year 2000 issue is
not expected to have a material adverse effect on the Company's financial
condition or its results of operation.
<PAGE>
Effects of Inflation
Inflation has not had a material effect on the Company's consolidated
results of operations. The Company manages its investment portfolio in part
to reduce its exposure to interest rate fluctuations. In general, the market
value of the Company's fixed maturity portfolio increases or decreases in
inverse relationship with fluctuations in interest rates, and the Company's
net investment income increases or decreases in direct relationship with
interest rate changes. For instance, if interest rates decline, the Company's
fixed maturity investments generally will increase in market value, while net
investment income will decrease as fixed maturity investments mature or are
sold and the proceeds are reinvested at reduced rates. However, inflation may
result in increased operating expenses that may not be readily recoverable in
the prices of the services charged by the Company.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.32 The Colonial Group, Inc. Credit Agreement dated as of April 10, 1998
with BankBoston N.A.
12 Statement re Computation of Ratios
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 30, 1998, the Company filed a current report on Form 8-K
in connection with a lawsuit described therein.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBERTY FINANCIAL COMPANIES, INC.
/s/ J. Andy Hilbert
--------------------------------
J. Andy Hilbert
(Duly Authorized Officer and
Chief Financial Officer)
Date: November 5, 1998
<PAGE>
Exhibit Index
Exhibit No. Description Page
- ----------- ------------ -----
10.32 The Colonial Group, Inc. Credit Agreement
dated as of April 10, 1998 with BankBoston N.A.
12 Statement re Computation of Ratios
27 Financial Data Schedule
Execution Copy
--------------
================================================================================
THE COLONIAL GROUP, INC.
CREDIT AGREEMENT
Dated as of April 10, 1998
BANKBOSTON, N.A., Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions; Certain Rules of Construction.................................1
2. The Credits...............................................................21
2.1. Term Credit A.................................................21
2.1.1. Term Loan A.........................................21
2.1.2. Term Loan A Notes...................................21
2.2. Revolving Credit..............................................21
2.2.1. Revolving Loan......................................21
2.2.2. Borrowing Requests..................................22
2.2.3. Revolving Note......................................22
2.3. Term Credit B.................................................22
2.3.1. Term Loan B.........................................22
2.3.2. Term Loan B Notes...................................23
2.4. Application of Proceeds.......................................23
2.4.1. Term Loan A.........................................23
2.4.2. Revolving Loan......................................23
2.4.3. Term Loan B.........................................23
2.4.4. Specifically Prohibited Applications................23
2.5. Nature of Obligations of Lenders to Extend Credit.............23
2.6. Increase in Stated Maximum Amount of Credit...................23
2.7. Option to Extend Maturities...................................24
3. Interest; Pricing Options; Fees...........................................24
3.1. Interest......................................................24
3.2. Pricing Options...............................................25
3.2.1. Election of Pricing Options.........................25
3.2.2. Notice to Lenders and Company.......................25
3.2.3. Selection of Interest Periods.......................26
3.2.4. Additional Interest.................................26
3.2.5. Change in Applicable Laws, Regulations, etc.........26
3.2.6. Taxes...............................................27
3.2.7. Funding Procedure...................................27
3.3. Commitment Fees...............................................27
3.4. Capital Adequacy..............................................27
3.5. Computations of Interest and Fees.............................28
4. Payment...................................................................28
4.1. Payment at Maturity...........................................28
4.1.1. Term Loan A.........................................28
-ii-
<PAGE>
4.1.2. Revolving Loan......................................29
4.1.3. Term Loan B.........................................29
4.2. Contingent Required Prepayments...............................29
4.2.1. Excess Credit Exposure..............................29
4.2.2. Class B Share Collection Amount.....................29
4.3. Mandatory Prepayment of Term Loan B...........................29
4.4. Voluntary Prepayments.........................................30
4.5. Reborrowing; Application of Payments..........................30
4.6. Payment with Accrued Interest, etc............................30
5. Conditions to Extending Credit............................................30
5.1. Conditions on Effective Date..................................30
5.1.1. Notes...............................................30
5.1.2. Payment of Fees.....................................30
5.1.3. Legal Opinions......................................30
5.1.4. Guarantees..........................................31
5.1.5. Investment Assets Under Management..................31
5.2. Conditions to Each Extension of Credit........................31
5.2.1. Officer's Certificate...............................31
5.2.2. Proper Proceedings..................................31
5.2.3. Legality, etc.......................................31
6. General Covenants.........................................................32
6.1. Taxes and Other Charges; Accounts Payable.....................32
6.1.1. Taxes and Other Charges.............................32
6.1.2. Accounts Payable....................................32
6.2. Conduct of Business, etc......................................32
6.2.1. Types of Business...................................32
6.2.2. Maintenance of Properties...........................32
6.2.3. Compliance with Material Agreements.................33
6.2.4. Statutory Compliance................................33
6.3. Insurance.....................................................34
6.3.1. Business Interruption Insurance.....................34
6.3.2. Errors and Omissions Insurance......................34
6.3.3. Directors and Officers Insurance....................34
6.3.4. Property Insurance..................................34
6.3.5. Liability Insurance.................................34
6.4. Financial Statements and Reports..............................34
6.4.1. Annual Reports......................................35
6.4.2. Quarterly Reports...................................36
6.4.3. Borrowing Base Reports..............................37
6.4.4. Other Reports.......................................37
6.4.5. Notice of Litigation; Notice of Defaults............38
-iii-
<PAGE>
6.4.6. ERISA Reports.......................................38
6.4.7. Other Information...................................38
6.5. Certain Financial Tests.......................................39
6.5.1. Consolidated Net Worth..............................39
6.5.2. Consolidated Net Income.............................39
6.6. Financing Debt. .............................................39
6.7. [Intentionally omitted.]......................................39
6.8. Liens.........................................................39
6.9. Investments and Acquisitions..................................41
6.10. Distributions.................................................41
6.11. Merger, Consolidation and Dispositions of Assets..............42
6.12. Issuance of Stock by Subsidiaries; Subsidiary Distributions;
Subsidiary Guarantors......................................42
6.12.1. Issuance of Stock by Subsidiaries..................42
6.12.2. No Restrictions on Subsidiary Distributions........42
6.12.3. Subsidiary Guarantors..............................42
6.13. ERISA, etc....................................................43
6.14. Maintenance of Fee Structure..................................43
7. Representations and Warranties............................................43
7.1. Organization and Business......................................43
7.1.1. Company.............................................43
7.1.2. Subsidiaries........................................44
7.1.3. Qualification.......................................44
7.2. Financial Statements and Other Information; Material
Agreements..................................................44
7.2.1. Financial Statements and Other Information..........44
7.2.2. Material Agreements.................................45
7.2.3. Investment Assets Under Management..................46
7.3. Changes in Condition..........................................46
7.4. Class B Shares Systems........................................46
7.5. Title to Assets...............................................46
7.6. Licenses, etc.................................................46
7.7. Litigation....................................................47
7.8. Tax Returns...................................................47
7.9. Authorization and Enforceability..............................47
7.10. No Legal Obstacle to Agreements...............................48
7.11. Defaults......................................................48
7.12. Certain Business Representations..............................48
7.12.1. Labor Relations....................................48
7.12.2. Antitrust..........................................49
7.12.3. Consumer Protection................................49
7.12.4. Certain Other Agreements...........................49
7.12.5. Certain Laws.......................................49
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<PAGE>
7.12.6. Burdensome Obligations.............................49
7.13. Pension Plans.................................................49
7.14. Foreign Trade Regulations; Government Regulation..............50
7.14.1. Foreign Trade Regulations..........................50
7.14.2. Government Regulation..............................50
7.15. Disclosure....................................................50
8. Defaults..................................................................50
8.1. Events of Default..............................................50
8.2. Certain Actions Following an Event of Default..................53
8.2.1. No Obligation to Extend Credit......................53
8.2.2. Specific Performance; Exercise of Rights............53
8.2.3. Acceleration........................................53
8.2.4. Enforcement of Payment; Credit Security; Setoff.....54
8.2.5. Cumulative Remedies.................................54
8.3. Annulment of Defaults..........................................54
8.4. Waivers........................................................54
9. Expenses; Indemnity.......................................................55
9.1. Expenses.......................................................55
9.2. General Indemnity..............................................55
10. Operations................................................................56
10.1. Interests in Credits..........................................56
10.2. Agent's Authority to Act, etc.................................56
10.3. Company to Pay Agent, etc.....................................57
10.4. Lender Operations for Advances, etc...........................57
10.4.1. Advances...........................................57
10.4.2. Agent to Allocate Payments, etc....................57
10.4.3. Delinquent Lenders; Nonperforming Lenders..........57
10.5. Sharing of Payments, etc......................................58
10.6. Amendments, Consents, Waivers, etc............................59
10.7. Agent's Resignation...........................................60
10.8. Concerning the Agent..........................................60
10.8.1. Action in Good Faith, etc..........................60
10.8.2. No Implied Duties, etc.............................61
10.8.3. Validity, etc......................................61
10.8.4. Compliance.........................................61
10.8.5. Employment of Agents and Counsel...................61
10.8.6. Reliance on Documents and Counsel..................62
10.8.7. Agent's Reimbursement..............................62
10.8.8. Agent's Fees.......................................62
10.9. Rights as a Lender............................................62
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10.10. Independent Credit Decision..................................62
10.11. Indemnification..............................................63
11. Successors and Assigns; Lender Assignments and Participations............63
11.1. Assignments by Lenders........................................63
11.1.1. Assignees and Assignment Procedures................63
11.1.2. Terms of Assignment and Acceptance.................64
11.1.3. Register...........................................65
11.1.4. Acceptance of Assignment and Assumption............65
11.1.5. Federal Reserve Bank...............................66
11.1.6. Further Assurances.................................66
11.2. Credit Participants...........................................66
12. Confidentiality..........................................................67
13. Foreign Persons..........................................................67
14. Notices..................................................................68
15. Course of Dealing; Amendments and Waivers................................68
16. Defeasance...............................................................69
17. Venue; Service of Process................................................69
18. WAIVER OF JURY TRIAL.....................................................69
19. General..................................................................70
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<PAGE>
EXHIBITS
Exhibit 2.1.2 - Term Loan A Note
Exhibit 2.2.3 - Revolving Note
Exhibit 2.3.2 - Term Loan B Note
Exhibit 5.1.4 - Subsidiary Guarantee
Exhibit 5.2.1 - Officer's Certificate
Exhibit 6.4.3 - Fund Reconciliation Report
Exhibit 6.14 - CDSC Fee Structure
Exhibit 7.1 - Company and the Subsidiaries
Exhibit 11.1.1 - Assignment and Acceptance
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<PAGE>
THE COLONIAL GROUP, INC.
CREDIT AGREEMENT
This Credit Agreement, dated as of April 10, 1998 is among The Colonial
Group, Inc., a Massachusetts corporation, and the Lenders (as defined below) and
BankBoston, N.A., as agent for itself and the other Lenders, and is effective as
of the Effective Date. The parties agree as follows:
1. Definitions; Certain Rules of Construction. Except as otherwise explicitly
specified to the contrary, (a) the capitalized term "Section" refers to sections
of this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation," (e) accounting terms not otherwise defined herein shall have the
meaning provided under GAAP and (f) terms defined in the UCC and not otherwise
defined herein shall have the meaning provided under the UCC. Certain
capitalized terms are used in this Agreement as specifically defined as follows:
1.1. "Accumulated Benefit Obligations" means the actuarial present value of
the accumulated benefit obligations under any Plan, calculated in a manner
consistent with Statement No. 87 of the Financial Accounting Standards Board.
1.2. "Affiliate" means, with respect to the Company (or other specified
Person), any other Person directly or indirectly controlling, controlled by or
under direct or indirect common control with the Company, and shall include (a)
any officer or director or general partner of the Company and (b) any Person of
which the Company or any Affiliate (as defined in clause (a) above) of the
Company shall, directly or indirectly, beneficially own either (i) at least 10%
of the outstanding equity securities having the general power to vote or (ii) at
least 10% of all equity interests; provided, however, that in any event, Liberty
Mutual Insurance Company shall be considered an Affiliate of the Company and the
Subsidiaries.
1.3. "Agent" means BankBoston in its capacity as agent for the Lenders
hereunder, as well as its successors and assigns in such capacity pursuant to
Section 10.7.
1.4. "Applicable Margin" means, with respect to any Pricing Option with
respect to the Revolving Loan or Term Loan B, the greater of (a) the percentage
specified in the table below set forth opposite the S&P's Rating for Liberty
Mutual Capital Corporation specified in such table or (b) the percentage
specified in the table below set forth opposite the Moody's Rating for Liberty
Mutual Capital Corporation specified in such table, in each case as such rating
is reported on the third Banking Day prior to the commencement of the Interest
Period applicable
<PAGE>
to such Pricing Option; provided, however, that on and after the Conversion Date
the percentages specified in the table below shall increase by 0.125%:
<TABLE>
<CAPTION>
S&P's Moody's
Rating Percentage Rating
------ ---------- ------
<S> <C> <C>
AA- or higher 0.140% Aa3 or higher
A+ or higher 0.160% A1 or higher
A or higher 0.205% A2 or higher
A- or higher 0.225% A3 or higher
BBB+ or lower 0.260% Baa1 or lower
</TABLE>
1.5. "Applicable Rate" means, at any date,
(a) with respect to each portion of the Term Loan A subject to
a Pricing Option, the sum of (i) 0.225% plus (ii) the Eurodollar Rate
with respect to such Pricing Option;
(b) with respect to each portion of the Revolving Loan or Term
Loan B subject to a Pricing Option, the sum of (i) the Applicable
Margin with respect to such Pricing Option plus (ii) the Eurodollar
Rate with respect to such Pricing Option; and
(c) with respect to each other portion of the Loan, the Base
Rate.
1.6. "Assignee" is defined in Section 11.1.1.
1.7. "Assignment and Acceptance" is defined in Section 11.1.1.
1.8. "BankBoston" means BankBoston, N.A.
1.9. "Banking Day" means any day other than Saturday, Sunday or a day
on which banks in Boston, Massachusetts or New York, New York are authorized or
required by law or other governmental action to close and, if such term is used
with reference to a Pricing Option, any day on which dealings are effected in
the Eurodollars in question by first-class banks in the inter-bank Eurodollar
markets in New York, New York and at the location of the applicable Eurodollar
Office.
1.10. "Bankruptcy Code" means Title 11 of the United States Code (or
any successor statute) and the rules and regulations thereunder, all as from
time to time in effect.
1.11. "Bankruptcy Default" means an Event of Default referred to in
Section 8.1.11.
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<PAGE>
1.12. "Base Rate" means, on any day, the greater of (a) the rate of
interest announced by BankBoston at the Boston Office as its Base Rate or (b)
the sum of 1/2% plus the Federal Funds Rate.
1.13. "Basic Eurodollar Rate" means, as applied to any Interest Period,
the rate of interest at which Eurodollar deposits in an amount comparable to the
Percentage Interest of BankBoston in the portion of the Loan as to which a
Pricing Option has been elected and which have a term corresponding to the
Interest Period in question are offered to BankBoston by first class banks in
the inter-bank Eurodollar market for delivery in immediately available funds at
a Eurodollar Office on the first day of such Interest Period as determined by
the Agent at approximately 10:00 a.m. (Boston time) two Banking Days prior to
the date upon which the Interest Period in question is to commence, which
determination by the Agent shall, in the absence of manifest error, be
conclusive.
1.14. "Boston Office" means the principal banking office of BankBoston
in Boston, Massachusetts.
1.15. "Broker" means any broker, dealer, bank or other person or entity
(other than any Subsidiary or any director, officer or employee of the Company
or any Subsidiary) that sells or arranges for the sale of Class B Shares and is
entitled to receive from the Company or any Subsidiary any commission or other
compensation in respect of such sales.
1.16. "By-laws" means all written by-laws of any Person other than an
individual or similar governance documents of such Person, all as from time to
time in effect.
1.17. "Capital Expenditures" means, for any period, amounts added or
required to be added to the property, plant and equipment or other fixed assets
account on the Consolidated balance sheet of the Company and the Subsidiaries,
prepared in accordance with GAAP, in respect of (a) the acquisition,
construction, improvement or replacement of land, buildings, machinery,
equipment, leaseholds and any other real or personal property, (b) to the extent
not included in clause (a) above, materials, contract labor and direct labor
relating thereto (excluding amounts properly expensed as repairs and maintenance
in accordance with GAAP) and (c) software development costs to the extent not
expensed.
1.18. "Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee in accordance with GAAP,
including Statement Nos. 13 and 98 of the Financial Accounting Standards Board.
1.19. "Capitalized Lease Obligations" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with GAAP, including Statement Nos.
13 and 98 of the Financial Accounting Standards Board.
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<PAGE>
1.20. "Cash Equivalents" means:
(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers' acceptances
issued by any United States financial institution having capital and
surplus and undivided profits aggregating at least $100,000,000 and
rated Prime-1 by Moody's Investors Service, Inc. or A-1 by Standard &
Poor's Corporation (or equivalently rated by any other nationally
recognized rating organization) or issued by any Lender;
(b) short-term corporate obligations rated Prime-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation (or
equivalently rated by any other nationally recognized rating
organization) or issued by any Lender;
(c) any direct obligation of the United States of America or
any agency or instrumentality thereof, or of any state or municipality
thereof, (i) which has a remaining maturity at the time of purchase of
not more than one year or (ii) which is subject to a repurchase
agreement with any Lender (or any other financial institution referred
to in clause (a) above) exercisable within one year from the time of
purchase and (iii) which, in the case of obligations of any state or
municipality, is rated AA or better by Moody's Investors Service, Inc.
or equivalently rated by any other nationally recognized rating
organization; and
(d) any mutual fund or other pooled investment vehicle rated
AA or better by Moody's Investors Service, Inc. or equivalently rated
by any other nationally recognized rating organization which invests
principally in obligations described above.
1.21. "CDSC Funds" means the Funds set forth on Exhibit 6.14, with
dealer commissions no more favorable to the Brokers and Redemption Fees and
Distribution Fees no more favorable to the shareholders of such Funds than as
specified in Exhibit 6.14.
1.22. "Charter" means the articles of organization, certificate of
incorporation, joint venture agreement, partnership agreement, trust indenture
or other charter document of any Person other than an individual, each as from
time to time in effect.
1.23. "CISC" means Colonial Investors Service Center, Inc., a
Massachusetts corporation, and its successors and assigns.
1.24. "Class B Share Collection Amount" means, for any period, the sum
of Distribution Fees plus Redemption Fees.
1.25. "Class B New Shares" means Class B Shares sold on or after April
1, 1998.
1.26. "Class B Old Shares" means Class B Shares sold before April 1,
1998.
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<PAGE>
1.27. "Class B Shares" means any shares (or class of shares) of
beneficial interest or capital stock of any CDSC Fund, upon the redemption of
which a Redemption Fee may be payable at any time, and that are set forth on
Exhibit 6.14.
1.28. "Closing Date" means the Effective Date and each subsequent date
on which any extension of credit is made pursuant to Section 2.
1.29. "Code" means, collectively, the federal Internal Revenue Code of
1986 (or any successor statute) and the rules and regulations thereunder, all as
from time to time in effect.
1.30. "Colonial Management" means Colonial Management Associates, Inc.,
a Massachusetts corporation and a Wholly Owned Subsidiary.
1.31. "Commitment" means, with respect to any Lender, such Lender's
Percentage Interest in the obligations to extend the credits contemplated by the
Credit Documents.
1.32. "Commitment Fee Rate" means the greater of (a) the percentage
specified in the table below set forth opposite the S&P's Rating for Liberty
Mutual Capital Corporation specified in such table or (b) the percentage
specified in the table below set forth opposite the Moody's Rating for Liberty
Mutual Capital Corporation specified in such table, in each case as such rating
is reported on the immediately preceding Payment Date:
<TABLE>
<CAPTION>
S&P's Moody's
Rating Percentage Rating
------ ---------- ------
<S> <C> <C>
AA- or higher 0.060% Aa3 or higher
A+ or higher 0.065% A1 or higher
A or higher 0.070% A2 or higher
A- or higher 0.075% A3 or higher
BBB+ or lower 0.090% Baa1 or lower
</TABLE>
1.33. "Commodities Act" means, collectively, the federal Commodities
Exchange Act (or any successor statute), the rules and regulations thereunder
and the rules and regulations of the Commodity Futures Trading Commission (or
any successor), all as from time to time in effect.
1.34. "Company" means The Colonial Group, Inc., a Massachusetts
corporation, and its successors and assigns, including any successor by merger.
1.35. "Computation Covenants" means Sections 6.5, 6.9.7 and 6.13.
1.36. "Consolidated" and "Consolidating," when used with reference to
any term, mean that term as applied to the accounts of the Company (or other
specified Person) and all of its Subsidiaries (or other specified group of
Persons), or such of its Subsidiaries as may be specified,
-5-
<PAGE>
consolidated (or combined) or consolidating (or combining), as the case may be,
in accordance with GAAP and with appropriate deductions for minority interests
in Subsidiaries, as required by GAAP.
1.37. "Consolidated Contingent Redemption Amount" means, on any date,
the aggregate Redemption Fees that would then be payable to the Company and the
Subsidiaries if all holders of Class B Shares redeemed such shares on such date.
1.38. "Consolidated Net Income" means, for any period, the net income
(or loss) of the Company and the Subsidiaries, determined in accordance with
GAAP on a Consolidated basis; provided, however, that Consolidated Net Income
shall not include:
(a) the income (or loss) of any Person accrued prior to the
date such Person becomes a Subsidiary or is merged into or consolidated
with the Company or any Subsidiary;
(b) the income (or loss) of any Person (other than a
Subsidiary) in which the Company or any Subsidiary has an ownership
interest; provided, however, that (i) Consolidated Net Income shall
include amounts in respect of the income of such Person when actually
received in cash by the Company or such Subsidiary in the form of
dividends or similar Distributions and (ii) Consolidated Net Income
shall be reduced by the aggregate amount of all Investments, regardless
of the form thereof, made by the Company or any Subsidiary in such
Person for the purpose of funding any deficit or loss of such Person;
(c) all amounts included in computing such net income (or
loss) in respect of the write-up of any asset (and any depreciation and
amortization charges resulting from any such write-up of assets) or the
retirement of any Indebtedness at less than face value after December
31, 1997;
(d) extraordinary and nonrecurring gains; and
(e) any after-tax gains or losses attributable to returned
surplus assets of any Plan.
1.39. "Consolidated Net Worth" means, at any date, the total of:
(a) stockholders' equity of the Company and the Subsidiaries
(excluding the effect of any foreign currency translation adjustments
and excluding any depreciation and amortization charges resulting from
the write-up of any asset after December 31, 1997) determined in
accordance with GAAP on a Consolidated basis,
minus (b) the amount by which such stockholders' equity has
been increased by the write-up of any asset of the Company and the
Subsidiaries after December 31, 1997.
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<PAGE>
1.40. "Consolidated Revenues" means, for any period, the total revenues
of the Company and the Subsidiaries determined in accordance with GAAP on a
Consolidated basis.
1.41. "Consolidated Unreimbursed Sales Commissions" means, for any
period, in each case with respect only to Class B New Shares:
(a) for the first such period after April 1, 1998 the total
of:
(i) Prepaid Brokerage Commissions paid by the Company
and the Subsidiaries during such period;
minus (ii) the sum of Distribution Fees and
Redemption Fees received by the Company and the Subsidiaries
during such period.
(b) for each subsequent period,
(i) Consolidated Unreimbursed Sales Commissions as of
the last day of the previous period;
plus (ii) Prepaid Brokerage Commissions paid by the
Company and the Subsidiaries during such period;
minus (iii) the sum of Distribution Fees and
Redemption Fees received by the Company and the Subsidiaries
during such period.
1.42. "Conversion Date" means April 9, 1999 or such later date as
determined in accordance with Section 2.7.
1.43. "Credit Documents" means:
(a) this Agreement, the Notes, the letter agreement dated as
of April 10, 1998, between the Agent and the Company, the Subsidiary
Guarantee and the Liberty Mutual Guarantee, each as from time to time
in effect;
(b) all financial statements, reports, notices and
certificates delivered to any of the Lenders by the Company or any
Subsidiary in connection herewith or therewith; and
(c) any other present or future agreement or instrument from
time to time entered into among the Company, any Subsidiary or any of
their respective Affiliates on the one hand, and the Agent or all the
Lenders, on the other hand, relating to, amending or modifying this
Agreement or any other Credit Document referred to above or which is
stated to be a Credit Document, each as from time to time in effect.
