<PAGE>
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 March 31, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-13654
LIBERTY FINANCIAL COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3260640
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
600 Atlantic Avenue, Boston, Massachusetts 02210-2214
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(Address of principal executive offices) (Zip Code)
(617) 722-6000
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(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 46,700,514 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 April 30, 1999.
Exhibit Index - Page 21 Page 1 of 131
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LIBERTY FINANCIAL COMPANIES, INC.
QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31,
1998 3
Consolidated Income Statements for the Three Months Ended March 31, 1999 and 1998
4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 5
Consolidated Statement of Stockholders' Equity for the Three Months Ended
March 31, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
</TABLE>
2
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LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
----------------- -----------------
UNAUDITED
<S> <C> <C>
ASSETS
Assets:
Investments $12,817.2 $12,598.3
Cash and cash equivalents 1,267.7 984.1
Accrued investment income 168.4 161.0
Deferred policy acquisition costs 372.8 341.0
Value of insurance in force 69.6 66.6
Deferred distribution costs 139.4 130.2
Intangible assets 288.7 292.8
Other assets 195.1 179.6
Separate account assets 2,365.2 1,765.5
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$17,684.1 $16,519.1
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----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policyholder balances $12,414.0 $12,504.1
Notes payable 506.9 486.4
Payable for investments purchased and loaned 845.8 240.4
Other liabilities 289.1 278.4
Separate account liabilities 2,322.5 1,723.2
----------------- -----------------
Total liabilities 16,378.3 15,232.5
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Series A redeemable convertible preferred stock, par value $.01;
authorized, issued and outstanding 324,759 shares in 1999 and
1998 15.5 15.3
----------------- -----------------
Stockholders' Equity:
Common stock, par value $.01; authorized 100,000,000 shares,
issued and outstanding 46,682,877 shares in 1999 and
46,384,015 shares in 1998 0.5 0.5
Additional paid-in capital 906.3 901.5
Retained earnings 368.7 346.4
Accumulated other comprehensive income 18.7 27.2
Unearned compensation (3.9) (4.3)
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Total stockholders' equity 1,290.3 1,271.3
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$17,684.1 $16,519.1
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------
1999 1998
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<S> <C> <C>
Investment income $206.2 $207.4
Interest credited to policyholders (134.8) (142.1)
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INVESTMENT SPREAD 71.4 65.3
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NET REALIZED INVESTMENT GAINS (LOSSES) (3.1) 2.2
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Fee income:
Investment advisory and administrative fees 66.2 56.8
Distribution and service fees 14.7 12.6
Transfer agency fees 12.9 12.2
Surrender charges and net commissions 8.4 8.4
Separate account fees 6.6 4.7
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TOTAL FEE INCOME 108.8 94.7
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Expenses:
Operating expenses (88.7) (79.9)
Amortization of deferred policy acquisition costs (22.0) (19.0)
Amortization of deferred distribution costs (9.5) (9.0)
Amortization of value of insurance in force (2.2) (1.5)
Amortization of intangible assets (5.0) (3.5)
Interest expense, net (5.7) (3.9)
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TOTAL EXPENSES (133.1) (116.8)
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PRETAX INCOME 44.0 45.4
Income tax expense (16.6) (13.9)
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NET INCOME $27.4 $31.5
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Net income per share - basic $0.59 $0.70
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Net income per share - assuming dilution $0.58 $0.67
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</TABLE>
See accompanying notes to consolidated financial statements.
4
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LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27.4 $ 31.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20.4 19.0
Interest credited to policyholders 134.8 142.1
Net realized investment losses (gains) 3.1 (2.2)
Net amortization on investments 21.3 39.3
Change in deferred policy acquisition costs (2.1) (0.2)
Net change in other assets and liabilities (22.9) (18.5)
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Net cash provided by operating activities 182.0 211.0
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased available for sale (1,519.4) (1,145.3)
Investments sold available for sale 1,190.8 1,034.0
Investments matured available for sale 80.8 287.5
Change in policy loans, net (4.2) (9.0)
Change in mortgage loans, net 40.9 1.4
Other (5.8) (7.7)
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Net cash (used in) provided by investing activities (216.9) 160.9
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CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals from policyholder accounts (456.3) (393.1)
Deposits to policyholder accounts 154.9 167.4
Securities lending 599.5 (23.2)
Change in notes payable 20.5 (4.0)
Exercise of stock options 1.5 2.5
Dividends paid (1.6) (1.4)
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Net cash provided by (used in) financing activities 318.5 (251.8)
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Increase in cash and cash equivalents 283.6 120.1
Cash and cash equivalents at beginning of period 984.1 1,290.1
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Cash and cash equivalents at end of period $1,267.7 $1,410.2
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</TABLE>
See accompanying notes to consolidated financial statements.