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<PAGE>
1.44. "Credit Obligations" means all present and future liabilities,
obligations and Indebtedness of the Company, any Subsidiary or any of their
Affiliates party to a Credit Document owing to any Lender under or in connection
with this Agreement or any other Credit Document, including obligations in
respect of principal, interest, commitment fees, amounts provided for in
Sections 3.2.4, 3.2.6, 3.4 and 9 and other fees, charges, indemnities and
expenses from time to time owing hereunder or under any other Credit Document
(whether accruing before or after a Bankruptcy Default).
1.45. "Credit Participant" is defined in Section 11.2.
1.46. "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become an
Event of Default.
1.47. "Delinquency Period" is defined in Section 10.4.3.
1.48. "Delinquent Lender" is defined in Section 10.4.3.
1.49. "Delinquent Payment" is defined in Section 10.4.3.
1.50. "Distribution" means, with respect to the Company (or other
specified Person):
(a) the declaration or payment of any dividend, including
dividends payable in shares of capital stock of the Company, on or in
respect of any shares of any class of capital stock of the Company;
(b) the purchase, redemption or other retirement of any shares
of any class of capital stock of the Company (or of options, warrants
or other rights for the purchase of such shares), directly, indirectly
through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any shares of
any class of equity of or beneficial interest in the Company;
(d) any payment of principal or interest with respect to, or
any purchase, redemption or defeasance of, any Indebtedness of the
Company which by its terms or the terms of any agreement is
subordinated to the payment of the Credit Obligations; and
(e) any payment, loan or advance by the Company to, or any
other Investment by the Company in, the holder of any shares of any
class of capital stock of or equity or interest in the Company or any
Affiliate of such holder;
provided, however, that the term "Distribution" shall not include payments in
the ordinary course of business in respect of (i) reasonable compensation paid
to employees, officers and directors (including pursuant to the Company's
Profit-Sharing Plan), (ii) advances to employees for travel
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<PAGE>
expenses, drawing accounts and similar expenditures, (iii) rent paid to or
accounts payable for services rendered or goods sold by non-Affiliates or (iv)
intercompany accounts payable and real property leases to non-Affiliates.
1.51. "Distribution Agreement" means any distribution agreement of
which a Distribution Plan is a part.
1.52. "Distribution Fees" means fees (other than Redemption Fees) paid
by the CDSC Funds to the Company or any Subsidiary, typically at an annual rate
of 0.75% of net asset value attributable to Class B Shares of the CDSC Funds,
pursuant to a Distribution Plan, but not including any "service fee" as defined
in section 26 of Article III of the Rules of Fair Practice (or any successor
provision) of the NASD or any fees remitted by the Company or any Subsidiary to
a Broker as concessions, trailing compensation or service fees, typically
payable at the annual rate of an additional 0.25% of net asset value of the CDSC
Funds.
1.53. "Distribution Fees Collectible" means, on any date, the aggregate
Distribution Fees that would be collected by the Company or any Subsidiary on
the total Class B Shares outstanding on such date over the remaining life of the
Class B Shares, assuming no redemption of the Class B Shares and assuming no
change in the asset value of the Class B Shares in the future.
1.54. "Distribution Plan" means any plan duly adopted by any CDSC Fund
and validly in effect pursuant to Rule 12b-1 under the Investment Company Act
(or similar or successor provisions) pursuant to which such CDSC Fund may make
payments to the Company or any Subsidiary in connection with the distribution of
Class B Shares.
1.55. "Effective Date" means the date on which all the conditions set
forth in Section 5 have been satisfied, which date may not be later than April
10, 1998.
1.56. "ERISA" means, collectively, the Employee Retirement Income
Security Act of 1974 (or any successor statute) and the rules and regulations
thereunder, all as from time to time in effect.
1.57. "ERISA Group Person" means the Company, any Subsidiary and any
Person which is a member of the controlled group or under common control with
the Company or any Subsidiary within the meaning of section 414 of the Code or
section 4001(a)(14) of ERISA.
1.58. "Eurodollar Office" means such non-United States office or
international banking facility of any Lender as such Lender may from time to
time select.
1.59. "Eurodollar Rate" for any Interest Period means the rate, rounded
to the nearest 1/100%, obtained by dividing (a) the Basic Eurodollar Rate for
such Interest Period by (b) an amount equal to 1 minus the Eurodollar Reserve
Rate; provided, however, that if at any time
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<PAGE>
during such Interest Period the Eurodollar Reserve Rate applicable to any
outstanding Pricing Option changes, the Eurodollar Rate for such Interest Period
shall automatically be adjusted to reflect such change, effective as of the date
of such change.
1.60. "Eurodollar Reserve Rate" means the stated maximum rate
(expressed as a decimal) of all reserves (including any basic, supplemental,
marginal or emergency reserve or any reserve asset), if any, as from time to
time in effect, required by any Legal Requirement to be maintained by any Lender
against (a) "Eurocurrency liabilities" as specified in Regulation D of the Board
of Governors of the Federal Reserve System (or any successor regulation)
applicable to a Pricing Option, (b) any other category of liabilities that
includes Eurodollar deposits by reference to which the interest rate on portions
of the Loan subject to a Pricing Option is determined, (c) the principal amount
of or interest on any portion of the Loan subject to a Pricing Option or (d) any
other category of extensions of credit, or other assets, that includes portions
of the Loan subject to a Pricing Option by a non-United States office of any of
the Lenders to United States residents.
1.61. "Eurodollars" means, with respect to any Lender, deposits of
United States Funds in a non-United States office or an international banking
facility of such Lender.
1.62. "Event of Default" means each of (a) the events referred to as
Events of Default in Section 8.1 and (b) the events described in Sections 3(a)
through 3(f) of the Liberty Mutual Guarantee.
1.63. "Exchange Act" means, collectively, the federal Securities
Exchange Act of 1934 (or any successor statute) and the rules and regulations
thereunder, all as from time to time in effect.
1.64. "Executive Officer" means the chief executive officer, chief
operating officer or president of the Company (or other specified Person) or any
vice president of the Company who is not a Financial Officer.
1.65. "Federal Funds Rate" means, for any day, (a) the rate equal to
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as such
weighted average is published for such day (or, if such day is not a Banking
Day, for the immediately preceding Banking Day) by the Federal Reserve Bank of
New York or (b) if such rate is not so published for such Banking Day, as
determined by the Agent using any reasonable means of determination. Each
determination by the Agent of the Federal Funds Rate shall, in the absence of
manifest error, be conclusive.
1.66. "Final Term Loan A Maturity Date" means April 9, 1999.
1.67. "Final Term Loan B Maturity Date" means April 9, 2004 or such
later date as determined in accordance with Section 2.7.
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<PAGE>
1.68. "Financial Officer" means the chief financial officer, treasurer
or assistant treasurer of the Company (or other specified Person) or a vice
president whose primary responsibility is for the financial affairs of the
Company.
1.69. "Financing Debt" means:
(a) Indebtedness in respect of borrowed money;
(b) Indebtedness evidenced by notes, debentures or similar
instruments;
(c) Indebtedness in respect of Capitalized Leases;
(d) Indebtedness in respect of the deferred purchase price of
assets (other than normal trade accounts payable in the ordinary course
of business);
(e) Indebtedness in respect of mandatory redemption or
dividend rights on capital stock (or other equity);
(f) Indebtedness in respect of unfunded pension liabilities;
and
(g) Indebtedness in respect of financial Guarantees and
letters of credit.
1.70. "Foreign Trade Regulations" means, collectively and as from time
to time in effect (including any successor statutes or regulations), (a) any act
that prohibits or restricts, or empowers the President or executive agencies of
the United States of America to prohibit or restrict, exports to or financial
transactions with any foreign country or foreign national, (b) the regulations
with respect to certain prohibited foreign trade transactions set forth at 15
C.F.R. Parts 730 et seq., 22 C.F.R. Parts 120-130 and 31 C.F.R. Parts 500 et
seq. and (c) any order, regulation, ruling, interpretation, direction,
instruction or notice relating to any of the foregoing.
1.71. "Fund" means (a) with respect to any Trust that has more than one
portfolio, the individual portfolios, interests in which are represented by
series of shares of beneficial interest or capital stock of each Trust having
series, for which portfolio the Company or any of its Subsidiaries provides
investment advisory services pursuant to Investment Advisory Contracts and (b)
with respect to any Trust that does not have more than one portfolio, such
Trust.
1.72. "GAAP" means generally accepted accounting principles, as defined
by the United States Financial Accounting Standards Board, as from time to time
in effect; provided, however, that for purposes of compliance with Section 6
(other than Section 6.4) and the related definitions, "GAAP" means such
principles as in effect on December 31, 1997 as applied by the Company and the
Subsidiaries in the preparation of the December 31, 1997 financial statements
previously furnished to the Agent, and consistently followed, without giving
effect to any subsequent changes therein other than changes consented to in
writing by the Required Lenders.
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1.73. "Guarantee" means, with respect to the Company (or other
specified Person):
(a) any guarantee by the Company of the payment or performance
of, or any contingent obligation by the Company in respect of, any
Indebtedness or other obligation of any other Person;
(b) any other arrangement whereby credit is extended to a
Person on the basis of any promise or undertaking of the Company
(including any "comfort letter" or "keep well agreement" written by the
Company to a creditor or prospective creditor of such Person) to (i)
pay the Indebtedness of such Person, (ii) purchase an obligation owed
by such Person, (iii) pay for the purchase or lease of assets or
services regardless of the actual delivery thereof or (iv) maintain the
capital, working capital, solvency or general financial condition of
such Person, in each case whether or not such arrangement is disclosed
in the balance sheet of the Company or referred to in a footnote
thereto;
(c) any liability of the Company as a general partner of a
partnership in respect of Indebtedness or other obligations of such
partnership;
(d) any liability of the Company as a joint venturer of a
joint venture in respect of Indebtedness or other obligations of such
joint venture; and
(e) reimbursement obligations with respect to letters of
credit, surety bonds and other financial guarantees;
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Guarantee and the amount of Indebtedness resulting from such Guarantee shall be
the amount which should be carried on the balance sheet of the obligor whose
obligations were guaranteed in respect of such obligations (but without giving
effect to any limitations on recourse against such obligor), determined in
accordance with GAAP.
1.74. "Guarantor" means any Subsidiary from time to time party to the
Subsidiary Guarantee as a Guarantor thereunder.
1.75. "Inactive Subsidiary" means any Subsidiary that conducts no
business and which has total assets with a fair market value (or book value, if
greater) of less than $25,000.
1.76. "Indebtedness" means all obligations, contingent or otherwise,
which in accordance with GAAP are required to be classified upon the balance
sheet of the Company (or other specified Person) as liabilities, but in any
event including:
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(a) liabilities secured by any Lien existing on property owned
or acquired by the Company or any Subsidiary, whether or not the
liability secured thereby shall have been assumed;
(b) Capitalized Lease Obligations;
(c) mandatory redemption, repurchase or dividend obligations
with respect to capital stock (or other evidence of beneficial
interest); and
(d) all endorsements in respect of Indebtedness of others.
1.77. "Indemnified Party" is defined in Section 9.2.
1.78. "Interest Period" means any period, selected as provided in
Sections 3.2.1 and 3.2.3, of one or four weeks or one, two, three or six months,
commencing on any Banking Day and ending on the corresponding day in the
subsequent calendar week or the corresponding date in the subsequent calendar
month so indicated (or, if such subsequent calendar month has no corresponding
date, on the last day of such subsequent calendar month); provided, however,
that subject to Section 3.2.4, if any Interest Period so selected would
otherwise begin or end on a date which is not a Banking Day, such Interest
Period shall instead begin or end, as the case may be, on the immediately
preceding or succeeding Banking Day as determined by the Agent in accordance
with the then current banking practice in the inter-bank Eurodollar market with
respect to Eurodollar deposits at the applicable Eurodollar Office, which
determination by the Agent shall, in the absence of manifest error, be
conclusive.
1.79. "Interest Rate Protection Agreement" means any interest rate
swap, interest rate cap or other contractual arrangement protecting a Person
against increases in variable interest rates on Financing Debt.
1.80. "Investment" means, with respect to the Company (or other
specified Person):
(a) any share of capital stock, evidence of Indebtedness or
other security issued by any other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person;
(c) any acquisition of all or any part of the business of any
other Person or the assets comprising such business or part thereof;
(d) any commitment or option to make any Investment; and
(e) any other similar investment.
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The investments described in the foregoing clauses (a) through (e)
shall be included in the term "Investment" whether they are made or acquired by
purchase, exchange, issuance of stock or other securities, merger,
reorganization or any other method; provided, however, that the term
"Investment" shall not include (i) current trade and customer accounts
receivable for property leased, goods furnished or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms, (ii) advances and prepayments to suppliers for property leased, goods
furnished and services rendered in the ordinary course of business, (iii)
advances to employees for travel expenses, drawing accounts and similar
expenditures, (iv) stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due to the Company or any
Subsidiary or as security for any such Indebtedness or claim or (v) demand
deposits in banks or trust companies.
In determining the amount of outstanding Investments for purposes of
Section 6.9:
(1) the amount of any Investment (other than Investments
referred to in the following clause (2) or (3)) shall be the cost
thereof minus any returns of capital on such Investment (determined in
accordance with GAAP without regard to amounts realized as income on
such Investment);
(2) the amount of any Investment in respect of a commitment or
option to make a purchase shall be the amount of any nonrefundable down
payment or acquisition price plus the amount of any additional fixed
payment obligation;
(3) the amount of any Investment in respect of a Guarantee
shall be the maximum amount that the guarantor may become obligated to
pay in respect of the obligations guaranteed (whether or not such
obligations are outstanding at the time of computation);
(4) the amount of any Investment in respect of a purchase
described in clause (c) above shall be increased by the amount of any
Indebtedness assumed in connection with such purchase or secured by any
asset acquired in such purchase (whether or not any Indebtedness is
assumed) or for which any Person that becomes a Subsidiary is liable on
the date on which the securities of such Person are acquired; and
(5) no Investment shall be increased as the result of an
increase in the undistributed retained earnings of the Person in which
the Investment was made or decreased as a result of an equity interest
in the losses of such Person.
1.81. "Investment Advisers Act" means, collectively, the federal
Investment Advisers Act of 1940 (or any successor statute) and the rules and
regulations thereunder, all as from time to time in effect.
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1.82. "Investment Advisory Contracts" means binding written contractual
agreements under which the Company or any of its Subsidiaries provides
investment advisory services to a Fund or Trust under the Investment Company Act
or the Investment Advisers Act.
1.83. "Investment Company Act" means, collectively, the federal
Investment Company Act of 1940 (or any successor statute) and the rules and
regulations thereunder, all as from time to time in effect.
1.84. "Legal Requirement" means any requirement imposed upon any of the
Lenders by any law of the United States of America or any jurisdiction in which
any Eurodollar Office is located or by any regulation, order, interpretation,
ruling or official directive of the Board of Governors of the Federal Reserve
System or any other board or governmental or administrative agency of the United
States of America, of any jurisdiction in which any Eurodollar Office is
located, or of any political subdivision of any of the foregoing. Any
requirement imposed by any such regulation, order, ruling or official directive
not having the force of law shall be deemed to be a Legal Requirement if any of
the Lenders reasonably believes that compliance therewith is in the best
interest of such Lender.
1.85. "Lenders" means the Agent and the other Persons owning a
Percentage Interest in the Credit Obligations or having a Commitment and their
respective Assignees permitted by Section 11.1.
1.86. "Lending Officer" means such officers or employees of the Agent
as from time to time designated by it in writing to the Company.
1.87. "LFII" means Liberty Financial Investments, Inc., a Massachusetts
corporation and a Wholly Owned Subsidiary.
1.88. "Liberty Mutual Guarantee" means the Guarantee dated as of April
10, 1998, as amended, modified and in effect from time to time, among the
Company, Liberty Mutual Insurance Company and the Agent.
1.89. "Lien" means, with respect to the Company (or any other specified
Person):
(a) Any encumbrance, mortgage, pledge, lien, charge or
security interest of any kind upon any property or assets of the
Company, whether now owned or hereafter acquired, or upon the income or
profits therefrom.
(b) Any arrangement or agreement which prohibits the Company
from creating encumbrances, mortgages, pledges, liens, charges or
security interests.
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(c) The acquisition of, or the agreement to acquire, any
property or asset upon conditional sale or subject to any other title
retention agreement, device or arrangement (including a Capitalized
Lease).
(d) The sale, assignment, pledge or transfer for security of
any accounts, general intangibles or chattel paper of the Company, with
or without recourse.
(e) The transfer of any tangible property or assets for the
purpose of subjecting such items to the payment of Indebtedness in
priority to payment of the general creditors of the Company.
(f) The existence for a period of more than 90 consecutive
days of any Indebtedness against the Company which if unpaid would by
law or upon a Bankruptcy Default be given any priority over general
creditors.
1.90. "Loan" means each of the Revolving Loan and the Term Loans.
1.91. "Margin Stock" means "margin stock" within the meaning of
Regulation G, T, U or X (or any successor provisions) of the Board of Governors
of the Federal Reserve System, or any regulations, interpretations or rulings
thereunder, all as from time to time in effect.
1.92. "Material Adverse Change" means a material adverse change since
December 31, 1997 in the business, assets, financial condition or prospects of
the Company (on an individual basis) or the Company and the Subsidiaries (on a
Consolidated basis) (or any other specified Persons), whether as a result of:
(a) general economic conditions affecting the mutual fund
industry,
(b) fire, flood or other natural calamities,
(c) regulatory changes, judicial decisions, war or other
governmental action,
(d) termination of the Company's or any Subsidiary's status as
a registered investment adviser under the Investment Advisers Act or,
on an involuntary basis, under the laws of states material to the
Company or such Subsidiary's business,
(e) involuntary termination of the status of the Company or
any Subsidiary as a registered broker/dealer in good standing under the
Exchange Act or laws of states material to the Company's or such
Subsidiary's business, or as a member of the NASD in good standing,
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(f) termination of the qualification of any Trust or Fund as a
regulated investment company taxed under the rules of subchapter M of
the Code (other than as a result of merger or other voluntary
termination of any Trust or Fund),
(g) the issuance by the Securities and Exchange Commissions of
a stop order suspending the effectiveness of a Trust's or Fund's
registration statement under the Securities Act,
(h) suspension or termination of the registration or approval
of the Company or any Subsidiary under the Commodities Act, or
(i) any other event or development, whether or not related to
those enumerated above.
1.93. "Material Agreements" is defined in Section 7.2.2.
1.94. "Maximum Amount of Credit" means, on any date, the least of:
(a) the Stated Maximum Amount of Credit;
(b) the Consolidated Unreimbursed Sales Commissions for Class
B New Shares as reported for the most recent month for which such
report is required to be furnished to the Lenders in accordance with
Section 6.4.3;
(c) the Consolidated Contingent Redemption Amount for Class B
New Shares as reported for the most recent month for which such report
is required to be furnished to the Lenders in accordance with Section
6.4.3;
(d) the Distribution Fees Collectible for Class B New Shares
as reported for the most recent month for which such report is required
to be furnished to the Lenders in accordance with Section 6.4.3; and
(e) to the extent less than the Maximum Amount of Credit then
in effect, such amount (in a minimum amount of $10,000,000 and an
integral multiple of $1,000,000) specified by irrevocable notice from
the Company to the Lenders.
1.95. "Multiemployer Plan" means any Plan that is a "multiemployer
plan" as defined in section 4001(a)(3) of ERISA.
1.96. "Moody's Rating" means, at any time, the rating issued by Moody's
Investors Service, Inc. (or any successor thereto) with respect to the senior
unsecured debt of Liberty Mutual Capital Corporation.
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1.97. "NASD" means The National Association of Securities Dealers, Inc.
(or any successor self-regulatory organization).
1.98. "Nonperforming Lender" is defined in Section 10.4.3.
1.99. "Notes" means the Revolving Notes and the Term Notes.
1.100. "Payment Agreement" is defined in Section 7.2.2.
1.101. "Payment Date" means the last Banking Day of each March, June,
September and December occurring after the Effective Date.
1.102. "PBGC" means the Pension Benefit Guaranty Corporation or any
successor entity.
1.103. "Percentage Interest" is defined in Section 10.1.
1.104. "Performing Lender" is defined in Section 10.4.3.
1.105. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, company, business trust,
trust, organization, business or government or any governmental agency or
political subdivision thereof.
1.106. "Plan" means, at any time, any pension benefit plan subject to
Title IV of ERISA maintained, or to which contributions have been made or are
required to be made, by any ERISA Group Person within six years prior to such
time.
1.107. "Prepaid Brokerage Commissions" means commissions or other
selling compensation paid or payable by the Company or any Subsidiary to Brokers
in respect of sales of Class B Shares at the respective commission rates for
each CDSC Fund set forth in Exhibit 6.14 without giving effect to any increases
permitted in the ordinary course of business under Section 6.14 or otherwise.
1.108. "Pricing Options" means the options granted pursuant to Section
3.2.1 to have the interest on any portion of the Loan computed on the basis of a
Eurodollar Rate.
1.109. "Prior Credit Agreement" means the Credit Agreement dated as of
May 5, 1993, as amended and restated as of December 17, 1993 and as in effect
prior to the Effective Date, among the Company, the Lenders and BankBoston,
N.A., as agent for itself and the other Lenders.
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1.110. "Qualified Institutional Buyer" means:
(a) a duly authorized domestic bank, savings and loan
association, registered investment company, registered investment
adviser or registered dealer, acting for its own account or the
accounts of other Qualified Institutional Buyers, which in the
aggregate owns and invests on a discretionary basis at least $100
million in securities and (if a bank or savings and loan association)
which has a net worth of at least $25 million; or
(b) a foreign bank or savings and loan association or
equivalent institution, acting for its own account or the account of
other Qualified Institutional Buyers, which in the aggregate owns and
invests on a discretionary basis at least $100 million in securities
and has a net worth of at least $25 million; or
(c) any other entity which also constitutes a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act.
1.111. "Redemption Fee" means any amount that is or may be payable to
the Company or any Subsidiary or to any Fund by any holder of Class B Shares in
such capacity upon redemption of all or a portion of the Class B Shares.
1.112. "Register" is defined in Section 11.1.3.
1.113. "Required Lenders" means, with respect to any consent or other
action to be taken by the Agent or the Lenders under the Credit Documents, such
Lenders as own at least the portion of the Percentage Interests required by
Section 10.6 with respect to such consent or other action.
1.114. "Revolving Loan" is defined in Section 2.2.1.
1.115. "Revolving Note" is defined in Section 2.2.3.
1.116. "S&P's Rating" means, at any time, the rating issued by Standard
& Poor's Ratings Group (or any successor thereto) with respect to the senior
unsecured debt of Liberty Mutual Capital Corporation.
1.117. "Securities Act" means, collectively, the federal Securities Act
of 1933 (or any successor statute) and the rules and regulations thereunder, all
as from time to time in effect.
1.118. "Stated Maximum Amount of Credit" means (i) $40,000,000 or (ii)
such greater amount up to $60,000,000 as determined in accordance with Section
2.6.
1.119. "Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own at least
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50% of the outstanding capital stock (or other shares of beneficial interest)
entitled to vote generally, (b) hold at least 50% of the partnership, joint
venture or similar interests or (c) be a general partner or joint venturer.
1.120. "Subsidiary Guarantee" means the guarantee of the Credit
Obligations in substantially the form of Exhibit 5.1.4 from CISC and any other
Subsidiaries (other than Inactive Subsidiaries) that are not broker/dealers for
purposes of the Exchange Act to the Agent for the benefit of the Lenders.
1.121. "Tax" means any tax, levy, duty, deduction, withholding or other
charges of whatever nature at any time required by any Legal Requirement (a) to
be paid by any Lender or (b) to be withheld or deducted from any payment
otherwise required hereby to be made to any Lender, in each case on or with
respect to (i) any Eurodollar deposit which was used (or deemed by Section 3.2.6
to have been used) to fund any portion of the Loan subject to a Pricing Option,
(ii) any portion of the Loan subject to a Pricing Option funded (or deemed by
Section 3.2.6 to have been funded) with the proceeds of any such Eurodollar
deposit, (iii) the principal amount of or interest on any portion of the Loan
subject to a Pricing Option or (iv) funds transferred from a non-United States
office or an international banking facility of such Lender to a United States
office of such Lender in order to fund (or deemed by Section 3.2.6 to have
funded) a portion of the Loan subject to a Pricing Option; provided, however,
that the term "Tax" shall not include (1) taxes imposed upon or measured by the
net income of such Lender, (2) taxes which would have been imposed even if no
provision for Pricing Options appeared in this Agreement or (3) amounts required
to be withheld by such Lender from payments of interest to Persons from whom
Eurodollar deposits were purchased by such Lender.
1.122. "Term Loan A" is defined in Section 2.1.1.
1.123. "Term Loan B" is defined in Section 2.3.1.
1.124. "Term Loans" means Term Loan A and Term Loan B.
1.125. "Term Loan A Note" is defined in Section 2.1.2.
1.126. "Term Loan B Note" is defined in Section 2.3.2.
1.127. "Term Notes" means each of the Term Loan A Notes and the Term
Loan B Notes.
1.128. "Trust" means each registered investment company under the
Investment Company Act for which the Company or any of its Subsidiaries provides
investment advisory services pursuant to Investment Advisory Contracts and for
which the Company or any Subsidiary is the principal underwriter.
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1.129. "UCC" means the Uniform Commercial Code, as in effect from time
to time in The Commonwealth of Massachusetts.
1.130. "Wholly Owned Subsidiary" means any Subsidiary of which all of
the outstanding capital stock (or other shares of beneficial interest) entitled
to vote generally (other than directors' qualifying shares) is owned by the
Company (or other specified Person) directly, or indirectly through one or more
Wholly Owned Subsidiaries.
2. The Credits.
2.1. Term Credit A.
2.1.1. Term Loan A. Subject to all the terms and conditions of
this Agreement and so long as no Default exists, on the Effective Date
the Lenders will lend to the Company as a term loan, in accordance with
their respective Percentage Interests, the aggregate principal amount
of $18,000,000. The aggregate principal amount of the loan made
pursuant to this Section 2.1.1 at any time outstanding is referred to
as "Term Loan A".
2.1.2. Term Loan A Notes. Term Loan A shall be made at the
Boston Office by crediting the amount of such loan to the general
account of the Company with the Agent against delivery to the Agent of
the separate term notes of the Company in substantially the form of
Exhibit 2.1.2 (each a "Term Loan A Note") payable to the respective
Lenders. The Term Loan A Note issued to each Lender shall be in a
principal amount equal to such Lender's Percentage Interest in Term
Loan A. In connection with Term Loan A, the Company shall furnish to
the Agent a certificate in substantially the form of Exhibit 5.2.1,
together with any other documents required by Section 5.
2.2. Revolving Credit.
2.2.1. Revolving Loan. Subject to all of the terms and
conditions of this Agreement and so long as no Default exists, the
Lenders, in accordance with their respective Percentage Interests, will
make loans to the Company in an aggregate principal amount requested in
accordance with Section 2.2.2, but not to exceed at any time
outstanding the Maximum Amount of Credit. The Maximum Amount of Credit
shall be calculated based on the following information with respect to
the Class B New Shares as of the respective dates referred to below:
(i) on the Consolidated Unreimbursed Sales Commissions as of the most
recently ended month as reported in accordance with Section 6.4.3(a);
(ii) on the Consolidated Contingent Redemption Amount as of the most
recently ended month as reported in accordance with Section 6.4.3(b);
and (iii) on the Distribution Fees Collectible as of the most recently
ended month as reported in accordance with Section 6.4.3(b); provided,
however, that in each case the calculation of such amounts shall not be
made more than 31 days prior to the date of such calculation. The
aggregate
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principal amount of the loans made pursuant to this Section 2.1 from
time to time outstanding is referred to as the "Revolving Loan."
2.2.2. Borrowing Requests. Loans will be made to the Company
by the Lenders under this Section 2.1 in any month prior to the
Conversion Date as requested by the Company on the earlier of the
following days, provided that the statements required by Section 6.4.3
are received by the Lenders prior to the time of borrowing on such day:
(i) the sixth Banking Day of such month or (ii) the day of such month
when the statements are received by the Lenders. Not later than 12:00
p.m. (Boston time) on the same Banking Day (third Banking Day if any
portion of such loan will be subject to a Pricing Option on the
requested Closing Date) of each requested Closing Date for any such
loan, the Company will give the Agent notice of its request for a loan
(which may be given by a telephone call received by a Lending Officer
and promptly confirmed in writing), specifying (a) the amount of the
requested loan (not less than $1,000,000 and an integral multiple of
$500,000) and (b) the requested Closing Date therefor. Each such loan
will be made at the Boston Office by depositing the amount thereof to
the general account of the Company with the Agent, or as the Company
may otherwise direct. In connection with each such loan, the Company
shall furnish to the Agent a certificate dated the applicable Closing
Date in substantially the form of Exhibit 5.2.1, together with any
other documents required by Section 5.
2.2.3. Revolving Note. The Revolving Loan shall be evidenced
by the separate revolving notes of the Company in substantially the
form of Exhibit 2.1.3 (each a "Revolving Note") payable to the
respective Lenders in an amount equal to such Lender's Percentage
Interest in the Revolving Loan. Each Lender shall keep a record of the
date and amount of (a) each loan made by such Lender pursuant to this
Section 2.1 and (b) each payment of principal made to such Lender on
the Revolving Loan pursuant to Section 4. Prior to any transfer of any
Revolving Note, the Lender holding such Revolving Note shall record on
a schedule thereto appropriate notations evidencing such dates and
amounts; provided, however, that the failure of any Lender to make any
such recordation shall not affect the obligations of the Company under
this Agreement, the Revolving Notes or any other Credit Document.
2.3. Term Credit B.
2.3.1. Term Loan B. Subject to all the terms and conditions
hereof and so long as no Default exists, on the Conversion Date the
Lenders will lend to the Company as a term loan, in accordance with
their respective Percentage Interests, an aggregate amount equal to the
principal amount of the Revolving Loan outstanding on such date, which
shall not in any event exceed the Maximum Amount of Credit. The
aggregate principal amount of the loans made pursuant to this Section
2.3.1 at any time outstanding is referred to as "Term Loan B."
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2.3.2. Term Loan B Notes. The Term Loan B shall be made at the
Boston Office by crediting the amount of such loan to the Revolving
Loan against delivery to the Agent of the separate term notes of the
Company in substantially the form of Exhibit 2.3.2 (each a "Term Loan B
Note") payable to the respective Lenders. The Term Loan B Note sent to
each Lender shall be in a principal amount equal to such Lender's
respective Percentage Interest in Term Loan B. In connection with the
Term Loan B, the Company shall furnish to the Agent a certificate in
substantially the form of Exhibit 5.2.1, together with any other
documents required by Section 5. Upon issuance of the Term Loan B Notes
in accordance with this Section 2.2, the Revolving Notes shall be
deemed to be canceled.
2.4. Application of Proceeds.
2.4.1. Term Loan A. The Company will apply the proceeds of
Term Loan A to prepay the Revolving Loan under the Prior Credit
Agreement.
2.4.2. Revolving Loan. Subject to Section 2.4.4, the Company
will apply the proceeds of the Revolving Loan only to pay Prepaid
Brokerage Commissions for sales of Class B New Shares.
2.4.3. Term Loan B. The Company will apply the proceeds of the
Term Loan B solely as provided in Section 2.3.2.
2.4.4. Specifically Prohibited Applications. The Company will
not, directly or indirectly, apply any part of the proceeds of any
extension of credit made pursuant to this Agreement to purchase or to
carry Margin Stock or to any transaction prohibited by the Foreign
Trade Regulations, by other Legal Requirements applicable to the
Lenders or by the Credit Documents.
2.5. Nature of Obligations of Lenders to Extend Credit. The Lenders'
obligations under this Agreement to make Term Loan A, the Revolving Loan or Term
Loan B are several and are not joint or joint and several. If any Lender shall
fail to perform its obligations to extend any such credit, the amount of the
commitment of the Lender so failing to perform may be assumed by the other
Lenders, in their sole discretion, in such proportions as such Lenders may agree
among themselves and the Percentage Interests of each other Lender shall be
appropriately adjusted, but such assumption and adjustment shall not relieve the
Lenders from any of their obligations to make any such extension of credit or to
repay any Delinquent Payment required by Section 10.4.3.
2.6. Increase in Stated Maximum Amount of Credit.
The Company may elect, on any one occasion prior to the
Conversion Date, to increase the Stated Maximum Amount of Credit to an amount
(in integral multiples of $10,000,000) up to $60,000,000, provided that, at the
time of the Agent's receipt of such request,
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no Default or Event of Default shall exist. Such election shall be made in
writing to the Agent which shall, in turn, promptly deliver a copy thereof to
each Lender. Upon receipt of the Company's election to increase the Stated
Maximum Amount of Credit, any Lender may (but is not obligated to) elect to
increase its maximum principal amount in the Loan set forth in Section 10.1 and,
with the written consent of the Agent (such consent not to be unreasonably
withheld), any one or more additional banks or financial institutions may become
Lenders by undertaking any portion of such increase in the Stated Maximum Amount
of Credit. If, and to the extent that, existing Lenders and acceptable
additional banks or other financial institutions are not willing to undertake
such increase in the Stated Maximum Amount of Credit in the amount elected by
the Company, the Stated Maximum Amount of Credit shall not be increased. On and
as of the date upon which an increase in the Stated Maximum Amount of Credit
pursuant to this Section shall become effective, each Lender increasing its
maximum principal amount in the Loan set forth in Section 10.1 and each new
Lender undertaking any portion of such increase shall pay to the Agent, for the
account of the Lenders, an amount specified by the Agent that shall be required,
upon distribution of such amounts by the Agent to the Lenders, to cause the
outstanding principal balance of each Lender's Revolving Credit loans to be
equal to such Lender's Percentage Interest in all outstanding Revolving Credit
loans. Upon any such increase in the Stated Maximum Amount of Credit pursuant to
this Section, (i) the Company will duly execute and deliver to each new Lender a
Revolving Note, and (ii) the Agent will deliver to each Lender a revised Section
10.1 to this Agreement reflecting the maximum principal amount in the Loan and
Percentage Interests of the Lenders after giving effect to such increase.
2.7. Option to Extend Maturities. So long as no Default exists, the
Company may request by notice to each Lender delivered no later than 90 days
prior to the Conversion Date that the Conversion Date be extended for a 364-day
period, commencing on the date the Lenders grant such request, and that the
Final Term Loan B Maturity Date be extended to the fifth anniversary of the new
Conversion Date. The Lenders shall inform the Company by written notice
delivered no later than 60 days prior to the Conversion Date whether the Lenders
will grant such request. In no event shall the Conversion Date and the Final
Maturity Date be extended without the written consent of each Lender in its sole
discretion.
3. Interest; Pricing Options; Fees.
3.1. Interest. The Loan shall accrue and bear daily interest at a rate
per annum which shall at all times equal the Applicable Rate. Prior to any
stated or accelerated maturity of the Loan, the Company will, on each Payment
Date, pay the accrued and unpaid interest on the portion of the Loan which was
not subject to a Pricing Option. On the last day of each Interest Period or on
any earlier termination of any Pricing Option, the Company will pay the accrued
and unpaid interest on the portion of the Loan which was subject to the Pricing
Option which expired or terminated on such date; provided, however, that in the
case of any Interest Period longer than three months, the Company will also pay
the accrued and unpaid interest on the portion of the Loan subject to the
Pricing Option having such Interest Period on the Banking Day constituting the
90th day after the commencement of such Interest Period (or if such day is not a
Banking
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Day, the Banking Day immediately preceding such 90th day). On any stated or
accelerated maturity of the Loan, the Company will pay all accrued and unpaid
interest on the Loan, including any accrued and unpaid interest on such portion
of the Loan which is subject to a Pricing Option. In addition, the Company will
on demand pay daily interest on any overdue installments of principal and, to
the extent not prohibited by applicable law, on any overdue installments of
interest and fees owed under any Credit Document at a rate per annum which
equals the sum of 2% plus the highest Applicable Rate then in effect. All
payments of interest hereunder shall be made to the Agent for the account of
each Lender in accordance with the Lenders' respective Percentage Interests.
3.2. Pricing Options.
3.2.1. Election of Pricing Options. Subject to all of the
terms and conditions hereof and so long as no Default exists, the
Company may from time to time, by irrevocable notice to the Agent
received not less than three Banking Days prior to the commencement of
the Interest Period selected in such notice, elect to have such portion
of the Loan as the Company may specify in such notice accrue and bear
daily interest during the Interest Period so selected at the Applicable
Rate computed on the basis of the Eurodollar Rate. No such election
shall become effective if, prior to the commencement of any such
Interest Period, the Agent determines that (a) the electing or granting
of the Pricing Option in question would violate a Legal Requirement or
(b) Eurodollar deposits in an amount comparable to the principal amount
of the Loan as to which such Pricing Option has been elected and which
have a term corresponding to the proposed Interest Period are not
readily available in the inter-bank Eurodollar market for delivery at
any Eurodollar Office or, by reason of circumstances affecting such
market, adequate and reasonable methods do not exist for ascertaining
the interest rate applicable to such deposits for the proposed Interest
Period. For purposes of determining ready availability of Eurodollar
deposits with respect to a proposed Interest Period, such Eurodollar
deposits shall not be deemed readily available if any Lender shall have
advised the Agent by telephone, confirmed in writing, at or prior to
noon (Boston time) on the second Banking Day prior to the commencement
of such proposed Interest Period that, based upon the knowledge of such
Lender of the Eurodollar market and after reasonable efforts to
determine the availability of such Eurodollar deposits, such Lender
reasonably anticipates that Eurodollar deposits in an amount equal to
the respective Percentage Interest of such Lender in the portion of the
Loan as to which such Pricing Option has been elected and which have a
term corresponding to the Interest Period in question will not be
offered in the Eurodollar market to such Lender at a rate of interest
that does not exceed the Basic Eurodollar Rate.
3.2.2. Notice to Lenders and Company. The Agent will promptly
inform each Lender (by telephone or otherwise) of each notice received
by it from the Company pursuant to Section 3.2.1 and of the Interest
Period specified in such notice. Upon determination by the Agent of the
Eurodollar Rate for such Interest Period or in the event
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that no such election shall become effective, the Agent will promptly
notify the Company and each Lender (by telephone or otherwise) of the
Eurodollar Rate so determined.
3.2.3. Selection of Interest Periods. Interest Periods shall
be selected so that:
(a) the minimum portion of the Loan subject to any Pricing
Option shall be $1,000,000 and an integral multiple of $500,000;
(b) no more than 10 Pricing Options shall be outstanding at
any one time; and
(c) no Interest Period with respect to any part of the Loan
subject to a Pricing Option shall expire later than the Final Maturity
Date.
If on the Conversion Date all or any portion of the Revolving Loan is
subject to one or more effective Pricing Options, then each such
Pricing Option shall apply to an equal amount of the Term Loan until
the expiration of the Interest Period for such Pricing Option.
3.2.4. Additional Interest. If any portion of the Loan which
is subject to a Pricing Option is repaid, or any Pricing Option is
terminated for any reason, on a date which is prior to the last Banking
Day of the Interest Period applicable to such Pricing Option, the
Company will pay to the Agent for the account of each Lender in
accordance with the Lenders' respective Percentage Interests, in
addition to any amounts of interest otherwise payable hereunder, an
amount equal to daily interest for the unexpired portion of such
Interest Period on the portion of the Loan so repaid, or as to which a
Pricing Option was so terminated, at a per annum rate equal to the
excess, if any, of (a) the Applicable Rate calculated on the basis of
the rate applicable to such Pricing Option minus (b) the rate of
interest obtainable by the Agent upon the purchase of debt securities
customarily issued by the Treasury of the United States of America
which have a maturity date approximating the last Banking Day of such
Interest Period. For purposes of this Section 3.2.4, if any portion of
the Loan which was to have been subject to a Pricing Option is not
outstanding on the first day of the Interest Period applicable to such
Pricing Option other than for reasons described in Section 3.2.1 or the
failure to advance funds by a Delinquent Lender, the Company shall be
deemed to have terminated such Pricing Option. The determination by the
Agent of such amount of interest shall, in the absence of manifest
error, be conclusive.
3.2.5. Change in Applicable Laws, Regulations, etc. If any
Legal Requirement shall prevent any Lender from funding through the
purchase of deposits any portion of the Loan subject to a Pricing
Option or otherwise from giving effect to such Lender's obligations as
contemplated hereby, (a) the Agent may by notice to the Company
terminate all of the affected Pricing Option, (b) the portion of the
Loan subject to such terminated Pricing Option shall immediately bear
interest thereafter at the Applicable
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Rate computed on the basis of the Base Rate and (c) the Company shall
make any payment required by Section 3.2.4.
3.2.6. Taxes. If (a) any Lender shall be subject to any Tax or
(b) the Company shall be required to withhold or deduct any Tax, the
Company will on demand by the Agent or such Lender, accompanied by the
certificate referred to below, pay to the Agent for such Lender's
account such additional amount as is necessary to enable such Lender to
receive net of any Tax the full amount of all payments of principal of,
interest on and fees payable pursuant to a Credit Document. Each Lender
agrees that if, after the payment by the Company of any such additional
amount, any amount identifiable as a part of any Tax related thereto is
subsequently recovered or used as a credit by such Lender, such Lender
shall reimburse the Company to the extent of the amount so recovered or
used. A certificate of an officer of such Lender setting forth the
amount of such Tax or recovery or use and the basis therefor shall, in
the absence of manifest error, be conclusive.
3.2.7. Funding Procedure. The Lenders may fund any portion of
the Loan subject to a Pricing Option out of any funds available to the
Lenders. Regardless of the source of the funds actually used by any of
the Lenders to fund any portion of the Loan subject to a Pricing
Option, however, all amounts payable hereunder, including the interest
rate applicable to any such portion of the Loan and the amounts payable
under Sections 3.2.4 and 3.2.6, shall be computed as if each Lender had
actually funded such Lender's Percentage Interest in such portion of
the Loan through the purchase of deposits in such amount with a
maturity the same as the applicable Interest Period relating thereto
and through the transfer of such deposits from an office of such Lender
having the same location as the applicable Eurodollar Office to one of
such Lender's offices in the United States of America.
3.3. Commitment Fees. In consideration of the Lenders' commitments to
make extensions of credit provided for in Section 2, while such commitments are
outstanding, the Company will pay to the Agent for the account of the Lenders in
accordance with their respective Percentage Interests, in arrears on (a) each
Payment Date on or prior to the Conversion Date and (b) the Conversion Date, an
amount equal to daily interest, computed at the Commitment Fee Rate, on the
Stated Maximum Amount of Credit.
3.4. Capital Adequacy. If any Lender shall have determined that (a)
compliance by such Lender with any applicable law, governmental rule, regulation
or order regarding capital adequacy of banks or bank holding companies, or any
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital as a consequence of such Lender's obligations
hereunder to a level below that which such Lender could have achieved
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but for such compliance (taking into consideration such Lender's policies with
respect to capital adequacy immediately before such compliance and assuming that
such Lender's capital was fully utilized prior to such compliance) by an amount
deemed by such Lender to be material, or (b) any change in any Legal Requirement
after the date hereof shall directly or indirectly (i) reduce the amount of any
sum received or receivable by such Lender with respect to the Loan, (ii) impose
a cost on such Lender that is attributable to the making or maintaining of, or
such Lender's commitment to make, its portion of the Loan, or (iii) require such
Lender to make any payment on or calculated by reference to the gross amount of
any amount received by such Lender under any Credit Document, then, in the case
of clause (a) or (b), the Company will on demand by the Agent, accompanied by
the certificate referred to below, pay to the Agent from time to time as
specified by such Lenders as are so affected such additional amounts as shall be
sufficient to compensate such Lenders for such reduced return, reduction,
increased cost or payment together with interest on each such amount from five
Banking Days after the date demanded until payment in full thereof at the rate
of interest on overdue installments of principal provided in Section 3.1. A
certificate of an officer of any such Lender setting forth the amount to be paid
to it and the basis for computation thereof hereunder shall, in the absence of
manifest error, be conclusive. In determining such amount, such Lender may use
any reasonable averaging and attribution methods to allocate any increased costs
in good faith on a reasonably equitable basis. The Company may at its option
elect to seek a substitute Lender (which may be one or more of the Lenders and
which shall be reasonably satisfactory to the Required Lenders other than the
Lender demanding such compensation) to purchase the portion of the Loan then
held by, and to assume the Commitments hereunder of, such Lender. Until such
substitution shall be consummated, the Company shall continue to pay to such
Lender being replaced any amounts required by this Agreement, including this
Section 3.4. Upon any such substitution, the Company (or such substitute Lender,
as applicable) shall pay to such Lender being replaced all principal, interest
and other amounts accrued or owing to such Lender hereunder through the date of
substitution.
3.5. Computations of Interest and Fees. For purposes of this Agreement,
interest and commitment fees (and any amount expressed as interest or such fees)
shall be computed on a daily basis and (a) with respect to any portion of the
Loan subject to a Pricing Option, on the basis of a 360-day year and (b) with
respect to fees or any other portion of the Loan, on the basis of a 365- or
366-day year, as the case may be.
4. Payment.
4.1. Payment at Maturity.
4.1.1. Term Loan A. On the Final Term Loan A Maturity Date or
any accelerated maturity of Term Loan A, the Company will pay to the
Agent for the account of the Lenders an amount equal to Term Loan A
then due, together with all accrued and unpaid interest thereon and all
other Credit Obligations in respect of Term Loan A then outstanding.
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4.1.2. Revolving Loan. On the Conversion Date or any
accelerated maturity of the Revolving Loan, the Company will pay to the
Agent for the account of the Lenders an amount equal to the Revolving
Loan then due, together with all accrued and unpaid interest thereon
and all other Credit Obligations in respect of the Revolving Loan then
outstanding.
4.1.3. Term Loan B. On the Final Term Loan B Maturity Date or
any accelerated maturity of Term Loan B, the Company will pay to the
Agent for the account of the Lenders an amount equal to Term Loan B
then due, together with all accrued and unpaid interest thereon and all
other Credit Obligations in respect of Term Loan B then outstanding.
4.2. Contingent Required Prepayments.
4.2.1. Excess Credit Exposure. If at any time the Revolving
Loan or Term Loan B exceeds the Maximum Amount of Credit either prior
to the Conversion Date or thereafter, whether as a result of changes
with respect to the Class B New Shares in Consolidated Unreimbursed
Sales Commissions, in Distribution Fees Collectible or in the
Consolidated Contingent Redemption Amount or otherwise, the Company
will promptly pay the amount of such excess to the Agent for the
account of the Lenders without premium (except as provided in Section
3.2.4), for credit to the Loan.
4.2.2. Class B Share Collection Amount. Within three days
after furnishing statements required by Section 6.4.3, and in any event
by the ninth Banking Day of each month, the Company will, as a
mandatory prepayment on account of Term Loan A with respect to the
Class B Old Shares and the Revolving Loan or Term Loan B with respect
to the Class B New Shares, pay to the Agent for the account of each
Lender, without premium (except as provided in Section 3.2.4), an
amount equal to the Class B Share Collection Amount for the period
covered by the statements so required to be furnished with respect to
the Class B Old Shares and Class B New Shares, respectively (giving
credit for any payments made in accordance with Section 4.2.1 on the
Revolving Loan or Term Loan B as a result of decreases in Consolidated
Unreimbursed Sales Commissions with respect to the Class B New Shares
during such period) minus any voluntary prepayments with respect to
such Loan made since the beginning of such period.
4.3. Mandatory Prepayment of Term Loan B. In addition to any amounts
paid in accordance with Section 4.2, the Company will, as a mandatory prepayment
of the Term Loan B, pay to the Agent for the Lenders' accounts on each Payment
Date, commencing on the last Banking Day of the first full calendar quarter
after the Conversion Date, an amount equal to the lesser of (a) the amount, if
any, by which (i) 5% of the Term Loan B outstanding on the Conversion Date
exceeds (ii) any prepayments made since the prior Payment Date under Section 4.2
or (b) the amount of the Term Loan B.
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4.4. Voluntary Prepayments. In addition to the prepayments required by
Sections 4.2 and 4.3, the Company may from time to time prepay all or any
portion of the Loan (in integral multiples of $1,000,000), without premium
(except as provided in Section 3.2.4 with respect to Pricing Options). Any
prepayments of Term Loan A and Term Loan B shall be applied in the inverse order
of maturity with respect to such Term Loan. The Company shall give the Agent at
least five Banking Days' prior notice of its intention to prepay, specifying the
date of payment, which Loan is to be prepaid, the total principal amount of such
Loan to be paid on such date and the amount of interest to be paid with such
prepayment.