5
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LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
UNAUDITED
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME COMPENSATION EQUITY
----------- ------------ ------------ ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1998 $0.5 $901.5 $346.4 $27.2 $(4.3) $1,271.3
Effect of stock-based
compensation plans 1.5 0.4 1.9
Accretion to face value
of preferred stock (0.2) (0.2)
Common stock
dividends 3.3 (4.7) (1.4)
Preferred stock
dividends (0.2) (0.2)
Net income 27.4 27.4
Other comprehensive
income, net of tax (8.5) (8.5)
----------- ------------ ------------ ----------------- ---------------- -----------------
BALANCE,
MARCH 31, 1999 $0.5 $906.3 $368.7 $18.7 $(3.9) $1,290.3
----------- ------------ ------------ ----------------- ---------------- -----------------
----------- ------------ ------------ ----------------- ---------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<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 1998
Form 10-K. The results of operations for the three months ended March 31,
1999 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. SEGMENT INFORMATION
The Company is an asset accumulation and management company with two
reportable 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
at The Colonial Group ("Colonial"), an investment advisor, distributor and
transfer agent to mutual funds, Stein Roe & Farnham Incorporated, a
diversified investment advisor, Newport Pacific Management, Inc., an
investment advisor to mutual funds and institutional accounts specializing
in Asian equity markets, Crabbe Huson Group, Inc. ("Crabbe Huson"), an
investment advisor to mutual funds and institutional accounts, Progress
Investment Management Company ("Progress"), an investment advisor to
institutional accounts, and Liberty Asset Management Company, an
investment advisor to mutual funds. The asset management business derives
fee income from investment products and services.
The Company's reportable segments offer different products and are each
managed separately. Information by reportable segment is shown below (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------------
1999 1998
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<S> <C> <C>
Statement of Operations Data
REVENUES (EXCLUDING NET REALIZED INVESTMENT GAINS AND LOSSES):
Annuity:
Unaffiliated $219.8 $219.0
Intersegment (2.9) (2.3)
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Total annuity 216.9 216.7
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Asset management:
Unaffiliated 95.2 83.1
Intersegment 2.9 2.3
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Total asset management 98.1 85.4
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Total revenues (excluding net realized investment gains and losses) $315.0 $302.1
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</TABLE>
7
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------------
1999 1998
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<S> <C> <C>
INCOME BEFORE INCOME TAXES:
Annuity:
Income before amortization of intangible assets $42.2 $36.6
Amortization of intangible assets (0.3) (0.3)
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Subtotal annuity 41.9 36.3
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Asset management:
Income before amortization of intangible assets 22.0 21.4
Amortization of intangible assets (4.6) (3.1)
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Subtotal asset management 17.4 18.3
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Other:
Loss before amortization of intangible assets (12.1) (11.3)
Amortization of intangible assets (0.1) (0.1)
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Subtotal other (12.2) (11.4)
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Income before net realized investment gains (losses) and income taxes 47.1 43.2
Net realized investment gains (losses) (3.1) 2.2
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Total income before income taxes $44.0 $45.4
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</TABLE>
3. INVESTMENTS
Investments were comprised of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
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<S> <C> <C>
Fixed maturities $11,475.6 $1,277.2
Equity securities 23.0 24.6
Policy loans 583.0 578.9
Other invested assets 735.6 717.6
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Total $12,817.2 $12,598.3
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</TABLE>
The Company's general investment policy is to hold fixed maturity
securities 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 portfolio of
fixed maturity securities as "available for sale" and accordingly carries
such investments at fair value.
8
<PAGE>
4. NET INCOME PER SHARE
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
MARCH 31
-------------------------------
1999 1998
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<S> <C> <C>
Numerator (in millions)
Net income $27.4 $31.5
Less: preferred stock dividends (0.2) (0.2)
--------------- ---------------
Numerator for net income per share -
basic - income available to common stockholders 27.2 31.3
Plus: income impact of assumed conversions
Preferred stock dividends 0.2 0.2
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Numerator for net income per share - assuming
dilution - income available to common stockholders
after assumed conversions $27.4 $31.5
Denominator
Denominator for net income per share - basic -
weighted-average shares 46,335,719 44,747,459
Effect of dilutive securities:
Employee stock options 689,044 1,828,980
Convertible preferred stock 514,370 517,474
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Dilutive potential common shares 1,203,414 2,346,454
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Denominator for net income per share - assuming
dilution 47,539,133 47,093,913
--------------- ---------------
--------------- ---------------
Net income per share - basic $0.59 $0.70
--------------- ---------------
--------------- ---------------
Net income per share - assuming dilution $0.58 $0.67
--------------- ---------------
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</TABLE>
5. COMPREHENSIVE INCOME
Comprehensive income was comprised of the following (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------
1999 1998
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<S> <C> <C>
Net income $27.4 $31.5
Other comprehensive income, net of tax:
Change in net unrealized investment gains (8.5) 4.9
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Comprehensive income $18.9 $36.4
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</TABLE>
9
<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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
NET INCOME was $27.4 million or $0.58 per share in the first quarter of
1999 compared to $31.5 million or $0.67 per share in the first quarter of 1998.
The decrease of $4.1 million in 1999 compared to 1998 resulted primarily from
higher income tax expense and from net realized investment losses in 1999
compared to net realized investment gains in 1998. Operating expenses,
amortization expense and interest expense, net also increased. Offsetting these
items were higher investment spread and fee income.
PRETAX INCOME was $44.0 million in the first quarter of 1999 compared to
$45.4 million in the first quarter of 1998. The lower pretax income in 1999
compared to 1998 resulted primarily from net realized investment losses in 1999
compared to net realized investment gains in 1998. Operating expenses,
amortization expense and interest expense, net also increased. Offsetting these
items were higher investment spread and fee income.
INVESTMENT SPREAD is the amount by which investment income earned on the
Company's investments exceeds interest credited on policyholder balances.
Investment spread was $71.4 million in the first quarter of 1999 compared to
$65.3 million in the first quarter of 1998. The amount by which the average
yield on investments exceeds the average interest credited rate on policyholder
balances is the investment spread percentage. Such investment spread percentage
in the first quarter of 1999 was 1.99% compared to 1.89% in the first quarter of
1998.
Investment income was $206.2 million in the first quarter of 1999 compared
to $207.4 million in the first quarter of 1998. The decrease of $1.2 million in
1999 compared to 1998 primarily relates to an $8.6 million decrease resulting
from a lower average investment yield, largely offset by a $7.4 million increase
as a result of the higher level of average invested assets. The 1999 investment
income was net of $19.4 million of S&P 500 Index call option amortization
expense related to the Company's equity-indexed annuities compared to $17.3
million in 1998. The average investment yield was 6.31% in the first quarter of
1999 compared to 6.58% in the first quarter of 1998.
Interest credited to policyholders totaled $134.8 million in the first
quarter of 1999 compared to $142.1 million in the first quarter of 1998. The
decrease of $7.3 million in 1999 compared to 1998 primarily relates to an $11.1
million decrease resulting from a lower average interest credited rate,
partially offset by a $3.8 million increase as a result of a higher level of
average policyholder balances. Policyholder balances averaged $12.5 billion
(including $10.4 billion of fixed products, consisting of fixed annuities and a
closed block of single premium whole life insurance, and $2.1 billion of
equity-indexed annuities) in the first quarter of 1999 compared to $12.1 billion
(including $10.5 billion of fixed products and $1.6 billion of equity-indexed
annuities) in the first quarter of 1998. The average interest credited rate was
4.32% (5.02% on fixed products and 0.85% on equity-indexed annuities) in the
first quarter of 1999 compared to 4.69% (5.31% on fixed products and 0.85% on
equity-indexed annuities) in the first quarter of 1998. Keyport's equity-indexed
annuities credit interest to the policyholder at a "participation rate" equal to
a portion (ranging for existing policies from 25% to 95%) of the change in value
of the S&P 500 Index. Keyport's equity-indexed annuities also provide a 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 was offset by investment income
recognized on the S&P 500 Index call options and futures resulting in a 0.85%
net credited rate.
Average investments in the Company's general account (computed without
giving effect to Statement of Financial Accounting Standards No. 115), including
a portion of the Company's cash and cash equivalents, were $13.1 billion in the
first quarter of 1999 compared to $12.6 billion in the first quarter of 1998.
The increase of $0.5 billion in 1999 compared to 1998 was primarily due to the
reinvestment of portfolio earnings for the twelve months ended March 31, 1999.