4.5. Reborrowing; Application of Payments. The amounts of the Revolving
Loan prepaid pursuant to Section 4.4 may be reborrowed from time to time prior
to the Conversion Date in accordance with Section 2.1. No portion of the Term
Loans prepaid hereunder may be reborrowed. Any prepayment of the Loan shall be
applied first to the portion of the Loan not then subject to Pricing Options,
then the balance of any such prepayment shall be applied to the portion of the
Loan then subject to Pricing Options, in the chronological order of the
respective maturities thereof, together with any payments required by Section
3.2.4. All payments of principal hereunder shall be made to the Agent for the
account of each Lender in accordance with the Lenders' respective Percentage
Interests.
4.6. Payment with Accrued Interest, etc. Upon all prepayments of the
Term Loan, the Company shall pay to the Agent for each Lender's account the
principal amount to be prepaid together with unpaid interest in respect thereof
accrued to the date of prepayment. Notice of prepayment having been given in
accordance with Section 4.4, and whether or not notice is given of prepayments
pursuant to Sections 4.2 and 4.3, the amount specified to be prepaid shall
become due and payable on the date specified for prepayment.
5. Conditions to Extending Credit.
5.1. Conditions on Effective Date. The obligations of the Lenders to
make any extension of credit pursuant to Section 2 shall be subject to the
satisfaction, on or before the Effective Date, of the following conditions (in
addition to the further conditions in Section 5.2):
5.1.1. Notes. The Company shall have duly executed the Term
Loan A Notes and the Revolving Notes and delivered them to the Agent
for each Lender.
5.1.2. Payment of Fees. The Company shall have paid to the
Agent (a) for the Lenders' accounts, the commitment fee required by
Section 3.3 and (b) for the Agent's account, the fees as separately
agreed between the Company and the Agent.
5.1.3. Legal Opinions. On the Effective Date, the Lenders
shall have received from the following counsel their respective
opinions with respect to the transactions contemplated by the Credit
Documents, which opinions shall be in form and substance satisfactory
to the Lenders:
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(a) Nancy L. Conlin, Vice President and Counsel of the Company
and the Subsidiaries.
(b) Ropes & Gray, special counsel for the Agent.
5.1.4. Guarantees. The Liberty Mutual Guarantee and Subsidiary
Guarantee shall be in full force and effect.
5.1.5. Investment Assets Under Management. On the Effective
Date, the aggregate investment assets under management by the Company
and the Subsidiaries shall equal or exceed $17,000,000,000, and the
Company shall have furnished to the Agent on such date a certificate to
such effect signed by an Executive Officer or a Financial Officer.
5.2. Conditions to Each Extension of Credit. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Closing Date for such extension of credit,
of the following conditions:
5.2.1. Officer's Certificate. The representations and
warranties contained in Section 7 shall be true and correct on and as
of the Closing Date with the same force and effect as though originally
made on and as of such date; no Default shall exist on such Closing
Date prior to or immediately after giving effect to the requested
extension of credit; as of such Closing Date, no Material Adverse
Change shall have occurred; and the Company shall have furnished to the
Agent on such Closing Date a certificate to these effects, in
substantially the form of Exhibit 5.2.1, signed by an Executive Officer
or a Financial Officer.
5.2.2. Proper Proceedings. This Agreement, each other Credit
Document and the transactions contemplated hereby and thereby shall
have been authorized by all necessary proceedings of the Company and
any of its Affiliates party thereto. All necessary consents, approvals
and authorizations of any governmental or administrative agency or any
other Person of any of the transactions contemplated hereby or by any
other Credit Document shall have been obtained and shall be in full
force and effect.
5.2.3. Legality, etc. The making of the requested extension of
credit shall not (a) subject any Lender to any penalty or special tax
(other than a Tax for which the Company has reimbursed the Lenders
under Section 3.2.6), (b) be prohibited by any law or governmental
order or regulation applicable to any Lender or the Company or (c)
violate any voluntary credit restraint program of the executive branch
of the government of the United States of America, the Board of
Governors of the Federal Reserve System or any other governmental or
administrative agency so long as any
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Lender reasonably believes that compliance therewith is in the best
interests of such Lender.
6. General Covenants. The Company covenants that, until all of the Credit
Obligations shall have been paid in full and until the Lenders' commitments to
extend credit under this Agreement and any other Credit Document shall have been
irrevocably terminated, the Company and the Subsidiaries will comply with such
of the following provisions as are applicable to the Person in question:
6.1. Taxes and Other Charges; Accounts Payable.
6.1.1. Taxes and Other Charges. Each of the Company and the
Subsidiaries will duly pay and discharge, or cause to be paid and
discharged, before the same shall become in arrears, all taxes,
assessments and other governmental charges imposed upon such Person and
its properties, sales or activities, or upon the income or profits
therefrom, as well as all claims for labor, materials or supplies which
if unpaid might by law become a Lien upon any of its property;
provided, however, that any such tax, assessment, charge or claim need
not be paid if the validity or amount thereof shall at the time be
contested in good faith by appropriate proceedings and if such Person
shall, in accordance with GAAP, have set aside on its books adequate
reserves with respect thereto; and provided, further, that each of the
Company and the Subsidiaries will pay or bond, or cause to be paid or
bonded, all such taxes, assessments, charges or other governmental
claims immediately upon the commencement of proceedings to foreclose
any Lien which may have attached as security therefor (except to the
extent such proceedings have been dismissed or stayed).
6.1.2. Accounts Payable. Each of the Company and the
Subsidiaries will promptly pay when due, or in conformity with
customary trade terms, all other Indebtedness incident to the
operations of such Person; provided, however, that any such
Indebtedness need not be paid if the validity or amount thereof shall
at the time be contested in good faith and if such Person shall, in
accordance with GAAP, have set aside on its books adequate reserves
with respect thereto.
6.2. Conduct of Business, etc.
6.2.1. Types of Business. The Company and the Subsidiaries
will engage only in the business of providing investment advisory,
distribution, portfolio execution, administration and transfer agency
services, pricing and bookkeeping services and other services
incidental or closely related to the investment advisory and investment
company complex business.
6.2.2. Maintenance of Properties. Each of the Company and the
Subsidiaries:
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(a) will keep its properties in such repair, working order and
condition, and will from time to time make such repairs, replacements,
additions and improvements thereto for the efficient operation of its
businesses and will comply at all times in all material respects with
all franchises, licenses and leases to which it is party so as to
prevent any loss or forfeiture thereof or thereunder, unless compliance
is at the time being contested in good faith by appropriate
proceedings; and
(b) except to the extent permitted under Section 6.11, will do
all things necessary to preserve, renew and keep in full force and
effect and in good standing its legal existence and authority necessary
to continue its business (other than in the case of an Inactive
Subsidiary).
6.2.3. Compliance with Material Agreements. Each of the
Company and the Subsidiaries will comply in all material respects with
the provisions of the Material Agreements (to the extent not
inconsistent with this Agreement or any other Credit Document). Without
the prior written consent of the Required Lenders, no Material
Agreement shall be amended, modified, waived or terminated in any
manner that would have in any material respect an adverse effect on the
interests of the Lenders.
6.2.4. Statutory Compliance. Each of the Company and the
Subsidiaries will comply, and will use reasonable efforts to cause the
Trusts and Funds to comply to the extent applicable (subject to the
discretion of their trustees and directors and other than a reasonable
business decision to merge or terminate any Trust or Fund), in all
material respects with the Investment Company Act (including (a)
receipt of financial statements accompanied by an auditor's report of
Price Waterhouse (or other independent public accountants of nationally
recognized standing), (b) maintenance of a fidelity bond to secure the
Funds from larceny and embezzlement and (c) continued registration in
full force and effect of each Trust as a registered investment
company), the Investment Advisers Act (including Colonial Management's
continued status as a registered investment adviser), the Exchange Act,
the Securities Act (including the continued registration of the shares
representing beneficial interests of, or common stock in, each Fund or
Trust), the rules and regulations of the NASD, subchapter M of the Code
(to the extent of each Fund's or Trust's continued qualification as a
regulated investment company thereunder and subject to the Company's
reasonable business judgment that such compliance is not in the
interests of the Fund or Trust), the Commodities Act, any other law,
statute, rule or regulation governing investment advisers, investment
companies, broker-dealers, underwriters, custodians or transfer agents,
including capital requirements, and all other valid and applicable
statutes, ordinances, zoning and building codes and other rules and
regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and other
subdivisions and of any foreign country or other jurisdictions
applicable to such Person, except where compliance therewith shall at
the time be contested in good faith by appropriate proceedings or where
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failure so to comply has not resulted, or does not pose a material risk
of resulting, in the aggregate in any Material Adverse Change.
6.3. Insurance.
6.3.1. Business Interruption Insurance. Each of the Company
and the Subsidiaries will maintain with financially sound and reputable
insurers insurance related to interruption of business, either for loss
of revenues or for extra expense, in the manner customary for similar
businesses similarly situated.
6.3.2. Errors and Omissions Insurance. Each of the Company and
the Subsidiaries will maintain a joint errors and omissions policy
insuring the Company and each Subsidiary for losses arising from any
breach of duty, error or omission arising from the performance of
transfer agency services in such amounts as are customarily carried by
Persons of established reputation engaged in the same or a similar
business and similarly situated.
6.3.3. Directors and Officers Insurance. Each of the Company
and the Subsidiaries will maintain directors and officers liability
insurance insuring the Company and each Subsidiary in such amounts as
are customarily carried by Persons of established reputation employed
in the same or a similar business and similarly situated.
6.3.4. Property Insurance. Each of the Company and the
Subsidiaries will keep its assets which are of an insurable character
insured by financially sound and reputable insurers against theft and
fraud and against loss or damage by fire, explosion or hazards to the
extent, in amounts and with deductibles at least as favorable as those
generally maintained by businesses of similar size engaged in similar
activities. Such insurance shall provide extended coverage in amounts
sufficient to prevent such Person from becoming a co-insurer.
6.3.5. Liability Insurance. Each of the Company and the
Subsidiaries will maintain with financially sound and reputable
insurers insurance against liability for hazards, risks and liability
to persons and property, including product liability insurance, to the
extent, in amounts and with deductibles at least as favorable as those
generally maintained by businesses of similar size engaged in similar
activities; provided, however, that it may effect workers' compensation
insurance or similar coverage with respect to operations in any
particular state or other jurisdiction through an insurance fund
operated by such state or jurisdiction or by meeting the self-insurance
requirements of such state or jurisdiction.
6.4. Financial Statements and Reports. Each of the Company and the
Subsidiaries will maintain a system of accounting in which correct entries will
be made of all transactions in
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relation to their business and affairs in accordance with GAAP. The fiscal year
of the Company and the Subsidiaries will end on December 31 in each year.
6.4.1. Annual Reports. The Company will furnish to the Lenders
as soon as available, and in any event within 90 days after the end of
each fiscal year of the Company, the internally prepared Consolidated
balance sheet of the Company and the Subsidiaries as at the end of such
fiscal year and the Consolidated statements of income, of changes in
shareholders' equity and of cash flows of the Company and the
Subsidiaries for such fiscal year (all in reasonable detail), together
with comparative figures for the preceding fiscal year or fiscal year
end, all accompanied by:
(a) A report by Ernst & Young LLP (or, if they cease to be
auditors of Liberty Financial Companies, Inc., other independent
certified public accountants of recognized national standing reasonably
satisfactory to the Required Lenders) that in the course of their
annual audit of Liberty Financial Companies, Inc. and its Subsidiaries
nothing came to their attention that caused them to believe that the
Company failed to comply with the terms, covenants, provisions and
conditions of Section 6.5, as calculated on an annual basis that
coincides with the Company's fiscal year end, insofar as they relate to
accounting matters. The report is furnished by such accountants with
the understanding that their audit was not directed primarily toward
obtaining knowledge of such noncompliance. Further, it is understood
that the report is intended solely for the information and use of (i)
the management of the Company and (ii) the Lenders hereunder, and
cannot be used for any other purpose without the prior written consent
of such accountants.
(b) A certificate of the Company signed by a Financial Officer
to the effect that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material respects, the
financial position of the Company and the Subsidiaries covered thereby
at the dates thereof and the results of their operations for the
periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.
(c) A certificate of the Company signed by a Financial Officer
to the effect that such officer has caused this Agreement to be
reviewed and has no knowledge of any Default, or if such officer has
such knowledge, specifying such Default and the nature thereof, and
what action the Company has taken, is taking or proposes to take with
respect thereto.
(d) In the event of a change in GAAP after the date hereof,
computations by the Company, certified by a Financial Officer,
reconciling the financial statements referred to above with financial
statements referred to above with financial statements prepared in
accordance with GAAP as applied to the other covenants in Section 6 and
the related definitions.
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(e) Computations by the Company demonstrating, as of the end
of such fiscal year, compliance with the Computation Covenants.
(f) Calculations, as at the end of the fiscal year covered by
such financial statements, of (i) the Accumulated Benefit Obligations
for each Plan covered by Title IV of ERISA (other than Multiemployer
Plans) and (ii) the fair market value of the assets of such Plan
allocable to such benefits.
(g) Supplements to Exhibit 7.1 showing any changes in the
information set forth in such Exhibits during the last quarter of such
fiscal year, as well as any changes in the Charter, Bylaws or
incumbency of officers of the Company and the Subsidiaries from those
previously certified to the Agent.
6.4.2. Quarterly Reports. The Company will furnish to the
Lenders as soon as available and, in any event, within 45 days after
the end of each of the first three fiscal quarters of the Company, the
internally prepared Consolidated balance sheet of the Company and the
Subsidiaries as of the end of such fiscal quarter and the Consolidated
statements of income, changes in shareholders' equity and cash flows of
the Company and the Subsidiaries for such fiscal quarter and for the
portion of the fiscal year then ending (all in reasonable detail),
together with comparative figures for the same date or period in the
preceding fiscal year, all accompanied by:
(a) A certificate of the Company signed by a Financial Officer
to the effect that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material respects, the
financial position of the Company and the Subsidiaries covered thereby
at the dates thereof and the results of their operations for the
periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.
(b) In the event of a change in GAAP after the date hereof,
computations by the Company, certified by a Financial Officer,
reconciling the financial statements referred to above with financial
statements prepared in accordance with GAAP as applied to the other
covenants in Section 6 and related definitions.
(c) Computations by the Company demonstrating, as of the end
of such quarter, compliance with the Computation Covenants.
(d) Supplements to Exhibits 7.1 and 7.4 showing any changes in
the information set forth in such Exhibits during such fiscal quarter,
as well as any changes in the Charter, Bylaws or incumbency of officers
of the Company and the Subsidiaries from those previously certified to
the Agent.
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(e) A certificate of the Company signed by a Financial Officer
to the effect that such officer has caused this Agreement to be
reviewed and has no knowledge of any Default, or if such officer has
such knowledge, specifying such Default and the nature thereof and what
action the Company has taken, is taking or proposes to take with
respect thereto.
6.4.3. Borrowing Base Reports. The Company will furnish to the
Lenders:
(a) on the sixth Banking Day of each month, a certificate of
an Executive Officer or Financial Officer supplying computations of
Consolidated Unreimbursed Sales Commissions with respect to the Class B
New Shares and the Class B Old Shares, respectively, for the preceding
month and ending on such date; and
(b) on the sixth Banking Day of each month, a certificate of
an Executive Officer or Financial Officer supplying:
(i) computations of the Consolidated Contingent
Redemption Amount and Distribution Fees Collectible with
respect to the Class B New Shares and the Class B Old Shares,
respectively, at the last day of the preceding month; and
(ii) reconciliation of beginning and ending balances
of the Funds on an aggregate basis with respect to the Class B
New Shares and the Class B Old Shares, respectively, showing
sales and redemptions as set forth in Exhibit 6.4.3.
(c) the above reports shall not be required for the Class B
Old Shares when Term Loan A has been paid in full.
6.4.4. Other Reports. The Company will promptly furnish to the
Lenders:
(a) As soon as prepared and in any event before January 31 in
each year, an annual budget and operating projections for such fiscal
year of the Company and the Subsidiaries, prepared in a manner
consistent with the manner in which the financial projections described
in Section 7.2.1 were prepared.
(b) Any material updates of such budget and projections.
(c) Any management letters furnished to the Company or any
Subsidiary by the Company's auditors.
(d) All budgets, projections, Consolidated statements of
operations and other reports furnished by the Company or any Subsidiary
generally to the shareholders of the Company in such capacity.
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(e) Such registration statements, proxy statements and
reports, including Forms 10-K, 10-Q, 8-K, ADV and BD, as may be filed
by the Company or any Subsidiary (but in no event including the Trusts
and Funds) with the Securities and Exchange Commission.
(f) Any 90-day letter or 30-day letter from the federal
Internal Revenue Service asserting tax deficiencies against the Company
and the Subsidiaries.
(g) Upon the request of the Agent or the Required Lenders, the
Trust financial statements and auditor opinions required by Section
6.2.4.
6.4.5. Notice of Litigation; Notice of Defaults. The Company
will promptly furnish to the Lenders notice of any litigation or any
administrative or arbitration proceeding to which the Company or any
Subsidiary may hereafter become a party which poses a material risk of
resulting, after giving effect to any applicable insurance, in the
payment by the Company and the Subsidiaries of at least $500,000 or
which seeks to enjoin or questions the validity or enforceability of
any Credit Document. Promptly upon acquiring knowledge thereof, the
Company will notify the Lenders of the existence of any Default,
specifying the nature thereof and what action the Company or any
Subsidiary has taken, is taking or proposes to take with respect
thereto.
6.4.6. ERISA Reports. The Company will furnish to the Lenders
as soon as available the following items with respect to any Plan:
(a) any request for a waiver of the funding standards or an
extension of the amortization period,
(b) any reportable event (as defined in section 4043 of
ERISA), unless the notice requirement with respect thereto has been
waived by regulation,
(c) any notice received by any ERISA Group Person that the
PBGC has instituted or intends to institute proceedings to terminate
any Plan, or that any Multiemployer Plan is insolvent or in
reorganization,
(d) notice of the possibility of the termination of any Plan
by its administrator pursuant to section 4041 of ERISA, and
(e) notice of the intention of any ERISA Group Person to
withdraw, in whole or in part, from any Multiemployer Plan.
6.4.7. Other Information. From time to time upon request of
any authorized officer of any Lender, each of the Company and the
Subsidiaries will furnish to the Lenders such other information
regarding the business, assets, financial condition, income
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or prospects of the Company and the Subsidiaries as such officer may
reasonably request, including copies of all tax returns, licenses,
agreements, contracts, leases and instruments to which any of the
Company or the Subsidiaries is party, including copies of the
Investment Advisory Contracts, Distribution Plans or Distribution
Agreements, principal underwriting agreements and custodian, registrar,
transfer agent and shareholder services contracts of the Company, the
Subsidiaries and the Funds. The Lenders' authorized officers and
representatives shall have the right during normal business hours upon
reasonable notice and at reasonable intervals to examine the books and
records of the Company and the Subsidiaries, to make copies, notes and
abstracts therefrom and to make an independent examination of their
books and records, for the purpose of verifying the accuracy of the
reports delivered by any of the Company and the Subsidiaries pursuant
to this Section 6.4 or otherwise and ascertaining compliance with or
obtaining enforcement of this Agreement or any other Credit Document.
6.5. Certain Financial Tests.
6.5.1. Consolidated Net Worth. Consolidated Net Worth shall at
all times equal or exceed $150,000,000.
6.5.2. Consolidated Net Income. For each period of four
consecutive fiscal quarters of the Company, Consolidated Net Income
shall exceed $0.
6.6. Financing Debt. So long as immediately before or after giving
effect thereto any Default shall exist, neither the Company nor any Subsidiary
will create, incur, assume or otherwise become liable with respect to any
Financing Debt.
6.7. [Intentionally omitted.]
6.8. Liens. Neither the Company nor any Subsidiary shall create, incur
or enter into, or suffer to be created or incurred or to exist, any Lien
(including any arrangement or agreement which prohibits it from creating any
Lien), except the following:
6.8.1. Restrictions on transfer and Liens contained in the
Credit Documents.
6.8.2. Liens to secure taxes, assessments and other
governmental charges, to the extent that payment thereof shall not at
the time be required by Section 6.1.
6.8.3. Deposits or pledges made (a) in connection with, or to
secure payment of, workers' compensation, unemployment insurance, old
age pensions or other social security, (b) in connection with casualty
insurance maintained in accordance with Section 6.3, (c) to secure the
performance of bids, tenders, contracts (other than contracts relating
to Financing Debt) or leases, (d) to secure statutory obligations or
surety or appeal bonds, (e) to secure indemnity, performance or other
similar bonds in the ordinary course of
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business or (f) in connection with contested payments to the extent
that payment thereof shall not at that time be required by Section 6.1.
6.8.4. Liens in respect of judgments or awards, to the extent
that such judgments or awards are permitted by Section 6.6.5.
6.8.5. Liens of carriers, warehousemen, mechanics and similar
Liens, in each case (a) in existence less than 90 days from the date of
creation thereof or (b) being contested in good faith by the Company or
any Subsidiary in appropriate proceedings (so long as the Company or
such Subsidiary shall, in accordance with GAAP, have set aside on its
books adequate reserves with respect thereto).
6.8.6. Encumbrances in the nature of (a) zoning restrictions,
(b) easements, (c) restrictions of record on the use of real property,
(d) landlords' and lessors' Liens on rented premises and (e)
restrictions on transfers or assignments of leases, which in each case
do not materially detract from the value of the encumbered property or
impair the use thereof in the business of the Company or any
Subsidiary.
6.8.7. Restrictions under federal and state securities laws on
the transfer of securities.
6.8.8. Restrictions under Foreign Trade Regulations on the
transfer or licensing of certain assets of the Company and the
Subsidiaries.
6.8.9. Set-off rights of depository institutions with which
the Company or any Subsidiary maintains deposit accounts.
6.8.10. Liens constituting (a) purchase money security
interests (including mortgages, conditional sales, Capitalized Leases
and any other title retention or deferred purchase devices) in real
property, interests in leases or tangible personal property existing or
created on the date on which such property is acquired, and (b) the
renewal, extension or refunding of any security interest referred to in
the foregoing clause (a) in an amount not to exceed the amount thereof
remaining unpaid immediately prior to such renewal, extension or
refunding; provided, however, that each such security interest shall
attach solely to the particular item of property so acquired, and the
principal amount of Indebtedness (including Indebtedness in respect of
Capitalized Lease Obligations) secured thereby shall not exceed the
cost (including all such Indebtedness secured thereby, whether or not
assumed) of such item of property; and provided, further, that the
aggregate principal amount of all Indebtedness secured by Liens
permitted by this Section 6.8.10 shall not exceed the amount permitted
by Sections 6.6.9 and 6.6.12.
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6.8.11. Any prohibition imposed by applicable law, including
section 15(a) of the Investment Company Act and section 205 of the
Investment Advisers Act, or any regulatory agency, on the creation of
Liens and the assignment of contracts.
6.8.12. Restrictive covenants limiting the Company and the
Subsidiaries from creating or allowing to exist Liens customarily
included in agreements for Financing Debt permitted by Section 6.6.12,
but in no event including any restrictions on the creation or existence
of Liens on Distribution Fees or Redemption Fees with respect to Class
B Shares sold on or prior to the Conversion Date.
6.9. Investments and Acquisitions. Neither the Company nor any
Subsidiary will have outstanding, acquire, commit itself to acquire or hold any
Investment (including any Investment consisting of the acquisition of any
business) except for the following:
6.9.1. Investments of the Company and the Subsidiaries in
Wholly Owned Subsidiaries; provided, however, that so long as
immediately before and after giving effect thereto no Default exists,
Investments in Wholly Owned Subsidiaries may be made only to the extent
reasonably necessary for the conduct of the business permitted by
Section 6.2.1.
6.9.2. Investments in Cash Equivalents.
6.9.3. Intercompany loans and advances by and among the
Company and the Guarantors.
6.9.4. Other intercompany loans and advances from the Company
or any Subsidiary to any other Subsidiary which is not a Guarantor or
the Company, but only to the extent reasonably necessary for
Consolidated tax planning and working capital management.
6.9.5. Prepaid royalties and fees paid in the ordinary course
of business.
6.9.6. Investments in investment companies sponsored by the
Company for which the Company or any Subsidiary is or will become the
investment adviser.
6.9.7. Other Investments in an amount not exceeding
$75,000,000 in the aggregate.
6.10. Distributions. So long as immediately before or after giving
effect thereto any Default shall exist, neither the Company nor any of the
Subsidiaries shall make any Distribution.