11
<PAGE>
NET REALIZED INVESTMENT GAINS (LOSSES) were $(3.1) million in the first
quarter of 1999 compared to $2.2 million in the first quarter of 1998. The net
realized investment losses in 1999 resulted from the sales of fixed maturity
investments. The net realized investment gains in 1998 included gains on the
sales of fixed maturity investments of $0.8 million and gains on sales of
general corporate securities of $1.4 million.
INVESTMENT ADVISORY AND ADMINISTRATIVE FEES are based on the market value
of assets managed for mutual funds, wealth management and institutional
investors. Investment advisory and administrative fees were $66.2 million in the
first quarter of 1999 compared to $56.8 million in the first quarter of 1998.
The increase of $9.4 million in 1999 compared to 1998 primarily reflects a
higher level of average fee-based assets under management.
Average fee-based assets under management were $47.4 billion in the first
quarter of 1999 compared to $39.4 billion in the first quarter of 1998. The
increase of $8.0 billion during 1999 compared to 1998 resulted from acquisitions
and net sales for the twelve months ended March 31, 1999. Investment advisory
and administrative fees were 0.56% of average fee-based assets under management
in the first quarter of 1999 and 0.58% in the first quarter of 1998.
The amount of fee-based assets under management is affected by product
sales and redemptions, acquisitions and 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).
FEE-BASED ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
AS OF MARCH 31
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Mutual Funds:
Intermediary-distributed $17.7 $16.8
Direct-marketed 6.6 7.6
Closed-end 2.4 2.3
Variable annuity 1.6 1.4
----------- -----------
28.3 28.1
Private Capital Management 8.1 7.2
Institutional 11.0 5.5
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Total fee-based assets under management* $47.4 $40.8
----------- -----------
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</TABLE>
- --------------
* As of March 31, 1999 and 1998, Keyport's insurance assets of $13.4 billion
and $13.0 billion, respectively, bring total assets under management to
$60.8 billion and $53.8 billion, respectively.
CHANGES IN FEE-BASED ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Fee-based assets under management - beginning $47.9 $38.7
Sales and reinvestments 2.6 1.9
Redemptions and withdrawals (2.9) (1.7)
Market appreciation (depreciation) (0.2) 1.9
----------- -----------
Fee-based assets under management - ending $47.4 $40.8
----------- -----------
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</TABLE>
12
<PAGE>
DISTRIBUTION AND SERVICE FEES are based on the market value of the
Company's intermediary-distributed mutual funds. Distribution fees of 0.75% are
generally earned on the average assets attributable to such funds sold with
12b-1 distribution fees and 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 $14.7 million
in the first quarter of 1999 compared to $12.6 million in the first quarter of
1998. The increase of $2.1 million in 1999 compared to 1998 was primarily
attributable to the higher asset levels of mutual funds with 12b-1 distribution
fees and contingent deferred sales charges. As a percentage of weighted average
assets, distribution and service fees were approximately 0.70% in the first
quarter of 1999 and 0.71% in the first quarter of 1998.
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 $12.9 million on average assets of $26.0 billion in the first quarter
of 1999 and $12.2 million on average assets of $25.0 billion in the first
quarter of 1998. The increase of $0.7 million in 1999 compared to 1998 was
primarily due to higher average assets. As a percentage of total average mutual
fund assets under management, transfer agency fees were approximately 0.20% in
each of the first quarters of 1999 and 1998.
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 12b-1 distribution
fees and 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 $8.4 million in each of the first
quarters of 1999 and 1998.
Surrender charges on fixed 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 and $5.3 million
in the first quarters of 1999 and 1998, respectively. Total annuity withdrawals
represented 12.8% and 14.1% of the total average annuity policyholder and
separate account balances in the first quarters of 1999 and 1998, respectively.
Net commissions were $2.9 million in the first quarter of 1999 and $3.1 million
in the first quarter of 1998.
SEPARATE ACCOUNT FEES are primarily mortality and expense charges earned on
variable annuity and variable life policyholder balances. These fees, which are
primarily based on the market values of the assets in separate accounts
supporting the contracts, were $6.6 million in the first quarter of 1999
compared to $4.7 million in the first quarter of 1998. Such fees represented
1.28% and 1.43% of average variable annuity and variable life separate account
balances in the first quarters of 1999 and 1998, respectively.
OPERATING EXPENSES primarily represent compensation, marketing, and other
general and administrative expenses. These expenses were $88.7 million in the
first quarter of 1999 compared to $79.9 million in the first quarter of 1998.