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6.11. Merger, Consolidation and Dispositions of Assets. Neither the
Company nor any of the Subsidiaries will become party to any merger or
consolidation or will sell, lease, sell and lease back, sublease or otherwise
dispose of any of its assets, except the following:
6.11.1. The Company and any Subsidiary may sell or otherwise
dispose of (a) inventory in the ordinary course of business, (b)
tangible assets to be replaced in the ordinary course of business by
other tangible assets of equal or greater value and (c) tangible assets
or stock or assets of Inactive Subsidiaries that are no longer used or
useful in the business of the Company or such Subsidiary; provided,
however, that the aggregate fair market value (or book value if
greater) of such assets, rights or stock no longer being used or useful
shall not exceed $5,000,000 in any fiscal year.
6.11.2. Any Subsidiary may merge or be liquidated into the
Company or any other Subsidiary.
6.11.3. The Company may license software rights related to its
fund and shareholder accounting systems to other Persons in the
ordinary course of business and transfer source code to such software
in accordance with customary license terms.
6.11.4. So long as immediately before and after giving effect
thereto no Default exists, the Company may dispose, after the
Conversion Date, of its rights to receive Distribution Fees and
Redemption Fees in respect of Class B Shares or any similar shares of
any Fund sold after the Conversion Date.
6.12. Issuance of Stock by Subsidiaries; Subsidiary Distributions;
Subsidiary Guarantors.
6.12.1. Issuance of Stock by Subsidiaries. No Subsidiary shall
issue or sell any shares of its capital stock or other evidence of
beneficial ownership to any Person other than the Company or any Wholly
Owned Subsidiary of the Company.
6.12.2. No Restrictions on Subsidiary Distributions. Neither
the Company nor any Subsidiary will enter into or be bound by any
agreement (including covenants requiring the maintenance of specified
amounts of net worth or working capital) restricting the right of any
Subsidiary to make Distributions or extensions of credit to the Company
(directly or indirectly through another Subsidiary).
6.12.3. Subsidiary Guarantors. The Company agrees to cause any
Subsidiary that is not a broker/dealer for purposes of the Exchange Act
or an Inactive Subsidiary to enter into the Subsidiary Guarantee
pursuant to a joinder satisfactory to the Agent.
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6.13. ERISA, etc. Each of the Company and the Subsidiaries will comply,
and will cause all ERISA Group Persons to comply, in all material respects, with
the provisions of ERISA and the Code applicable to each Plan. Each of the
Company and the Subsidiaries will meet, and will cause all ERISA Group Persons
to meet, all minimum funding requirements applicable to them with respect to any
Plan pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the
fair market value of the assets of such Plan allocable to such benefits by more
than $1,000,000. The Company and the Subsidiaries will not withdraw, and will
cause all other ERISA Group Persons not to withdraw, in whole or in part, from
any Multiemployer Plan so as to give rise to withdrawal liability exceeding
$1,000,000 in the aggregate. At no time shall the actuarial present value of
unfunded liabilities for post-employment health care benefits, whether or not
provided under a Plan, calculated in a manner consistent with Statement No. 106
of the Financial Accounting Standards Board, exceed $1,000,000.
6.14. Maintenance of Fee Structure. With respect to the Class B Shares,
neither the Company nor any Subsidiary shall cause dealer commissions to be
amended to be more favorable to the Brokers or Redemption Fees to be amended to
be more favorable to the shareholders of the CDSC Funds. The Company or any
Subsidiary, as the case may be, shall continue to receive Distribution Fees at
rates no less favorable than the minimum amounts set forth on Exhibit 6.14 and
shall continue to act as sole distributor of each Fund and to be the only Person
to whom the Funds are permitted to make any payments under the respective
Distribution Plan or Distribution Agreement. Exhibit 6.14 may be amended from
time to time by the Company upon 60 days prior notice to the Agent, and the
Agent shall give prompt notice thereof to the other Lenders, only to add to such
Exhibit a Fund with dealer reallowances no more favorable to the Brokers and
Redemption Fees and Distribution Fees no more favorable to the shareholders of
such Fund than those applicable to the Funds set forth on Exhibit 6.14 on the
date hereof. The Company may offer increases in the commission rates for the
sale of Class B Shares by Brokers in the ordinary course of business, but may
not use the proceeds of the Revolving Loan to pay such increases in the
commissions.
7. Representations and Warranties. In order to induce the Lenders to extend
credit to the Company hereunder, the Company represents and warrants that:
7.1. Organization and Business.
7.1.1. Company. The Company is a duly organized and validly
existing corporation, in good standing under the laws of Massachusetts,
with all power and authority, corporate or otherwise, necessary to (a)
enter into and perform this Agreement and each other Credit Document to
which it is party and make the borrowings hereunder and (b) own its
properties and carry on the business now conducted or proposed to be
conducted by it. Certified copies of the Charter and By-laws of the
Company have been
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previously delivered to the Agent and are correct and complete. Exhibit
7.1, as from time to time hereafter supplemented in accordance with
Sections 6.4.1 and 6.4.2, sets forth, as of the end of the most recent
fiscal year or quarter for which such financial statements are required
to be furnished, (i) the jurisdiction of incorporation of the Company,
(ii) the address of the Company's principal executive office and chief
place of business and (iii) the name under which the Company conducts
its business and the jurisdictions in which the name is used.
7.1.2. Subsidiaries. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is organized, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this
Agreement and each other Credit Document to which it is party and (b)
own its properties and carry on the business now conducted or proposed
to be conducted by it. Certified copies of the Charter and By-laws of
Colonial Management and each Subsidiary that is party to the Subsidiary
Guarantee have been previously delivered to the Agent and are correct
and complete. Exhibit 7.1, as from time to time hereafter supplemented
in accordance with Sections 6.4.1 and 6.4.2, sets forth, as of the end
of the most recent fiscal year or quarter for which such financial
statements are required to be furnished, (i) the name and jurisdiction
of organization of each Subsidiary, (ii) the address of the chief
executive office and principal place of business of each Subsidiary,
(iii) each name under which each Subsidiary conducts its business and
the jurisdictions in which each such name is used and (iv) the number
of authorized and issued shares and ownership of each Subsidiary.
7.1.3. Qualification. Except as set forth on Exhibit 7.1, as
from time to time supplemented in accordance with Sections 6.4.1 and
6.4.2, each of the Company and each Subsidiary is duly and legally
qualified to do business as a foreign corporation or other entity and
is in good standing in each state or jurisdiction in which such
qualification is required and is duly authorized, qualified and
licensed under all laws, regulations, ordinances or orders of public
authorities, or otherwise, to carry on its business in the places and
in the manner in which it is conducted, except for failures to be so
qualified, authorized or licensed which would not in the aggregate
result, or pose a material risk of resulting, in any Material Adverse
Change.
7.2. Financial Statements and Other Information; Material Agreements.
7.2.1. Financial Statements and Other Information. The Company
has previously furnished to the Lenders copies of the following:
(a) The unaudited Consolidated balance sheet of the Company
and the Subsidiaries as at December 31, 1997 and the audited
Consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and the Subsidiaries for the fiscal year of
the Company then ended.
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(b) The annual statement of the Liberty Mutual Insurance
Company as of the end of December 31, 1997, as filed with (and in the
form required under applicable laws and regulations of) the insurance
regulatory authorities of The Commonwealth of Massachusetts and the
audited statutory balance sheet of the Liberty Mutual Insurance Company
as of the end of such fiscal year and the related audited statutory
statements of income, surplus and special reserves, and cash flows for
such fiscal year.
(c) The annual budget and operating projections for the fiscal
year ending December 31, 1998 of the Company and the Subsidiaries.
The financial statements referred to in clause (a) above (or
delivered pursuant to Section 6.4.1 or 6.4.2) were prepared in
accordance with GAAP and fairly present the financial position of each
of the Company and the Subsidiaries, respectively, covered thereby at
the respective dates thereof and the results of their operations for
the periods covered thereby. Neither the Company nor any Subsidiary has
any known contingent liability material to the Company and the
Subsidiaries on a Consolidated basis which is not reflected in the most
recent balance sheet referred to in clause (a) above (or delivered
pursuant to Section 6.4.1 or 6.4.2) or the notes thereto.
The financial statements referred to in clause (b) above (or
delivered pursuant to Section 2.12 of the Liberty Mutual Guarantee) are
in the form required under applicable laws and regulations of the
insurance regulatory authorities of The Commonwealth of Massachusetts,
consistent with respect to accounting and actuarial policies and such
annual statement is a full and true statement of all the assets and
liabilities and of the condition and affairs of the Liberty Mutual
Insurance Company as of the end of such fiscal year and of its income
and deductions therefrom for such fiscal year (within the meaning of
applicable regulations and practices of the insurance regulatory
authorities of The Commonwealth of Massachusetts).
In the Company's judgment, the annual budget and operating
projections referred to in clause (c) above constitute a reasonable
basis as of the date hereof for the assessment of the future
performance of the Company and the Subsidiaries during the periods
indicated therein, it being understood that any projected financial
information represents an estimate, based on various assumptions, of
future results of operations and factors outside of its control which
may or may not in fact occur.
7.2.2. Material Agreements. The Company has previously
furnished to the Lenders correct and complete copies, including all
exhibits, schedules and amendments thereto, of the following agreements
(the "Material Agreements"):
(a) the Agreement dated April 14, 1995 between LFII and the
Company assigning the right to receive Distribution Fees and Redemption
Fees to the Company (as from time to time amended in accordance with
Section 6.2.3, the "Payment Agreement");
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(b) the form of Distribution Plan or Distribution Agreement;
(c) the form of transfer agency agreement between CISC and the
Funds; and
(d) the Liberty Mutual Guarantee.
7.2.3. Investment Assets Under Management. The aggregate
investment assets under management by the Company and the Subsidiaries
were at least $17,000,000,000 on March 31, 1998.
7.3. Changes in Condition. No Material Adverse Change has occurred, and
since December 31, 1997, neither the Company nor any Subsidiary has entered into
any material transaction outside the ordinary course of business except for the
transactions contemplated by this Agreement and the Material Agreements or as
specifically described to the Lenders in writing.
7.4. Class B Shares Systems. The Company has in place all systems
necessary to segregate and report (a) separately for the Class B New Shares and
the Class B Old Shares, the Class B Share Collection Amount with the
Distribution Fees and the Redemption Fees and (b) separately for the Class B New
Shares, the Maximum Amount of Credit with the Consolidated Unreimbursed Sales
Commissions, Consolidated Contingent Redemption Amount and the
Distribution Fees Collectible.
7.5. Title to Assets. The Company and the Subsidiaries have good and
marketable title to or valid leases of all material assets necessary for or used
in the operations of their business as now conducted by them and reflected in
the most recent balance sheet referred to in Section 7.2.1(i) (or the balance
sheet most recently furnished to the Lenders pursuant to Section 6.4.1 or
6.4.2), and to all material assets acquired subsequent to the date of such
balance sheet, subject to no Liens except for those permitted by Section 6.8 and
except for assets disposed of as permitted by Section 6.11.
7.6. Licenses, etc.
(a) Colonial Management is a registered investment adviser under the
Investment Advisers Act, with similar registrations with state authorities
required to conduct its business as currently conducted and proposed to be
conducted except to the extent immaterial to the Company's business, assets,
financial condition or prospects; and LFII is a registered broker/dealer under
the Exchange Act and a member in good standing of the NASD, with similar
registrations with state authorities required to conduct its business as
currently conducted and proposed to be conducted except to the extent immaterial
to the Company's business, assets, financial condition or prospects.
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(b) The Company and the Subsidiaries have all material patents, patent
applications, patent rights, service marks, service mark rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, licenses,
franchises, permits, authorizations, including authorizations under state
securities laws, and other material rights as are necessary for the conduct of
the business of the Company and the Subsidiaries. All of the foregoing are in
full force and effect, and each of the Company and the Subsidiaries is in
substantial compliance with the foregoing without any known conflict with the
valid rights of others which has resulted, or poses a material risk of
resulting, in any Material Adverse Change. No event has occurred which permits,
or after notice or lapse of time or both would permit, the revocation or
termination of any such license, franchise or other right or affects the rights
of any of the Company and the Subsidiaries thereunder so as to result in any
Material Adverse Change. No litigation or other proceeding or dispute with
respect to the validity or, where applicable, the extension or renewal, of any
of the foregoing has resulted, or poses a material risk of resulting, in any
Material Adverse Change.
7.7. Litigation. No litigation, at law or in equity, or any proceeding
before any court, board or other governmental or administrative agency or any
arbitrator is pending or, to the knowledge of the Company, threatened which
involves any material risk of any final judgment, order or liability which,
after giving effect to any applicable insurance, has resulted, or poses a
material risk of resulting, in any Material Adverse Change (except for the
investigation by the federal Securities and Exchange Commission into Colonial
Management's compliance with net capital rules under the Exchange Act) or which
seeks to enjoin the consummation, or which questions the validity or
enforceability, of any of the transactions contemplated by this Agreement or any
other Credit Document. No judgment, decree or order of any court, board or other
governmental or administrative agency or any arbitrator has been issued against
or binds the Company or any Subsidiary which has resulted, or poses a material
risk of resulting, in any Material Adverse Change.
7.8. Tax Returns. Each of the Company and the Subsidiaries has filed
all material tax and information returns which are required to be filed by it
and has paid, or made adequate provision for the payment of, all taxes which
have or may become due pursuant to such returns or to any assessment received by
it. Neither the Company nor any Subsidiary knows of any material additional
assessments or any basis therefor. The Company reasonably believes that the
charges, accruals and reserves on the books of the Company and the Subsidiaries
in respect of taxes or other governmental charges are adequate.
7.9. Authorization and Enforceability. Each of the Company and any
Subsidiary party to the Subsidiary Guarantee has taken all corporate action
required to execute, deliver and perform this Agreement and each other Credit
Document, including the borrowings, to which it is party. Each of this Agreement
and each other Credit Document constitutes the legal, valid and binding
obligation of the Company or such Subsidiary party thereto and is enforceable
against such Person in accordance with its terms.
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7.10. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of any
borrowings hereunder, nor the consummation of any transaction referred to in or
contemplated by this Agreement or any other Credit Document, nor the fulfillment
of the terms hereof or thereof or of any other agreement, instrument, deed or
lease contemplated by this Agreement or any other Credit Document, has
constituted or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company or any
Subsidiary is a party or by which it is bound, or of the Charter or
By-laws of the Company or any Subsidiary;
(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company or any
Subsidiary;
(c) the creation under any agreement, instrument, deed or
lease of any Lien upon any of the assets of the Company or any
Subsidiary; or
(d) any redemption, retirement or other repurchase obligation
of the Company or any Subsidiary under any Charter, By-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any Subsidiary in connection with the
execution, delivery and performance of this Agreement, the Notes or any other
Credit Document, the transactions contemplated hereby or thereby or the making
of any borrowing hereunder.
7.11. Defaults. Neither the Company nor any Subsidiary is in default
under any provision of its Charter or By-laws or of this Agreement or any other
Credit Document. Neither the Company nor any Subsidiary is in default under any
provision of any agreement, instrument, deed or lease to which it is party or by
which it or its property is bound, or has violated any law, judgment, decree or
governmental order, rule or regulation, in each case so as to result, or pose a
material risk of resulting, in any Material Adverse Change.
7.12. Certain Business Representations.
7.12.1. Labor Relations. No dispute or controversy between the
Company or any Subsidiary and any of their respective employees has
resulted, or is reasonably likely to result, in any Material Adverse
Change, and neither the Company nor any Subsidiary anticipates that its
relationships with its unions or employees will result, or are
reasonably likely to result, in any Material Adverse Change. The
Company and each of the Subsidiaries is in compliance in all material
respects with all federal and state laws with respect to (a)
non-discrimination in employment with which the failure to comply, in
the
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aggregate, has resulted in, or poses a material risk of resulting in, a
Material Adverse Change and (b) the payment of wages.
7.12.2. Antitrust. Each of the Company and the Subsidiaries is
in compliance in all material respects with all federal and state
antitrust laws relating to its business and the geographic
concentration of its business.
7.12.3. Consumer Protection. Neither the Company nor any of
its Subsidiaries is in violation of any rule, regulation, order, or
interpretation of any rule, regulation or order of the Federal Trade
Commission (including truth-in-lending), with which the failure to
comply, in the aggregate, has resulted in, or poses a material risk of
resulting in, a Material Adverse Change.
7.12.4. Certain Other Agreements. Each of the Funds has
entered into Investment Advisory Contracts and shareholder services
agreements, and in the case of CDSC Funds, a Distribution Plan or
Distribution Agreement with the Company or another Subsidiary of the
Company, which agreements are in full force and effect. The Company has
furnished to the trustees, directors or managing partners, as the case
may be, of each Fund and Trust such information as may be reasonably
necessary to evaluate the terms of each Investment Advisory Contract
and Distribution Plan or Distribution Agreement in accordance with
sections 15(c) and 12(b) of the Investment Company Act.
7.12.5. Certain Laws. Each of the Company and the Subsidiaries
is in compliance with the Investment Company Act, the Investment
Advisers Act, the Exchange Act, the Commodities Act and the rules and
regulations of the NASD and similar state laws, except to the extent
that noncompliance would not result, or pose a material risk of
resulting, in any Material Adverse Change. Each Trust and Fund is in
compliance with the Investment Company Act and the Securities Act and
similar state laws, except to the extent that noncompliance would not
result, or pose a material risk of resulting, in any Material Adverse
Change.
7.12.6. Burdensome Obligations. Neither the Company nor any
Subsidiary is party to or bound by any agreement, instrument, deed or
lease or is subject to any Charter, By-law or other restriction or
commitment or requirement for future expenditures which, in the opinion
of the management of such Person, is so burdensome as in the
foreseeable future to result in, or pose a material risk of resulting
in, a Material Adverse Change.
7.13. Pension Plans. Neither the Company nor any Subsidiary has any
Plan as of the date hereof except for (a) the Company's defined benefit plan
terminated on June 30, 1987 in accordance in all material respects with the Code
and ERISA and which was fully funded at such termination and (b) Plans of which
the Agent has been notified in writing and are in compliance with Section 6.13.
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7.14. Foreign Trade Regulations; Government Regulation.
7.14.1. Foreign Trade Regulations. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making
by the Company of any borrowings hereunder has constituted or resulted
in or will constitute or result in the violation of any Foreign Trade
Regulation.
7.14.2. Government Regulation. Neither the Company nor any
Subsidiary, nor any Person controlling the Company or any Subsidiary or
under common control with the Company or any Subsidiary is subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act or any statute or
regulation which regulates the incurring by the Company or any
Subsidiary of Financing Debt as contemplated by this Agreement and the
other Credit Documents.
7.15. Disclosure. Neither this Agreement nor any other Credit Document
to be furnished to the Lenders by or on behalf of the Company or any Subsidiary
in connection with the transactions contemplated hereby or by such other Credit
Document contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
No fact is actually known to the Company or any Subsidiary which has resulted,
or in the future (so far as the Company or any Subsidiary can reasonably
foresee) will result, or poses a material risk of resulting, in any Material
Adverse Change, except to the extent that present or future general economic
conditions may result in a Material Adverse Change.
8. Defaults.
8.1. Events of Default. The following events are referred to as "Events
of Default":
8.1.1. The Company shall fail to make any payment in respect
of: (a) interest or any fee on or in respect of any of the Credit
Obligations as the same shall become due and payable, and such failure
shall continue for a period of three Banking Days or (b) principal of
any of the Credit Obligations as the same shall become due, whether at
maturity or by acceleration or otherwise.
8.1.2. The Company or any Subsidiary shall fail to perform or
observe any of the provisions (a) of Section 6.4.3 and such failure
shall continue for a period of two Banking Days or (b) of Sections 6.5
through 6.14.
8.1.3. The Company or any Subsidiary or any of their
respective Affiliates party to any Credit Document shall fail to
perform or observe any other covenant, agreement or provision to be
performed or observed by it under this Agreement or any other Credit
Document, and such failure shall not be rectified or cured to the
written satisfaction of the Required Lenders within 30 days after
notice thereof by the Agent to the Company.
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8.1.4. Any representation or warranty of or with respect to
the Company, any Subsidiary or any of their respective Affiliates party
to any Credit Document made to the Lenders in, pursuant to or in
connection with this Agreement or any other Credit Document shall be
materially false on the date as of which it was made.
8.1.5. (a) The Company or any Subsidiary shall fail to make
any payment when due (after giving effect to any applicable grace
periods) in respect of any Financing Debt (other than the Credit
Obligations) outstanding in an aggregate amount of principal and
accrued interest exceeding $1,000,000;
(b) The Company or any Subsidiary shall fail to perform or
observe the terms of any agreement relating to such Financing Debt, and
such failure shall continue, without having been duly cured, waived or
consented to, beyond the period of grace, if any, specified in such
agreement, and such failure shall permit the acceleration of such
Financing Debt;
(c) Any such Financing Debt of the Company or any Subsidiary
shall be accelerated or become due or payable prior to its stated
maturity for any reason whatsoever (other than voluntary prepayments
thereof);
(d) Any Lien on any property of the Company or any Subsidiary
securing any such Financing Debt shall be enforced by foreclosure or
similar action.
8.1.6. Except as permitted by Section 6.11:
(a) The Company shall cease to own, directly or indirectly,
all the capital stock of the Subsidiaries; or
(b) The Company or any Subsidiary shall initiate any action to
dissolve, liquidate or otherwise terminate its existence.
8.1.7. Any Credit Document or Material Agreement shall cease,
for any reason (other than the scheduled termination thereof in
accordance with its terms), to be in full force and effect; or the
Company, any Subsidiary or any of their respective Affiliates party
thereto shall so assert in a judicial or similar proceeding.
8.1.8. A final judgment (a) which, with other outstanding
final judgments against the Company, the Subsidiaries and any of their
Affiliates party to any Credit Document, exceeds an aggregate of
$1,000,000 shall be rendered against the Company or any of the
Subsidiaries or Affiliates party to any Credit Document, or (b) which
grants injunctive relief that results in, or poses a material risk of
resulting in, a Material Adverse Change, and if, within 30 days after
entry thereof, such judgment shall not have been discharged or
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execution thereof stayed pending appeal, or if, within 30 days after
the expiration of any such stay, such judgment shall not have been
discharged.
8.1.9. (a) In any four consecutive fiscal quarters of the
Company, Investment Advisory Contracts that contributed more than 10%
of Consolidated Revenues arising from all Investment Advisory Contracts
for the four fiscal quarters of the Company completed immediately prior
to the commencement of the four consecutive fiscal quarters in question
shall have been terminated during the four fiscal quarters in question
and shall not have been extended or replaced (by merger of a Fund or
Trust into another Fund or Trust or otherwise) with other Investment
Advisory Contracts with terms not materially less favorable to the
Company and the Subsidiaries and applicable fee rates not less than the
previous terms and applicable fee rates.
(b) Any Distribution Plan or Distribution Agreement shall have
been terminated and shall not have been extended or replaced with
another Distribution Plan or Distribution Agreement with terms not
materially less favorable to the Company and the Subsidiaries and
applicable fee rates not less than the terms and fee rates applicable
to Distribution Fees of the previous Distribution Plan or Distribution
Agreement so terminated.
8.1.10. ERISA Group Persons shall fail to pay when due amounts
(other than amounts being contested in good faith through appropriate
proceedings) aggregating in excess of $1,000,000 for all ERISA Group
Persons for which they shall have become liable under Title IV of ERISA
to pay to the PBGC or to a Plan; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee
to be appointed to administer any Plan or a proceeding shall be
instituted by a fiduciary of any Plan against any ERISA Group Person to
enforce section 515 or 4219(c)(5) of ERISA and such proceeding shall
not have been dismissed within 30 days thereafter; or a condition shall
exist which would require the PBGC to obtain a decree adjudicating that
any Plan must be terminated.
8.1.11. The Company, any Subsidiary or any of their respective
Affiliates obligated with respect to any Credit Obligation shall:
(a) commence a voluntary case under the Bankruptcy Code or
authorize, by appropriate proceedings of its board of directors or
other governing body, the commencement of such a voluntary case;
(b) have filed against it a petition commencing an involuntary
case under the Bankruptcy Code which shall not have been dismissed
within 60 days after the date on which such petition is filed; or file
an answer or other pleading within such 60-day period admitting or
failing to deny the material allegations of such a petition or seeking,
consenting to or acquiescing in the relief therein provided;
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(c) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(d) seek relief as a debtor under any applicable law, other
than the Bankruptcy Code, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in
such relief;
(e) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering
or approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors or (iii) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
portion of its property; or
(f) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the
appointment of, or suffer to exist a receiver or other custodian for,
all or a substantial portion of its property.
8.1.12. Liberty Mutual Insurance Company shall fail to perform
or observe any covenant, agreement or provision to be performed or
observed by it under the Liberty Mutual Guarantee.
8.2. Certain Actions Following an Event of Default. If any one or more
Events of Default shall occur, then in each and every such case:
8.2.1. No Obligation to Extend Credit. The Agent may (and upon
written request of the Required Lenders shall) terminate the
obligations of the Lenders to make any further extensions of credit
under the Credit Documents by furnishing notice thereof to the Company;
provided, however, that if a Bankruptcy Default shall have occurred,
such obligations shall automatically terminate.
8.2.2. Specific Performance; Exercise of Rights. The Agent may
(and upon written request of the Required Lenders shall) proceed to
protect and enforce the Lenders' rights by suit in equity, action at
law and/or other appropriate proceeding, either for specific
performance of any covenant or condition contained in this Agreement or
any other Credit Document or in any instrument or assignment delivered
to the Lenders pursuant to this Agreement or any other Credit Document,
or in aid of the exercise of any power granted in this Agreement or any
other Credit Document or any such instrument or assignment.
8.2.3. Acceleration. The Agent on behalf of the Lenders may
(and upon written request of the Required Lenders shall) by notice in
writing to the Company declare all or any part of the unpaid balance of
the Credit Obligations then outstanding to be
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immediately due and payable, and thereupon such unpaid balance or part
thereof shall become so due and payable without presentment, protest or
further demand or notice of any kind, all of which are expressly
waived; provided, however, that if a Bankruptcy Default shall have
occurred, the unpaid balance of the Credit Obligations shall
automatically become immediately due and payable without presentment,
protest or further demand or notice of any kind, all of which are
expressly waived.
8.2.4. Enforcement of Payment; Credit Security; Setoff. The
Agent may (and upon written request of the Required Lenders shall)
proceed to enforce payment of the Credit Obligations in such manner as
it may elect. The Lenders may offset and apply toward the payment of
the Credit Obligations (and/or toward the curing of any Event of
Default) any Indebtedness from the Lenders to the Company and its
Subsidiaries, including any Indebtedness represented by deposits in any
account maintained with the Lenders, regardless of the adequacy of any
security for the Credit Obligations. The Lenders shall have no duty to
determine the adequacy of any such security in connection with any such
offset.
8.2.5. Cumulative Remedies. To the extent not prohibited by
applicable law which cannot be waived, all of the Lenders' rights
hereunder and under each other Credit Document shall be cumulative.
8.3. Annulment of Defaults. Any Default or Event of Default shall be
deemed to exist and to be continuing for any purpose of this Agreement until the
Required Lenders or the Agent (with any consent of the Required Lenders) shall
have waived such Default or Event of Default in writing, stated in writing that
the same has been cured to such Lenders' reasonable satisfaction or entered into
an amendment to this Agreement which by its express terms cures such Default or
Event of Default. No such action by the Lenders or the Agent shall extend to or
affect any subsequent Default or Event of Default or impair any rights of the
Lenders upon the occurrence thereof. The making of any extension of credit
during the existence of any Default or Event of Default shall not constitute a
waiver thereof.
8.4. Waivers. The Company waives to the extent not prohibited by the
provisions of applicable law that cannot be waived:
(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions of this
Agreement or any other Credit Document), protests, notices of protest
and notices of dishonor;
(b) any requirement of diligence or promptness on the part of
any Lender in the enforcement of its rights under this Agreement, the
Notes or any other Credit Document;
(c) any and all notices of every kind and description which
may be required to be given by any statute or rule of law; and
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(d) any defense (other than indefeasible payment in full)
which it may now or hereafter have with respect to the Credit
Obligations.
9. Expenses; Indemnity.
9.1. Expenses. Whether or not the transactions contemplated hereby
shall be consummated, the Company will pay:
(a) all reasonable expenses of the Agent (including the
out-of-pocket expenses related to forming the group of Lenders and
reasonable fees and disbursements of the special counsel to the Agent)
in connection with the preparation and duplication of this Agreement
and each other Credit Document, examinations by, and reports of, the
Agent's commercial financial examiners (limited to not more than one
per year prior to the existence of a Default), the transactions
contemplated hereby and thereby and operations hereunder and thereunder
(other than for assignments pursuant to Section 11.1.1);
(b) all recording and filing fees and transfer and documentary
stamp and similar taxes at any time payable in respect of this
Agreement, any other Credit Document or the incurrence of the Credit
Obligations; and
(c) to the extent not prohibited by applicable law that cannot
be waived, all other reasonable expenses incurred by the Lenders or the
holder of any Credit Obligation in connection with the enforcement of
any rights hereunder or under any other Credit Document, including
costs of collection and reasonable attorneys' fees (including a
reasonable allowance for the hourly cost of attorneys employed by the
Lenders on a salaried basis) and expenses.
9.2. General Indemnity. The Company will indemnify the Lenders and hold
them harmless from any liability, loss or damage resulting from the violation by
the Company of Section 2.4. The Company will also indemnify each Lender, each of
the Lenders' directors, officers and employees, and each Person, if any, who
controls any Lender (each Lender and each of such directors, officers, employees
and control Persons is referred to as an "Indemnified Party") and hold each of
them harmless from and against any and all claims, damages, liabilities and
reasonable expenses (including reasonable fees and disbursements of counsel with
whom any Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which any Indemnified
Party may incur or which may be asserted against any Indemnified Party in
connection with (a) such Indemnified Party's compliance with or contest of any
subpoena or other process issued against it in any proceeding involving the
Company or any Subsidiary or their Affiliates arising from this Agreement or any
other Credit Document, the transactions contemplated hereby and thereby or the
operations hereunder or thereunder or (b) any litigation or investigation
involving the Company, any Subsidiaries or their Affiliates, or any officer,
director or employee thereof, other than litigation commenced by the Company
against the Lenders which seeks enforcement of any of the rights of the Company
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hereunder or under any other Credit Document and is determined adversely to the
Lenders in a final nonappealable judgment and except to the extent such claims,
damages, liabilities and expenses result from the Agent's or a Lender's, as the
case may be, gross negligence or willful misconduct.
10. Operations.
10.1. Interests in Credits. The percentage interest of each Lender in
the Loan, including Term Loan A and the Revolving Loan or Term Loan B in the
aggregate, shall be computed based on the maximum principal amount for each
Lender as follows:
<TABLE>
<CAPTION>
Maximum Principal Percentage
Lender Amount Interest
------ ----------------- ----------
<S> <C> <C>
BankBoston, N.A. $11,277,752 19.4444%
Bank of America National $17,077,752 29.4444%
Trust and Savings Association
The Bank of New York $ 7,411,124 12.7778%
Credit Lyonnais
New York Branch $ 7,411,124 12.7778%
Fleet National Bank $ 7,411,124 12.7778%
Mellon Bank, N.A. $ 7,411,124 12.7778%
----------- ----------
Total $58,000,000 100.0000%
</TABLE>
The foregoing percentage interests, as otherwise adjusted as the Lenders may
from time to time agree among themselves, or pursuant to Section 11, are
referred to as the "Percentage Interests" with respect to all or any portion of
the Loan. References in any Credit Document to the Lenders' respective
Percentage Interests are to such interests as from time to time in effect.
10.2. Agent's Authority to Act, etc. Each of the Lenders appoints and
authorizes the Agent to act for the Lenders as the Lenders' Agent in connection
with the transactions contemplated by this Agreement and the other Credit
Documents on the terms set forth herein. In acting hereunder, the Agent is
acting for its own account to the extent of its Percentage Interest and for the
accounts of each other Lender to the extent of the Lenders' respective
Percentage Interests, and all action in connection with the enforcement of, or
the exercise of any remedies
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(other than the Lenders' rights of set-off as provided in Section 8.2.4 or in
any Credit Document) in respect of the Credit Obligations and Credit Documents
shall be taken by the Agent.
10.3. Company to Pay Agent, etc. The Company shall be fully protected
in making all payments in respect of the Credit Obligations to the Agent, in
relying upon consents, modifications and amendments executed by the Agent
purportedly on the Lenders' behalf, and in dealing with the Agent as herein
provided. The Agent shall charge the accounts of the Company, on the dates when
the amounts thereof become due and payable, with the amounts of the principal of
and interest on the Loan, commitment fees, agent's fees and upon notice to the
Company, any other fees and amounts owing under any Credit Document.
10.4. Lender Operations for Advances, etc.
10.4.1. Advances. On each Closing Date, each Lender, upon
notice by the Agent, given promptly after its receipt of the borrowing
request, shall advance to the Agent in immediately available funds such
Lender's Percentage Interest in the portion of the Loan advanced on
such Closing Date prior to 1:00 p.m. (Boston time). If such funds are
not received at such time, but all the conditions set forth in Section
5 have been satisfied, each Lender hereby authorizes and requests the
Agent to advance for such Lender's account, pursuant to the terms
hereof, such Lender's respective Percentage Interest in such portion of
the Loan and agrees to reimburse the Agent in immediately available
funds for the amount thereof prior to 3:00 p.m. (Boston time) on the
day such portion of the Loan is advanced hereunder; provided, however,
that the Agent is not authorized to make any such advance for the
account of any Lender who has previously notified the Agent in writing
that such Lender will not be performing its obligations to make further
advances hereunder.
10.4.2. Agent to Allocate Payments, etc. All payments of
principal and interest in respect of the extensions of credit made
pursuant to this Agreement, commitment fees and other fees under this
Agreement shall, as a matter of convenience, be made by the Company to
the Agent in immediately available funds. Under no circumstances shall
any Lender be required to produce or present its Notes as evidence of
its interests in the Credit Obligations in any action or proceeding
relating to the Credit Obligations. The share of each Lender shall be
credited to such Lender by the Agent in immediately available funds in
such manner that the principal amount of the Credit Obligations to be
paid shall be paid proportionately in accordance with the Lenders'
respective Percentage Interests in such Credit Obligations, except as
otherwise provided in this Agreement.
10.4.3. Delinquent Lenders; Nonperforming Lenders. In the
event that any Lender fails to reimburse the Agent pursuant to Section
10.4.1 for the Percentage Interest of such Lender (a "Delinquent
Lender") in any credit advanced by the Agent pursuant hereto, overdue
amounts (the "Delinquent Payment") due from the Delinquent Lender to
the Agent shall bear interest, payable by the Delinquent Lender on
demand, at a per
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annum rate equal to (a) the Federal Funds Rate for the first three days
overdue and (b) the sum of 2% plus the Federal Funds Rate for any
longer period. Such interest shall be payable to the Agent for its own
account for the period commencing on the date of the Delinquent Payment
and ending on the date the Delinquent Lender reimburses the Agent on
account of the Delinquent Payment (to the extent not paid by the
Company as provided below) and the accrued interest thereon (the
"Delinquency Period"), whether pursuant to the assignments referred to
below or otherwise. Upon notice by the Agent, the Company will pay to
the Agent the principal (but not the interest) portion of the
Delinquent Payment. During the Delinquency Period, in order to make
reimbursements for the Delinquent Payment and accrued interest thereon,
the Delinquent Lender shall be deemed to have assigned to the Agent all
payments made by the Company under Section 4 which would have
thereafter otherwise been payable under the Credit Documents to the
Delinquent Lender. During any other period in which any Lender is not
performing its obligations to extend credit under Section 2 (a
"Nonperforming Lender"), the Nonperforming Lender shall be deemed to
have assigned to each Lender that is not a Nonperforming Lender (a
"Performing Lender") all payments made by the Company under Section 4
which would have thereafter otherwise been payable under the Credit
Documents to the Nonperforming Lender, and the Agent shall credit a
portion of such payments to each Performing Lender in an amount equal
to the Percentage Interest of such Performing Lender divided by one
minus the Percentage Interest of the Nonperforming Lender until the
respective portions of the Loan owed to all the Lenders are the same as
the Percentage Interests of the Lenders immediately prior to the
failure of the Nonperforming Lender to perform its obligations under
Section 2. The foregoing provisions shall be in addition to any other
remedies the Agent, the Performing Lenders or the Company may have
under law or equity against the Delinquent Lender as a result of the
Delinquent Payment or against the Nonperforming Lender as a result of
its failure to perform its obligations under Section 2.
10.5. Sharing of Payments, etc. Each Lender agrees that (a) if by
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of a proportion of the aggregate amount of principal, interest and fees
due with respect to its Percentage Interest in the Loan which is greater than
the proportion received by any other Lender in respect of the aggregate amount
of principal, interest and fees due with respect to the Percentage Interest of
such other Lender and (b) if such inequality shall continue for more than 10
days, the Lender receiving such proportionately greater payment shall purchase
participations in the Percentage Interests in the Loan held by the other
Lenders, and such other adjustments shall be made from time to time (including
rescission of such purchases of participations in the event the unequal payment
originally received is recovered from such Lender through bankruptcy proceedings
or otherwise), as may be required so that all such payments of principal,
interest and fees with respect to the Loan held by the Lenders shall be shared
by the Lenders pro rata in accordance with their respective Percentage
Interests; provided, however, that this Section 10.5 shall not impair the right
of any Lender to exercise any right of set-off or counterclaim it may have and
to apply the amount subject to such exercise to the payment of Indebtedness of
the Company other than the
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Company's Indebtedness with respect to the Loan. The Company agrees, to the
fullest extent permitted by applicable law, that any Credit Participant and any
Lender purchasing a participation from another Lender pursuant to this Section
10.5 may exercise all rights of payment (including the right of set-off), and
shall be obligated to share payments under this Section 10.5, with respect to
its participation as fully as if such Credit Participant or such Lender were the
direct creditor of the Company and a Lender hereunder in the amount of such
participation.
10.6. Amendments, Consents, Waivers, etc. Except as otherwise set forth
herein and subject to Section 10.4.2(c), the Agent may (and upon the written
request of the Required Lenders described in paragraph (a) or (b) below, the
Agent shall) take or refrain from taking any action under this Agreement or any
other Credit Document, including giving its written consent to any modification
of or amendment to and waiving in writing compliance with any covenant or
condition in this Agreement or any other Credit Document or any Default or Event
of Default, all of which actions shall be binding upon all of the Lenders;
provided, however, that:
(a) Except as provided below, without the written consent of
Lenders owning at least a majority of the Percentage Interests, no
modification of or amendment to, or consent with respect to or waiver
of compliance with, any of the Credit Documents or waiver of a Default
or Event of Default shall be made.
(b) Without the written consent of Lenders owning at least two
thirds of the Percentage Interests, (i) no modification of, amendment
to, consent with respect to or waiver of compliance with or of a
Default under Sections 6.2.3 or 6.5 of this Section 10.6(b) (and
related defined terms) shall be made, and (ii) no exercise by the
Lenders of their rights under Section 8.2 shall be taken.
(c) Without the written consent of such Lenders as own 100% of
the Percentage Interests (other than Delinquent Lenders during the
existence of a Delinquency Period so long as such Delinquent Lender is
treated the same as the other Lenders with respect to any actions
enumerated below):
(i) No reduction in the interest rate on the Loan or
in commitment fees shall be made.
(ii) No extension or postponement of the stated time
of payment of all or any portion of the Loan or interest
thereon or any commitment fees shall be made.
(iii) No waiver or forgiveness of payment of any
portion of the Loan shall be made.
(iv) No increase in the amount, or extension of the
term, of the Commitments beyond that provided for under
Section 2 shall be made.
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(v) No alteration of the Lenders' rights of set-off
contained in Section 8.2.4 shall be made.
(vi) No amendment to or modification of Section 6.14
(and Exhibit 6.14 to the extent not amended in accordance with
Section 6.14) or this Section 10.6(c) shall be made.
(vii) No assignment by the Company of its rights or
delegation of its duties under any Credit Document shall be
made.
(viii) No assignment by Liberty Mutual Insurance
Company of its obligations under the Liberty Mutual Guarantee
shall be made.
(ix) No release of Liberty Mutual Insurance Company
as guarantor under the Liberty Mutual Guarantee shall be made.
(x) No termination of the Liberty Mutual Guarantee
shall be made.
10.7. Agent's Resignation. The Agent may resign at any time by giving
at least 60 days' prior written notice of its intention to do so to each other
of the Lenders and upon the appointment by the Required Lenders of a successor
Agent satisfactory to the Company. If no successor Agent shall have been so
appointed and shall have accepted such appointment within 45 days after the
retiring Agent's giving of such notice of resignation, then the retiring Agent
may with the consent of the Company, which shall not be unreasonably withheld,
appoint a successor Agent which shall be a bank or a trust company organized
under the laws of the United States of America or any state thereof and having a
combined capital, surplus and undivided profit of at least $500,000,000;
provided, however, that any successor Agent appointed under this sentence may be
removed upon the written request of the Required Lenders, which request shall
also appoint a successor Agent satisfactory to the Company. Upon the appointment
of a new Agent hereunder, the term "Agent" shall for all purposes of this
Agreement thereafter mean such successor. After any retiring Agent's resignation
hereunder as Agent, or the removal hereunder of any successor Agent, the
provisions of this Agreement shall continue to inure to the benefit of such
Agent as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
10.8. Concerning the Agent.
10.8.1. Action in Good Faith, etc. The Agent and its officers,
directors, employees and agents shall be under no liability to any of
the Lenders or to any future holder of any interest in the Credit
Obligations for any action or failure to act taken or suffered in good
faith, and any action or failure to act in accordance with an opinion
of its counsel shall conclusively be deemed to be in good faith. The
Agent shall in all cases be
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entitled to rely, and shall be fully protected in relying, on
instructions given to the Agent by the required holders of Credit
Obligations as provided in this Agreement.
10.8.2. No Implied Duties, etc. The Agent shall have and may
exercise such powers as are specifically delegated to the Agent under
this Agreement or any other Credit Document together with all other
powers incidental thereto. The Agent shall have no implied duties to
any Person or any obligation to take any action under this Agreement or
any other Credit Document except for action specifically provided for
in this Agreement or any other Credit Document to be taken by the
Agent. Before taking any action under this Agreement or any other
Credit Document, the Agent may request an appropriate specific
indemnity satisfactory to it from each Lender in addition to the
general indemnity provided for in Section 10.11; provided, however,
that no such indemnity shall extend to actions or omissions which are
taken by the Agent with gross negligence or willful misconduct. Until
the Agent has received such specific indemnity, the Agent shall not be
obligated to take (although it may in its sole discretion take) any
such action under this Agreement or any other Credit Document. Each
Lender confirms that the Agent does not have a fiduciary relationship
to it under the Credit Documents. The Company confirms that neither the
Agent nor any other Lender has a fiduciary relationship to it under the
Credit Documents.
10.8.3. Validity, etc. Subject to Section 10.8.1, the Agent
shall not be responsible to any Lender or any future holder of any
interest in the Credit Obligations (a) for the legality, validity,
enforceability or effectiveness of this Agreement or any other Credit
Document, (b) for any recitals, reports, representations, warranties or
statements contained in or made in connection with this Agreement or
any other Credit Document, (c) for the existence or value of any assets
included in any security for the Credit Obligations, (d) for the
perfection or effectiveness of any Lien purported to be included in
such security or (e) for the specification or failure to specify any
particular assets to be included in such security.
10.8.4. Compliance. The Agent shall not be obligated to
ascertain or inquire as to the performance or observance of any of the
terms of this Agreement or any other Credit Document; and in connection
with any extension of credit under this Agreement or any other Credit
Document, the Agent shall be fully protected in relying on a
certificate of the Company as to the fulfillment by the Company of any
conditions to such extension of credit.
10.8.5. Employment of Agents and Counsel. The Agent may
execute any of its duties as Agent under this Agreement or any other
Credit Document by or through employees, agents and attorneys-in-fact
and shall not be responsible to any of the Lenders, the Company or any
Subsidiary (except as to money or securities received by the Agent or
the Agent's authorized agents) for the default or misconduct of any
such agents or attorneys-in-fact selected by the Agent with reasonable
care. The Agent shall be
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entitled to advice of counsel concerning all matters pertaining to the
agency hereby created and its duties hereunder or under any other
Credit Document.
10.8.6. Reliance on Documents and Counsel. The Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype
message or writing reasonably believed in good faith by the Agent to be
genuine and correct and to have been signed, sent or made by the Person
in question, including any telephonic or oral statement made by such
Person, and, with respect to legal matters, upon the opinion of counsel
selected by the Agent.
10.8.7. Agent's Reimbursement. Each of the Lenders severally
agrees to reimburse the Agent, in the amount of such Lender's
Percentage Interest, for any reasonable expenses not reimbursed by the
Company (without limiting the obligation of the Company to make such
reimbursement): (a) for which the Agent is entitled to reimbursement by
the Company under this Agreement or any other Credit Document, and (b)
after the occurrence of a Default, for any other reasonable expenses
incurred by the Agent on the Lenders' behalf in connection with the
enforcement of the Lenders' rights under this Agreement or any other
Credit Document.
10.8.8. Agent's Fees. The Company shall pay to the Agent for
its own account the amounts prior to the Effective Date, as provided in
the Prior Credit Agreement and thereafter as separately agreed between
the Company and the Agent.
10.9. Rights as a Lender. With respect to any credit extended by it
hereunder, BankBoston shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
it were not the Agent, and unless the context otherwise specifies, BankBoston
shall be treated in its individual capacity as though it were not the Agent
hereunder. Without limiting the generality of the foregoing, the Percentage
Interest of BankBoston shall be included in any computations of Percentage
Interests. BankBoston and its Affiliates may accept deposits from, lend money
to, act as trustee for and generally engage in any kind of banking or trust
business with the Company, any Subsidiary or any Affiliate of any of them and
any Person who may do business with or own an equity interest in the Company,
any of the Subsidiaries or any Affiliate of any of them, all as if BankBoston
were not the Agent and without any duty to account therefor to the other
Lenders.
10.10. Independent Credit Decision. Each of the Lenders acknowledges
that it has independently and without reliance upon the Agent, based on the
financial statements and other documents referred to in Section 7.2, on the
other representations and warranties contained herein and on such other
information with respect to the Company and the Subsidiaries as such Lender
deemed appropriate, made such Lender's own credit analysis and decision to enter
into this Agreement and to make the extensions of credit provided for hereunder.
Each Lender represents to the Agent that such Lender will continue to make its
own independent credit and
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other decisions in taking or not taking action under this Agreement or any other
Credit Document. Each Lender expressly acknowledges that neither the Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to such Lender, and no act
by the Agent taken under this Agreement or any other Credit Document, including
any review of the affairs of the Company and the Subsidiaries, shall be deemed
to constitute any representation or warranty by the Agent. Except for notices,
reports and other documents expressly required to be furnished to each Lender by
the Agent under this Agreement or any other Credit Document, the Agent shall not
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition, financial
or otherwise, or credit worthiness of the Company or any Subsidiary which may
come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
10.11. Indemnification. The holders of the Credit Obligations hereby
agree to indemnify the Agent (to the extent not reimbursed by the Company and
without limiting the obligation of the Company to do so), pro rata according to
their respective Percentage Interests, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time be
imposed on, incurred by or asserted against the Agent relating to or arising out
of this Agreement, any other Credit Document, the transactions contemplated
hereby or thereby, or any action taken or omitted by the Agent in connection
with any of the foregoing; provided, however, that the foregoing shall not
extend to actions or omissions which are taken by the Agent with gross
negligence or willful misconduct.
11. Successors and Assigns; Lender Assignments and Participations. Any reference
in this Agreement to any of the parties hereto shall be deemed to include the
successors and assigns of such party, and all covenants and agreements by or on
behalf of the Company, the Agent or the Lenders that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns; provided, however, that (a) the Company may not assign its rights or
obligations under this Agreement, and (b) the Lenders shall be not entitled to
assign their respective Percentage Interests in the Loan hereunder except as set
forth below in this Section 11.
11.1. Assignments by Lenders.
11.1.1. Assignees and Assignment Procedures. Each Lender may
(a) without the consent of the Agent or the Company if the proposed
assignee is already a Lender or an Affiliate of a Lender hereunder or
(b) otherwise with the consents of the Agent and the Company (which
consents will not be unreasonably withheld), in compliance with
applicable laws in connection with such assignment, assign to one or
more commercial banks or other financial institutions (other than
mutual funds) (each, an "Assignee") all or a portion of its interests,
rights and obligations under this Agreement and the other Credit
Documents, including its Percentage Interest in the Loan; provided,
however, that:
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(i) the aggregate amount of the Commitment of the assigning
Lender subject to each such assignment to any Assignee other than
another Lender (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Agent) shall be not
less than $10,000,000 and in increments of $1,000,000; and
(ii) the parties to each such assignment shall execute and deliver
to the Agent an Assignment and Acceptance (the "Assignment and
Acceptance") substantially in the form of Exhibit 11.1.1 together with
the Note or Notes subject to such assignment and a processing and
recordation fee of $3,000 from the Lenders; provided, however, that no
such processing and recording fee shall be payable upon an assignment
effected pursuant to Section 3.4.
Upon acceptance and recording pursuant to Section 11.1.4, from and
after the effective date specified in each Assignment and Acceptance
(which effective date shall be at least five Banking Days after the
execution thereof unless waived by the Agent):
(1) the Assignee shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and
(2) the assigning Lender shall, to the extent
provided in such assignment, be released from its obligations
under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections
3.2.4, 3.2.6, 3.4 and 9, as well as to any fees accrued for
its account hereunder and not yet paid).
11.1.2. Terms of Assignment and Acceptance. By executing and
delivering an Assignment and Acceptance, the assigning Lender and
Assignee shall be deemed to confirm to and agree with each other and
the other parties hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Agreement, any other Credit Document or any other
instrument or document furnished pursuant hereto or thereto or the
execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement, any other Credit Document or any other
instrument or document furnished pursuant hereto or thereto;
(b) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition
of the Company and the Subsidiaries
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or the performance or observance by the Company or any Subsidiary of
any of their obligations under this Agreement, any other Credit
Document or any other instrument or document furnished pursuant hereto
or thereto;
(c) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 6.4 and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such Assignee will independently and without reliance upon
the Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement;
(e) such Assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and
(f) such Assignee agrees that it will perform in accordance
with the terms of this Agreement all the obligations which are required
to be performed by it as a Lender, including any requirements under
Section 13.
11.1.3. Register. The Agent shall maintain at the Boston
Office a register (the "Register") for the recordation of (a) the names
and addresses of the Lenders and the Assignees which assume rights and
obligations pursuant to an assignment under Section 11.1.1, (b) the
Percentage Interest of each such Lender as set forth in Section 10.1
and (c) the amount of the Loan owing to each Lender from time to time.
The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company, the Agent and the Lenders may treat
each Person whose name is registered therein for all purposes as a
party to this Agreement. The Register shall be available for inspection
by the Company or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
11.1.4. Acceptance of Assignment and Assumption. Upon its
receipt of a completed Assignment and Acceptance executed by an
assigning Lender and an Assignee together with the Note or Notes
subject to such assignment, and the processing and recordation fee
referred to in Section 11.1.1, the Agent shall (a) accept such
Assignment and Acceptance, (b) record the information contained therein
in the Register and (c) give prompt notice thereof to the Company.
Within five Banking Days after receipt of notice, the Company shall
execute and deliver to the Agent, in exchange for the surrendered Note
or Notes, a new Note or Notes to the order of such Assignee in a
principal amount equal to the applicable Commitment and Loan assumed by
it pursuant to such Assignment and
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Acceptance and, if the assigning Lender has retained a Commitment and
Loan, a new Note to the order of such assigning Lender in a principal
amount equal to the applicable Commitment and Loan retained by it. Such
new Note or Notes shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Note or Notes, and
shall be dated the date of the surrendered Notes which they replace.
11.1.5. Federal Reserve Bank. Notwithstanding the foregoing
provisions of this Section 11, any Lender may at any time pledge or
assign all or any portion of such Lender's rights under this Agreement
and the other Credit Documents to a Federal Reserve Bank; provided,
however, that no such pledge or assignment shall release such Lender
from such Lender's obligations hereunder or under any other Credit
Document.
11.1.6. Further Assurances. The Company and the Subsidiaries
shall sign such documents and take such other actions from time to time
reasonably requested by an Assignee to enable it to share in the
benefits of the rights created by the Credit Documents.
11.2. Credit Participants. Each Lender may, without the consent of the
Company or the Agent, in compliance with applicable laws in connection with such
participation, sell to one or more Qualified Institutional Buyers (each a
"Credit Participant") participations in all or a portion of its interests,
rights and obligations under this Agreement and the other Credit Documents
(including all or a portion of its Commitment and the Loan owing to it and the
Notes held by it); provided, however, that:
(a) such Lender's obligations under this Agreement shall
remain unchanged;
(b) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit of
the cost protection provisions contained in Sections 3.2.4, 3.2.6, 3.4
and 9, but shall not be entitled to receive any greater payment
thereunder than the selling Lender would have been entitled to receive
with respect to the interest so sold if such interest had not been
sold; and
(d) the Company, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of
the Company relating to the Loan and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers with respect to any fees payable
hereunder or the amount of principal of or the rate at which interest
is payable on the Loan, or the stated dates for payments of principal
of or interest on the Loan).
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Such Lender shall promptly give notice of such participation to the Company and
the Agent.
12. Confidentiality. Each Lender agrees that it will make no disclosure of
confidential information furnished to it by the Company or any Subsidiary unless
such information shall have become public other than by the actions of such
Lender, except:
(a) in connection with operations under or the enforcement of
this Agreement or any other Credit Document;
(b) to the applicable bank regulatory or other governmental
agencies relating to such Lender or pursuant to any statutory or
regulatory requirement or any mandatory court order, subpoena or other
legal process of which the Lender will give, if practicable, prompt
notice to the Company;
(c) to any parent or corporate Affiliate of such Lender or to
any Credit Participant, proposed Credit Participant or proposed
Assignee; provided, however, that any such Person shall agree to comply
with the restrictions set forth in this Section 12 with respect to such
information;
(d) to its independent counsel, auditors and other
professional advisors with an instruction to such Person to keep such
information confidential;
(e) in connection with any litigation or arbitration
proceedings to which such Lender is a party arising out of this
Agreement or any other Credit Document; and
(f) with the prior written consent of the Company, to any
other Person.
13. Foreign Persons. If any assignment is made under Section 11.1 to any Person
that is not incorporated or organized under the laws of the United States of
America or a state thereof, the Lender making such assignment shall cause such
Person to agree that, on or prior to the date of such assignment, it will
deliver to the Company and the Agent the following:
(a) Two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor form, as the case may
be, certifying in each case that such Person is entitled to receive
payments under this Agreement and the Notes payable to it, without
deduction or withholding of any United States federal income taxes.
(b) A duly completed Internal Revenue Service Form W-8 or W-9
or successor form, as the case may be, to establish an exemption from
United States backup withholding tax.
Each such Person that delivers to the Company and the Agent a Form 1001
or 4224 and Form W-8 or W-9 pursuant to this Section 13 further undertakes to
deliver to the Company and
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the Agent two further copies of Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms, or other manner of certification, as the case may
be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Company and the Agent. Such Form 1001 or 4224
shall certify that such Person is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes. The foregoing documents need not be delivered in the event any change in
treaty, law or regulation or official interpretation thereof has occurred which
renders all such forms inapplicable or which would prevent such transferee from
delivering any such form with respect to it, or such transferee advises the
Company that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and in the case of a Form W-8
or W-9, establishing an exemption from United States backup withholding tax.
Until such time as the Company and the Agent have received such forms indicating
that payments hereunder are not subject to United States withholding tax or are
subject to such tax at a rate reduced by an applicable tax treaty, the Company
shall withhold taxes from such payments at the applicable statutory rate.
14. Notices. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if either (a) actually delivered in fully legible form to such
address (evidenced in the case of a telex by receipt of the correct answerback)
or (b) in the case of a letter, five days shall have elapsed after the same
shall have been deposited in the United States mails, with first-class postage
prepaid and registered or certified.
If to the Company or any Subsidiary, to it at its address set forth in
Exhibit 7.1 (as supplemented pursuant to Sections 6.4.1 and 6.4.2), to the
attention of the chief financial officer, with a copy to the attention of the
chief legal officer.
If to the Agent or any Lender, to it at its address set forth on the
signature page of this Agreement, to the attention of the account officer
specified on the signature page, with a copy to the Agent.
15. Course of Dealing; Amendments and Waivers. No course of dealing between any
Lender, on the one hand, and the Company or any Subsidiary or Affiliate of the
Company, on the other hand, shall operate as a waiver of any of the Lenders'
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. The Company acknowledges that if the Lenders, without being
required to do so by this Agreement or any other Credit Document, give any
notice or information to, or obtain any consent from, any of the Company and the
Subsidiaries or any of their respective Affiliates, the Lenders shall not by
implication have amended, waived or modified any provision of this Agreement or
any other Credit Document, or
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created any duty to give any such notice or information or to obtain any such
consent on any future occasion. No delay or omission in exercising any right, or
any partial exercise of any right, on the part of any Lender under this
Agreement or any other Credit Document or with respect to the Credit Obligations
shall operate as a waiver of such right or any other right hereunder or
thereunder. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any future occasion. No waiver, consent or
amendment with respect to this Agreement or any other Credit Document shall be
binding unless it is in writing and signed by the Agent or the holders of the
required Credit Obligations.
16. Defeasance. When all Credit Obligations have been paid, performed and
reasonably determined by the Lenders to have been indefeasibly discharged in
full, and if at the time no Lender continues to be committed to extend any
credit to the Company hereunder or under any other Credit Document, this
Agreement shall terminate; provided, however, that Sections 3.2.4, 3.2.6, 3.4,
9, 10.8.7, 10.11, 12, 17 and 18 shall survive the termination of this Agreement.
17. Venue; Service of Process. Each of the Company and the Lenders:
(a) Irrevocably submits to the nonexclusive jurisdiction of
the state courts of The Commonwealth of Massachusetts and to the
nonexclusive jurisdiction of the United States District Court for the
District of Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or any other
Credit Document or the subject matter hereof or thereof.
(b) Waives to the extent not prohibited by applicable law, and
agrees not to assert, by way of motion, as a defense or otherwise, in
any such proceeding brought in any of the above-named courts, any claim
that it is not subject personally to the jurisdiction of such court,
that its property is exempt or immune from attachment or execution,
that such proceeding is brought in an inconvenient forum, that the
venue of such proceeding is improper, or that this Agreement or any
other Credit Document, or the subject matter hereof or thereof, may not
be enforced in or by such court.
Each of the Company and the Lenders consents to service of process in any such
proceeding in any manner permitted by Chapter 223A of the General Laws of The
Commonwealth of Massachusetts and agrees that service of process by registered
or certified mail, return receipt requested, at its address specified in or
pursuant to Section 14 is reasonably calculated to give actual notice.
18. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE COMPANY AND THE LENDERS WAIVES, AND COVENANTS THAT
IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING
OUT OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER
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HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE
DEALINGS OF THE LENDERS OR THE COMPANY IN CONNECTION WITH ANY OF THE ABOVE, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT,
TORT OR OTHERWISE. The Company acknowledges that it has been informed by the
Lenders that the provisions of this Section 18 constitute a material inducement
upon which each of the Lenders has relied and will rely in entering into this
Agreement and any other Credit Document, and that it has reviewed the provisions
of this Section 18 with its counsel. Any Lender or the Company may file an
original counterpart or a copy of this Section 18 with any court as written
evidence of the consent of the Company and the Lenders to the waiver of their
rights to trial by jury.
19. General. All covenants, agreements, representations and warranties made in
this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof. The
invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement and the other Credit Documents
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior and current understandings and
agreements, whether written or oral, with respect to such subject matter. This
Agreement may be executed in any number of counterparts which together shall
constitute one instrument. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE
COMMONWEALTH OF MASSACHUSETTS.
-70-
<PAGE>
[THIS PAGE LEFT INTENTIONALLY BLANK]
-71-
<PAGE>
[THIS PAGE LEFT INTENTIONALLY BLANK]
-72-
<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
THE COLONIAL GROUP, INC.
By _________________________________
Title:
BANKBOSTON, N.A.
By _________________________________
Title:
Financial Institutions Division
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-1537
Telex: 940581
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By _________________________________
Title:
231 South LaSalle Street
Chicago, Illinois 60697
Telecopy: (312) 987-0889
Telex:
-73-
<PAGE>
THE BANK OF NEW YORK
By _________________________________
Title:
One Wall Street
Securities Industry Division
New York, New York 10286
Telecopy: (212) 809-9575
Telex:
CREDIT LYONNAIS NEW YORK BRANCH
By _________________________________
Authorized Signature
c/o Credit Lyonnais
Representative Office
53 State Street
Boston, Massachusetts 02109
Telecopy: (617) 723-4803
Telex:
FLEET NATIONAL BANK
By _________________________________
Title:
777 Main Street
Hartford, Connecticut 06115
Telecopy:
Telex:
-74-
<PAGE>
MELLON BANK, N.A.
By _________________________________
Title:
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Telecopy: (412) 234-8087
Telex:
-75-
<PAGE>
Exhibit 2.1.2
-------------
TERM LOAN A NOTE
TNA- April 10, 1998
FOR VALUE RECEIVED, the undersigned The Colonial Group, Inc., a
Massachusetts corporation (the "Company"), hereby promises to pay [Insert
lender] (the "Lender") or order, on the Final Maturity Date (as defined in the
Credit Agreement referred to below), __________ DOLLARS ($________) or such
lesser principal amount hereunder as may then be outstanding. The Company
promises to pay daily interest from the date hereof, computed as provided in
such Credit Agreement, on the aggregate principal amount from time to time
unpaid at the per annum rate applicable to such unpaid principal amount as
provided in such Credit Agreement and to pay interest on overdue principal and,
to the extent not prohibited by applicable law, on overdue installments of
interest and fees at the rate specified in such Credit Agreement, all such
interest being payable at the times specified in such Credit Agreement, except
that all accrued interest shall be paid at the stated or accelerated maturity
hereof or upon the prepayment in full hereof.
Payments hereunder shall be made to BankBoston, N.A., as agent for the
payee hereof, at 100 Federal Street, Boston, MA 02110.
This Note evidences borrowings under, and is entitled to the benefits
of, and is subject to the provisions of, the Credit Agreement dated as of April
10, 1998, as from time to time in effect (the "Credit Agreement"), among the
Company, the payee hereof and certain other lenders. The principal of this Note
is prepayable in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement. Terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so defined.
In case an Event of Default shall occur and be continuing, the entire
principal of this Note may become or be declared due and payable in the manner
and with the effect provided in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE
COMMONWEALTH OF MASSACHUSETTS.
The parties hereto, including the Company and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Note, except as specifically
<PAGE>
otherwise provided in the Credit Agreement, and assent to extensions of time of
payment, or forbearance or other indulgence without notice.
THE COLONIAL GROUP, INC.
By __________________________
Title:
-2-
<PAGE>
Exhibit 2.2.3
-------------
REVOLVING NOTE
RN- April 10, 1998
FOR VALUE RECEIVED, the undersigned The Colonial Group, Inc., a
Massachusetts corporation (the "Company"), hereby promises to pay [insert
lender] (the "Lender") or order, on the Conversion Date (as defined in the
Credit Agreement referred to below), the aggregate unpaid principal amount of
the loans made by the Lender to the Company pursuant to the Credit Agreement.
The Company promises to pay daily interest from the date hereof, computed as
provided in such Credit Agreement, on the aggregate principal amount of such
loans from time to time unpaid at the per annum rate applicable to such unpaid
principal amount as provided in such Credit Agreement and to pay interest on
overdue principal and, to the extent not prohibited by applicable law, on
overdue installments of interest and fees at the rate specified in such Credit
Agreement, all such interest being payable at the times specified in such Credit
Agreement, except that all accrued interest shall be paid at the stated or
accelerated maturity hereof or upon the final prepayment in full hereof.
Payments hereunder shall be made to BankBoston, N.A., as agent for the
payee hereof, at 100 Federal Street, Boston, MA 02110.
All loans made by the Lender pursuant to the Credit Agreement referred
to below and all repayments of the principal thereof shall be recorded by the
Lender and, prior to any transfer hereof, appropriate notations to evidence the
foregoing information with respect to each such loan then outstanding shall be
endorsed by the Lender on the schedule attached hereto or on a continuation of
such schedule attached to and made a part hereof; provided, however, that the
failure of the Lender to make any such recordation or endorsement shall not
affect the obligations of the Company under this Note, such Credit Agreement or
under any other Credit Document.
This Note evidences borrowings under, and is entitled to the benefits
of, and is subject to the provisions of, the Credit Agreement dated as of April
10, 1998, as from time to time in effect (the "Credit Agreement") , among the
Company, the payee hereof and certain other lenders. The principal of this Note
is prepayable in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement. Terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so defined.
In case an Event of Default shall occur and be continuing, the entire
principal of this Note may become or be declared due and payable in the manner
and with the effect provided in the Credit Agreement.
-3-
<PAGE>
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF
MASSACHUSETTS.
The parties hereto, including the Company and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Note, except as specifically otherwise provided in the
Credit Agreement, and assent to extensions of time of payment, or forbearance or
other indulgence without notice.
THE COLONIAL GROUP, INC.
By _________________________
Title:
-4-
<PAGE>
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amount of Unpaid
Amount Principal Principal Notation
Date of Loan Repaid Balance Made By
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
Exhibit 2.3.2
-------------
TERM LOAN B NOTE
TNB- April 9, 1999
FOR VALUE RECEIVED, the undersigned The Colonial Group, Inc., a
Massachusetts corporation (the "Company"), hereby promises to pay [Insert
lender] (the "Lender") or order, on the Final Maturity Date (as defined in the
Credit Agreement referred to below), __________ DOLLARS ($________) or such
lesser principal amount hereunder as may then be outstanding. The Company
promises to pay daily interest from the date hereof, computed as provided in
such Credit Agreement, on the aggregate principal amount from time to time
unpaid at the per annum rate applicable to such unpaid principal amount as
provided in such Credit Agreement and to pay interest on overdue principal and,
to the extent not prohibited by applicable law, on overdue installments of
interest and fees at the rate specified in such Credit Agreement, all such
interest being payable at the times specified in such Credit Agreement, except
that all accrued interest shall be paid at the stated or accelerated maturity
hereof or upon the prepayment in full hereof.
Payments hereunder shall be made to BankBoston, N.A., as agent for the
payee hereof, at 100 Federal Street, Boston, MA 02110.
This Note evidences borrowings under, and is entitled to the benefits
of, and is subject to the provisions of, the Credit Agreement dated as of April
10, 1998, as from time to time in effect (the "Credit Agreement"), among the
Company, the payee hereof and certain other lenders. The principal of this Note
is prepayable in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement. Terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so defined.
In case an Event of Default shall occur and be continuing, the entire
principal of this Note may become or be declared due and payable in the manner
and with the effect provided in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE
COMMONWEALTH OF MASSACHUSETTS.
The parties hereto, including the Company and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Note, except as specifically
<PAGE>
otherwise provided in the Credit Agreement, and assent to extensions of time of
payment, or forbearance or other indulgence without notice.
THE COLONIAL GROUP, INC.
By __________________________
Title:
-2-
<PAGE>
Exhibit 5.1.4
-------------
THE COLONIAL GROUP, INC.
SUBSIDIARY GUARANTEE
This Agreement, dated as of April __, 1998, is among Colonial
Management Associates, Inc., a Massachusets corporation, Colonial Investors
Service Center, Inc., a Massachusetts corporation ("CISC"), Colonial Advisory
Services, Inc., a Massachusetts corporation, Liberty Financial Advisors, Inc., a
Delaware corporation, and the other Subsidiaries from time to time party hereto
(with CISC, the "Guarantors"), and BankBoston, N.A., as agent (the "Agent") for
itself and the other Lenders under the Credit Agreement referred to below. The
parties agree as follows:
1. Background; Certain Rules of Construction. Each Guarantor is a subsidiary of
The Colonial Group, Inc., a Massachusetts corporation (the "Company"). The
Lenders are providing loans to the Company under the Credit Agreement dated as
of the date hereof among the Company, the Lenders, and the Agent (as from time
to time in effect, the "Credit Agreement"). As a condition to providing the
loans under the Credit Agreement, the Lenders are requiring that the Guarantors
guarantee the payment in full of all Credit Obligations. Capitalized terms
defined in the Credit Agreement are used herein as so defined. Except as the
context otherwise requires, references in this Agreement to "Sections" are to
sections hereof.
2. Guarantees.
2.1. Guarantees of Credit Obligations. Each Guarantor unconditionally
guarantees that the Credit Obligations will be performed and will be paid in
full in cash when due and payable, whether at the stated or accelerated maturity
thereof or otherwise, this guarantee being a guarantee of payment and not of
collectability and being absolute and in no way conditional or contingent. In
the event that any part of the Credit Obligations shall not have been paid in
full when due and payable, each Guarantor will, immediately upon written notice
by the Agent or, without notice, immediately upon the occurrence of a Bankruptcy
Default, pay or cause to be paid to the Agent on behalf of itself and the other
Lenders the amount of the Credit Obligations that are then due and payable and
unpaid. The obligations of each Guarantor hereunder shall not be affected by the
invalidity, unenforceability or irrecoverability of any of the Credit
Obligations as against the company or any other Person. For purposes hereof, the
Credit Obligations shall be due and payable when and as the same shall be due
and payable under the terms of the Credit Agreement and the Notes,
notwithstanding the fact that the collection or enforcement thereof may be
stayed or enjoined under the federal Bankruptcy Code, as from time to time in
effect, or under other applicable law.
<PAGE>
2.2. Continuing Obligation. Each Guarantor acknowledges that the
Lenders have entered into the Credit Agreement in reliance on this Agreement
being a continuing irrevocable agreement, and each Guarantor agrees that its
guarantee may not be revoked in whole or in part. The obligations of the
Guarantors hereunder shall terminate when the commitment of the Lenders to
extend credit under the Credit Agreement shall have been terminated and all of
the Credit Obligations have been indefeasibly paid in full in cash and
discharged; provided, however, that if a claim is made upon the Lenders at any
time for repayment or recovery of any amounts or any property received by the
Lenders from any source on account of any of the Credit Obligations and the
Lenders shall repay or return any amounts or property so received (including
interest thereon to the extent required to be paid by the Lenders), then each
Guarantor shall remain liable under this Agreement for the amounts so repaid or
returned (such amounts being deemed part of the Credit Obligations) to the same
extent as if such amounts had never been received by the Lenders,
notwithstanding any termination hereof or the cancellation of any instrument or
agreement evidencing any of the Credit Obligations. Each Guarantor shall, not
later than 10 days after receipt of notice from the Agent, pay to the Agent on
behalf of itself and the other Lenders an amount equal to the amount of such
repayment or return for which the Lenders have so become liable. Payments
hereunder by the Guarantors may be required by the Agent on any number of
occasions.
2.3. Waivers with Respect to Credit Obligations. Except to the extent
expressly required by this Agreement, the Credit Agreement or the Notes, each
Guarantor waives, to the extent not prohibited by the provisions of applicable
law that may not be waived, all of the following (including all defenses,
counterclaims and other rights of any nature based upon any of the following):
(a) presentment, demand for payment and protest of nonpayment
of any of the Credit Obligations, and notice of protest, dishonor or
nonperformance;
(b) notice of acceptance of this guarantee and notice that
credit has been extended in reliance on each Guarantor's guarantee of
the Credit Obligations;
(c) notice of any Default or of any inability to enforce
performance of the obligations of the Company under the Credit
Agreement or the Notes;
(d) demand for performance or observance of, and any
enforcement of any provision of, the Credit Obligations, this
Agreement, the Credit Agreement or the Notes or against the Company or
any Person in respect of the Credit Obligations or any requirement of
diligence or promptness on the part of the Agent or the other Lenders
in connection with any of the foregoing;
(e) any act or omission on the part of the Agent or the other
Lenders that may impair or prejudice the rights of each Guarantor,
including rights to obtain
-2-
<PAGE>
exoneration, contribution, indemnification or any other reimbursement
from the Company or any other Person;
(f) any act or omission that might vary the risk of each
Guarantor or otherwise operate as a deemed release or discharge;
(g) any statute or rule of law that provides that the
obligation of a surety must be neither larger in amount nor in other
respects more burdensome than the obligation of the principal;
(h) the provisions of any "one action" or "anti-deficiency"
law that would otherwise prevent the Agent or the other Lenders from
bringing any action, including any claim for a deficiency, against each
Guarantor before or after the Agent's or the other Lenders'
commencement or completion of any foreclosure action, whether
judicially, by exercise of power of sale or otherwise, or any other law
which would otherwise require any election of remedies by the Agent or
the other Lenders;
(i) all demands and notices of every kind with respect to the
foregoing; and
(j) to the extent not referred to above, all defenses that the
Company may now or hereafter have to the payment of the Credit
Obligations, together with all suretyship defenses, that could
otherwise be asserted by each Guarantor.
No delay or omission on the part of the Agent or the other Lenders in
exercising any right under this Agreement, the Credit Agreement or the Notes or
under any guarantee of the Credit Obligations shall operate as a waiver or
relinquishment of such right. No action that the Agent or the other Lenders may
take or refrain from taking with respect to the Credit Obligations, including
any amendments thereto or modifications thereof or waivers with respect thereto,
shall affect the provisions of this Agreement or the obligations of each
Guarantor hereunder. None of the Agent's or the other Lenders' rights shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Company, or by any noncompliance by the Company with the terms,
provisions and covenants of this Agreement, the Credit Agreement or the Notes,
regardless of any knowledge thereof which the Agent or the other Lenders may
have or with which they may otherwise be charged.
2.4. Agent's Power to Waive, etc. Each Guarantor grants to the Agent
full power in its discretion, without notice to or consent of such Guarantor,
such notice and consent being expressly waived to the fullest extent permitted
by applicable law, and without in any way affecting the liability of such
Guarantor under its guarantee hereunder:
(a) to waive compliance with, and any Default under, and to
consent to any amendment to or modification or termination of any terms
or provisions of, or to give
-3-
<PAGE>
any waiver in respect of, this Agreement, the Credit Agreement or the
Notes, the Credit Obligations or any guarantee thereof (each as from
time to time in effect);
(b) to grant any extensions of the Credit Obligations (for any
duration), and any other indulgence with respect thereto, and to effect
any total or partial release (by operation of law or otherwise),
discharge, compromise or settlement with respect to the obligations of
the Company or any other Person in respect of the Credit Obligations,
whether or not rights against the Guarantors under this Agreement are
reserved in connection therewith;
(c) to take security in any form for the Credit Obligations
and to obtain, modify or release any present or future guarantees of
the Credit Obligations and to proceed against any such guarantees or
security in any order;
(d) to collect or liquidate or realize upon any of the Credit
Obligations in any manner or to refrain from collecting or liquidating
or realizing upon any of the Credit Obligations; and
(e) to extend credit under the Credit Agreement, the Notes or
other Credit Documents in such amount as the Agent may determine, even
though the condition of the Company (financial or otherwise) may have
deteriorated since the date hereof.
2.5. Information Regarding the Company. Each Guarantor acknowledges
that it has made such investigation as it deems desirable of the risks
undertaken by it in entering into this Agreement and is fully satisfied that it
understands all such risks. Each Guarantor waives any obligation that may now or
hereafter exist on the part of the Agent or the other Lenders to inform it of
the risks being undertaken by entering into this Agreement or of any changes in
such risks and, from and after the date hereof, each Guarantor undertakes to
keep itself informed of such risks and any changes therein. Each Guarantor
expressly waives any duty that may now or hereafter exist on the part of the
Agent or the other Lenders to disclose to such Guarantor any matter related to
the business, operations, character, collateral, credit, condition (financial or
otherwise), income or prospects of the company or its properties or management,
whether now or hereafter known by the Agent or the other Lenders. Each Guarantor
represents, warrants and agrees that it has received a copy of the Credit
Agreement from the Company and that it assumes sole responsibility for obtaining
from the Company all information concerning this Agreement, the Credit Agreement
or the Notes and all other information as to the Company and its properties or
management as each Guarantor deems necessary or desirable.
2.6. No Subrogation. Each Guarantor agrees with the Agent that it
waives all rights of reimbursement, subrogation, contribution, effect and other
claims against the Agent arising by contract or operation of law in connection
with any payment made or required to be made by such Guarantor under this
Agreement.
-4-
<PAGE>
2.7. Further Assurances. Each Guarantor will, promptly upon the request
of the Agent from time to time, execute, acknowledge and deliver, and file and
record, all such instruments and other documents, and take all such action, as
the Agent deems necessary or advisable to carry out the intent and purposes of
this Agreement.
3. Representations and Warranties of the Guarantors. Each Guarantor represents
and warrants that:
3.1. Certain Guarantor Representations. Each Guarantor has determined
that (a) it is in its best interest to induce the Agent and the other Lenders to
enter into the Credit Agreement and to extend credit to the Company by making
the guarantees contemplated by this Agreement, (b) the benefits of the credit
made available to the Company under the Credit Agreement will directly or
indirectly inure to its benefit, and (c) by virtue of the foregoing it is
receiving at least reasonably equivalent consideration from the Agent for its
guarantee. Each Guarantor acknowledges that it has been advised by the Agent
that the Agent and the other Lenders are unwilling to enter into the Credit
Agreement unless the guarantees contemplated by this Agreement are given by such
Guarantor.
3.2. Legal Existence and Organization; Authorization of Agreement. Each
Guarantor is a duly organized and validly existing entity, in good standing
under the laws of the state of its organization, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this Agreement
and (b) own its properties and carry on the business now conducted or proposed
to be conducted by it. Each Guarantor has taken all action necessary to make the
provisions of this Agreement the valid and enforceable obligations that they
purport to be.
3.3. Enforceability. Each Guarantor has duly executed and delivered
this Agreement. This Agreement is the legal, valid and binding obligation of
each Guarantor and is enforceable in accordance with its terms.
3.4. No Legal Obstacle to Agreement. The execution and delivery of this
Agreement has not resulted in or will not result in any breach or termination of
the provisions of any agreement, instrument, deed or lease to which any
Guarantor is a party, or the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to any Guarantor.
4. Guarantors Contribution Agreement. The Guarantors agree that in the event any
Subsidiary other than CISC joins this Agreement, such other Subsidiary and CISC
shall enter into a Guarantors Contribution Agreement on terms and conditions
satisfactory to the Agent and that each Subsidiary becoming party to this
Agreement shall also become a party to such Guarantors Contribution Agreement.
-5-
<PAGE>
5. Course of Dealing; Amendments and Waivers. No course of dealing between the
Agent or the other Lenders and the Company or any Guarantor shall operate as a
waiver of any of the Agent's or the other Lenders' rights under this Agreement,
the Credit Agreement or the Notes or with respect to the Credit Obligations. No
delay or omission on the part of the Agent or the other Lenders in exercising
any right under this Agreement, the Credit Agreement or the Notes or with
respect to the Credit Obligations shall operate as a waiver of such right or any
other right hereunder or thereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
No waiver, consent or amendment with respect to this Agreement, the Credit
Agreement or the Notes shall be binding unless it is in writing and signed by
the Agent.
6. Successors and Assigns. Any reference in this Agreement to any of the parties
hereto shall be deemed to include the successors and assigns of such party, and
all covenants and agreements by or on behalf of any Guarantor or the Agent that
are contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns; provided, however, that no Guarantor may
assign its rights or obligations under this Agreement without the written
consent of the Agent.
7. Notices. Any notice, demand or other communication in connection with this
Agreement shall be deemed to be given if given in writing (including telex,
telecopy or similar teletransmission), addressed as provided below (or to the
addressee at such other address as the addressee shall have specified by notice
actually received by the addressor), and if either (a) actually delivered in
fully legible form to such address (evidenced in the case of a telex by receipt
of the correct answerback) or (b) in the case of a letter, five days shall have
elapsed after the same shall have been deposited in the United States mails,
with first-class postage prepaid and registered or certified.
If to any Guarantor, to it in care of the Company at its address
provided in the Credit Agreement.
If to the Agent, to its address provided in the Credit Agreement.
8. Venue; Service of Process. Each Guarantor by its execution hereof:
(a) irrevocably submits to the nonexclusive jurisdiction of
the state courts of The Commonwealth of Massachusetts and to the
nonexclusive jurisdiction of the United States District Court for the
District of Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement, the Credit
Agreement or the Notes or the subject matter hereof or thereof; and
(b) waives to the extent not prohibited by applicable law, and
agrees not to assert, by way of motion, as a defense or otherwise, in
any such proceeding brought in any of the above-named courts, any claim
that it is not subject personally to the
-6-
<PAGE>
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement, the Credit Agreement or the Notes, or the subject
matter hereof or thereof, may not be enforced in or by such court.
Each of the Guarantors and the Agent consents to service of process in any such
proceeding in any manner permitted by Chapter 223A of the General Laws of The
Commonwealth of Massachusetts and agrees that service of process by registered
or certified mail, return receipt requested, at its address specified in or
pursuant to Section 6 is reasonably calculated to give actual notice.
9. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE GUARANTORS AND THE AGENT WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING
ARISING OUT OF THIS AGREEMENT, THE CREDIT AGREEMENT OR THE NOTES OR THE SUBJECT
MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH
THE DEALINGS OF THE COMPANY, THE GUARANTORS OR THE AGENT IN CONNECTION WITH ANY
OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
IN CONTRACT, TORT OR OTHERWISE. Each Guarantor acknowledges that it has been
informed by the Agent that the provisions of this Section 8 constitute a
material inducement upon which the Lenders have relied and will rely in entering
into the Credit Agreement and the other Credit Documents, and that it has
reviewed the provisions of this Section 8 with its counsel. Each of the
Guarantors and the Agent may file an original counterpart or a copy of this
Section 8 with any court as written evidence of the consent of each Guarantor
and the Agent to the waiver of their rights to trial by jury.
10. General. All covenants, agreements, representations and warranties made in
this Agreement shall be deemed to have been relied on by the Agent,
notwithstanding any investigation made by the Agent on its behalf, and shall
survive the execution and delivery to the Agent hereof. The invalidity or
unenforceability of any provision hereof shall not affect the validity or
enforceability of any other provision hereof. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Agreement, the Credit Agreement, the Notes and the other
Credit Documents constitute the entire understanding of the parties with respect
to the subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral. This Agreement may be
executed in any number of counterparts which together shall constitute one
instrument. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF
MASSACHUSETTS.
-7-
<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered as an agreement under seal as of the date first above written.
BANKBOSTON, N.A.
as Agent
By ____________________________
Title:
COLONIAL MANAGEMENT ASSOCIATES,
INC.
By ____________________________
Title:
COLONIAL INVESTORS SERVICE CENTER,
INC.
By _____________________________
Title:
COLONIAL ADVISORY SERVICES, INC.
By _____________________________
Title:
LIBERTY FINANCIAL ADVISORS, INC.
By _____________________________
Title:
-8-
<PAGE>
Exhibit 5.2.1
-------------
OFFICER'S CERTIFICATE
Pursuant to Section 5.2.1 of the Credit Agreement dated as of April 10,
1998, as now in effect (the "Credit Agreement"), among The Colonial Group, Inc.,
a Massachusetts corporation (the "Company"), the Lenders and BankBoston, N.A.,
as agent for itself and the other Lenders, the Company requests that a loan be
made on the date specified below (the "Closing Date") in the following principal
amount:
Closing Date:
Revolving Loan Principal Amount: $__________
[On Effective Date, Term Loan A Principal Amount: $__________]*
[On Conversion Date, Term Loan B Principal Amount: $__________]
In connection with the foregoing request, the Company certifies that
the representations and warranties contained in Section 7 of the Credit
Agreement are true and correct on and as of the date hereof with the same force
and effect as though originally made on and as of the date hereof; no Default
exists on the date hereof or will exist immediately after giving effect to the
extension of credit requested hereby; [on the Effective Date, the aggregate
investment assets under management by the Company and the Subsidiaries equals or
exceeds $__________;]* and no Material Adverse Change has occurred.
The foregoing representations and warranties shall be deemed made by
the Company on the requested Closing Date unless the Company shall have notified
the Agent in writing to the contrary prior to such Closing Date.
Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
This certificate has been executed by a duly authorized Executive
Officer or Financial Officer this ____ day of ___________, 199_.
THE COLONIAL GROUP, INC.
By _________________________
Title:
- ----------------
* Term Loan A Principal Amount and certification as to assets
under management made only as of the Effective Date.
-9-
<PAGE>
Exhibit 6.4.3
-------------
FUND RECONCILIATION REPORT
[To be supplied]
<PAGE>
Exhibit 6.14
------------
CDSC FEE STRUCTURE
CDSC Funds may have six Class B Share fee structures. The B1 structure is the
standard on the Colonial Fixed Income and non-Colonial Managed Equity Funds. The
B2 structure applies to the Colonial Managed Equity Funds. The B3-B5 structures
may be implemented at a future date as a standard addition to the B1 and B2
structures on Class B Share purchases at various breakpoints between $100,000
and $1,000,000. The B6 structure presently applies to all Class B Share
purchases in the Short Duration U.S. Government and Intermediate Tax-Exempt
funds. After the number of years set forth below, Class B Shares convert to
Class A Shares with no further Distribution Fee or Redemption Fee. The six fee
structures and CDSC Funds to which each is presently applicable follows:
<TABLE>
<CAPTION>
Type of Fee Structure: B1 B2 B3 B4 B5 B6
-- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
Commission Paid: 4.00% 5.00% 3.25% 2.25% 1.75% 3.00%
Distribution Fee: 0.75% 0.75% 0.75% 0.75% 0.75% 0.65%
Number of Years Before
Conversion to Class A Shares: 8.0 8.0 5.5 4.0 3.0 8.0
Redemption Fee:
Year 1 5% 5% 4% 3% 2% 4%
2 4 4 3 2 2 3%
3 3 3 2 1 1 2%
4 3 3 2 0 1%
5 2 2 1 0%
6 1 1 0 0%
7 0 0 0%
8 0 0 0%
</TABLE>
CDSC Funds Presently Utilizing B1 Structure:
<TABLE>
<CAPTION>
Equity Fund Tax-Exempt Funds Taxable Fixed-Income Fund
----------- ---------------- -------------------------
<S> <C> <C>
Newport Greater China Municipal Money Market Federal Securities
Newport Japan Opportunities High Yield Municipal High Yield Securities
Newport Tiger Tax-Exempt Income
Newport Tiger Cub Tax-Exempt Insured Intermediate U.S. Government
Stein Roe Advisor Growth Stock California Tax Exempt Money Market
Stein Roe Tax Managed Growth Connecticut Tax-Exempt Strategic Income
Florida-Tax Exempt
Massachusetts Tax-Exempt
Michigan Tax-Exempt
Minnesota Tax-Exempt
New York Tax-Exempt
North Carolina Tax-Exempt
Ohio Tax-Exempt
</TABLE>
<PAGE>
CDSC Funds Presently Utilizing B2 Structure:
Equity Funds (Core Colonial Equity)
- -----------------------------------
Global Equity
Global Utilities
International Fund for Growth
International Horizons
Select Value
Small Cap Value
Strategic Balanced
The Colonial Fund
U.S. Stock
Utilities
CDSC Funds Presently Using B6 Structure:
- ----------------------------------------
Short Duration U.S. Government
Intermediate Tax-Exempt
-12-
<PAGE>
Exhibit 7.1
-----------
COMPANY AND THE SUBSIDIARIES
April 7, 1998
<TABLE>
<CAPTION>
Company Name State of Jurisdiction Where Shares Authorized/
and Address Inc. Trade Name Trade Name Used Shares Issued Shares Owned By
- ----------- --- ---------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
The Colonial Group, Inc. MA The Colonial Group, Inc. MA 1,001/1,000 LFC
One Financial Center
Boston, MA 02111
Colonial Management MA Colonial Management MA 178,426/160,583 TCG
Associates, Inc. Associates, Inc.
One Financial Center
Boston, MA 02111
Colonial Investors MA Colonial Investors MA,CO 15,000/100 TCG
Service Center, Inc. Service Center, Inc.
One Financial Center
Boston, MA 02111
Colonial Advisory MA Colonial Advisory MA 1,000/100 TCG
Services, Inc. Services, Inc.
One Financial Center
Boston, MA 02111
Liberty Financial MA Liberty Financial All 50 states, 200,000/100 CMA
Investments, Inc. Investments, Inc. D.C., P.R.
One Financial Center
Boston, MA 02111
Alpha Trade Inc. MA AlphaTrade Inc. MA 200,000/100 CMA
One Financial Center
Boston, MA 02111
Liberty Financial DE Liberty Financial Various 1,000/1,000 CMA
Advisors, Inc. Advisors, Inc. States
</TABLE>
- -----------------
Colonial Management Associates = CMA
The Colonial Group, Inc. = TCG
Liberty Financial Companies, Inc. = LFC
<PAGE>
Exhibit 11.1.1
--------------
ASSIGNMENT AND ACCEPTANCE
This Agreement, dated as of ___________, 19__, is between
________________, a Lender under the Credit Agreement referred to below (the
"Assignor"), and ____________ (the "Assignee").
For valuable consideration, the receipt of which is hereby
acknowledged, the Assignor agrees with the Assignee as follows:
1. Reference to Credit Agreement and Definitions. Reference is made to
the Credit Agreement dated as of April 10, 1998, as from time to time in effect
(the "Credit Agreement"), among The Colonial Group, Inc., a Massachusetts
corporation (the "Company"), and the Lenders, and BankBoston, N.A., as agent
(the "Agent") for itself and the other Lenders. Terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
2. Assignment and Assumption. Without recourse, representation or
warranty of any kind (other than as set forth in Section 3 below), the Assignor
hereby sells and assigns to the Assignee, and the Assignee hereby purchases and
assumes from the Assignor, the interests set forth on Exhibit A hereto (the
"Assigned Interests") in and to all the Assignor's rights and obligations under
the Credit Agreement and the other Credit Documents (other than Interest Rate
Protection Agreements) as of the Assignment Date (as defined in Exhibit A
hereto).
3. Representations, Warranties, etc.
3.1. Assignor's Representations and Warranties. The Assignor:
(a) represents that as of the date hereof, it owns the
Assigned Interests beneficially and of record, free of any Liens or
adverse claims;
(b) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or
the other Credit Documents or any other instrument or document
furnished pursuant thereto or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit
Agreement or the other Credit Documents or any other instrument or
document furnished pursuant thereto, other than that it is the legal
and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; and
-1-
<PAGE>
(c) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company
or any Subsidiary or the performance by the Company or any Subsidiary
of its obligations under the Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant
thereto.
3.2. Assignee's Representations, Warranties and Agreements. The
Assignee:
(a) represents and warrants that it is legally authorized to
enter into this Agreement;
(b) confirms that it has received a copy of the Credit
Agreement and certain other Credit Documents it has requested, together
with copies of the most recent financial statements delivered pursuant
to Section 6.4 of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Agreement;
(c) agrees that it will, independently and without reliance
upon the Assignor or any other Person which has become a Lender, and
based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not
taking action under the Credit Agreement and the other Credit
Documents;
(d) appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under the Credit
Agreement and other Credit Documents as are delegated to the Agent by
the terms thereof, together with such powers as are reasonably
incidental thereto; and
(e) agrees that it will be bound by the provisions of the
Credit Agreement and will perform in accordance with their terms all
the obligations which by the terms of the Credit Agreement and the
other Credit Documents are required to be performed by it as a Lender.
3.3. Qualified Institutional Buyer. The Assignee represents and
warrants that it is a Qualified Institutional Buyer.
3.4. US Withholding Tax. The Assignee represents and warrants that (a)
it is incorporated or organized under the laws of the United States of America
or a state thereof or (b) it will perform all of its obligations relating to
United States income tax withholding under Section 13 of the Credit Agreement.
5. Assignee Party to Credit Agreement; Assignor Release of Obligations.
From and after the Assignment Date, (a) the Assignee shall be a party to the
Credit Agreement and,
-2-
<PAGE>
to the extent provided in this Agreement, have the rights and obligations of a
Lender thereunder and under the other Credit Documents and (b) the Assignor
shall, to the extent provided in this Agreement, relinquish its rights and be
released from its obligations under the Credit Agreement and the other Credit
Documents.
6. Notices. All notices and other communications required to be given
or made to the Assignee under this Agreement, the Credit Agreement or any other
Credit Documents shall be given or made at the address of the Assignee set forth
on Exhibit A hereto or at such other address as the Assignee shall have
specified to the Assignor, the Agent and the Company in writing.
7. Further Assurances. The parties hereto agree to execute and deliver
such other instruments and documents and to take such other actions as any party
hereto may reasonably request in connection with the transactions contemplated
by this Agreement.
8. General. This Agreement, the Credit Agreement and the other Credit
Documents constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and thereof and supersede all current and prior
agreements and understandings, whether written or oral, with respect to such
subject matter. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. The invalidity
or unenforceability of any term or provision hereof shall not affect the
validity or enforceability of any other term or provision hereof. This Agreement
may be executed in any number of counterparts, which together shall constitute
one instrument, and shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, including as such successors and
assigns all holders of any Credit Obligation. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS
RULES) OF THE COMMONWEALTH OF MASSACHUSETTS.
-3-
<PAGE>
Each of the Assignor and the Assignee has caused this Agreement to be
executed and delivered by its duly authorized officer under seal as of the date
first written above.
ASSIGNOR
_______________________________
By ____________________________
Title:
ASSIGNEE
_______________________________
By ____________________________
Title:
The foregoing is hereby approved:
THE COLONIAL GROUP, INC.
By ____________________________
Title:
BANKBOSTON, N.A.
as Agent
By ____________________________
Title:
-4-
<PAGE>
THE COLONIAL GROUP, INC.
Exhibit A
to
Assignment and Acceptance
-------------------------
1. Parties
-------
Assignor: ___________________________________________________
Assignee: ___________________________________________________
Assignee Address: ___________________________________________
___________________________________________
___________________________________________
Assignee Telecopy: __________________________________________
2. Assignment Date: ____________________________________________
----------------
3. Assigned Interests
------------------
Outstanding Revolving Loan: $_____________________________
Outstanding Term Loan A: $_____________________________
Outstanding Term Loan B: $_____________________________
Commitment: $_____________________________
(sum of assigned unfunded commitment
plus amounts set forth above)
Unpaid interest and commitment fees with respect to the assigned
credits described above, accrued through the Assignment Date, are for the
account of the Assignor unless set forth to the contrary herein.
-5-
<PAGE>
4. Assignor's Post Assignment Interests
------------------------------------
After giving effect to this assignment, the Assignor represents that
its interests in the following credits are summarized as follows:
Revolving Loan Commitment: $______________________
Term Loan A Commitment: $______________________
Term Loan B Commitment: $______________________
5. Assignee's Post Assignment Interests
------------------------------------
After giving effect to this assignment, the Assignee represents that
its interests in the following credits are summarized as follows:
Revolving Loan Commitment: $______________________
Term Loan A Commitment: $______________________
Term Loan B Commitment: $______________________
-6-
<TABLE>
Liberty Financial Companies, Inc.
Exhibit 12 - Statement re Computation of Ratios
($ in millions)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings:
Pretax income $49.4 $47.8 $138.3 $143.5
Add fixed charges:
Interest on indebtedness 5.2 5.3 15.4 16.2
Portion of operating leases
representing the interest factor 1.1 1.0 3.2 3.1
Accretion to face value of
redeemable convertible
preferred stock 0.2 0.2 0.6 0.6
-------- -------- -------- --------
Sub-total of income as adjusted 55.9 54.3 157.5 163.4
Interest on fixed annuities
and financial products 143.3 150.9 425.6 445.4
-------- -------- -------- --------
Total income as adjusted $199.2 $205.2 $583.1 $608.8
======== ======== ======== ========
Fixed charges:
Interest on indebtedness $5.2 $ 5.3 $15.4 $16.2
Portion of operating leases
representing the interest factor 1.1 1.0 3.2 3.1
Accretion to face value of
redeemable convertible
preferred stock 0.2 0.2 0.6 0.6
-------- -------- -------- --------
Sub-total of fixed charges 6.5 6.5 19.2 19.9
Interest on fixed annuities
and financial products 143.3 150.9 425.6 445.4
-------- -------- -------- --------
Combined fixed charges 149.8 157.4 444.8 465.3
Preferred stock dividends 0.4 0.4 1.1 1.1
-------- -------- -------- --------
Fixed charges and preferred
stock dividends $150.2 $157.8 $445.9 $466.4
======== ======== ======== ========
Ratio of earnings to fixed charges:
Excluding interest on fixed
annuities and financial products 8.60x 8.35x 8.20x 8.21x
======== ======== ======== ========
Including interest on fixed
annuities and financial products 1.33x 1.30x 1.31x 1.31x
======== ======== ======== ========
Ratio of earnings to combined fixed
charges and preferred stock dividends:
Excluding interest on fixed
annuities and financial products 8.10x 7.87x 7.76x 7.78x
======== ======== ======== ========
Including interest on fixed
annuities and financial products 1.33x 1.30x 1.31x 1.31x
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 11,447
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 56
<MORTGAGE> 56
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,581
<CASH> 1,388
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 282
<TOTAL-ASSETS> 16,595
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,343
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 229
0
15
<COMMON> 1
<OTHER-SE> 1,278
<TOTAL-LIABILITY-AND-EQUITY> 16,595
0
<INVESTMENT-INCOME> 612
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 292
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 53
<UNDERWRITING-OTHER> 238
<INCOME-PRETAX> 138
<INCOME-TAX> 44
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.00
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