The increase in 1999 compared to 1998 was primarily due to the acquisitions of
Crabbe Huson and Progress in the second half of 1998 and to increases in
compensation and marketing expenses. Operating expenses expressed as a percent
of average total assets under management were 0.59% and 0.61% in the first
quarters of 1999 and 1998, 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 $22.0
million in the first quarter of 1999 compared to $19.0 million in the first
quarter of 1998. The increase in amortization in 1999 compared to 1998 was
primarily related to the increase in investment spread from the growth of
business in force associated with fixed and indexed products and the increased
sales of variable annuity products. Amortization expense represented 28.2% and
27.2% of investment spread and separate account fees in the first quarters of
1999 and 1998, respectively.
13
<PAGE>
AMORTIZATION OF DEFERRED DISTRIBUTION COSTS relates to the distribution of
mutual fund shares sold with 12b-1 distribution fees and contingent deferred
sales charges. Amortization was $9.5 million in the first quarter of 1999
compared to $9.0 million in the first quarter of 1998. The increase in
amortization in 1999 compared to 1998 was primarily attributable to the
continuing sales of such fund shares during 1999 and 1998.
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 $2.2 million
in the first quarter of 1999 compared to $1.5 million in the first quarter of
1998.
AMORTIZATION OF INTANGIBLE ASSETS relates to goodwill and certain
identifiable intangible assets arising from business combinations accounted for
as purchases. Amortization was $5.0 million in the first quarter of 1999
compared to $3.5 million in the first quarter of 1998. The increase in
amortization in 1999 compared to 1998 was primarily related to acquisitions
completed in the second half of 1998.
INTEREST EXPENSE, NET was $5.7 million in the first quarter of 1999
compared to $3.9 million in the first quarter of 1998. The increase of $1.8
million was due to a $3.7 million increase in interest expense on debt and on
Colonial's revolving credit facility which is utilized to finance deferred sales
commissions paid in connection with the distribution of mutual fund shares sold
with 12b-1 distribution fees and contingent deferred sales charges. Partially
offsetting these items was a $1.9 million increase in interest income which is
netted against interest expense.
INCOME TAX EXPENSE was $16.6 million or 37.7% of pretax income in the first
quarter of 1999 compared to $13.9 million, or 30.6% of pretax income in the
first quarter of 1998. The significantly lower tax rate on pre-tax income in
1998 was primarily related to a reduction in the deferred tax asset valuation
allowance on federal net operating loss carryforwards.
FINANCIAL CONDITION
STOCKHOLDERS' EQUITY as of March 31, 1999 was $1.29 billion compared to
$1.27 billion as of December 31, 1998. Net income in the first quarter of 1999
was $27.4 million and cash dividends on the Company's preferred and common stock
totaled $1.6 million. Common stock totaling $1.5 million was issued in
connection with the exercise of stock options. A decrease in accumulated other
comprehensive income which consists of net unrealized investment gains, net of
adjustments to deferred policy acquisition costs, value of insurance in force
and income taxes, during the period decreased stockholders' equity by $8.5
million.
BOOK VALUE PER SHARE amounted to $27.64 at March 31, 1999 compared to
$27.41 at December 31, 1998. Excluding net unrealized gains on investments, book
value per share amounted to $27.24 at March 31, 1999 and $26.82 at December 31,
1998. As of March 31, 1999, there were 46.7 million common shares outstanding
compared to 46.4 million shares as of December 31, 1998.
INVESTMENTS not including cash and cash equivalents, totaled $12.8
billion at March 31, 1999 compared to $12.6 billion at December 31, 1998.
The Company manages the majority of its invested assets internally. The
Company's general investment policy is to hold fixed maturity securities 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 portfolio of fixed maturity
securities as "available for sale" and accordingly carries such investments at
fair value. The Company's total investments at March 31, 1999 and December 31,
1998 reflected net unrealized gains of $54.8 million and $105.3 million,
respectively, relating to its fixed maturity and equity portfolios.
Approximately $11.9 billion, or 83.8%, of the Company's general account and
certain separate account investments at March 31, 1999, were 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 March 31, 1999, the carrying value of investments in
below investment grade securities represented 8.6% of general
14
<PAGE>
account and certain separate account investments. 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.
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 maturity
securities, management also considers market value quotations if available. As
of March 31, 1999, the carrying value of fixed maturity securities that were
non-income producing was $23.3 million.
DERIVATIVES
As a component of its investment strategy and to reduce its exposure to
interest rate risk, the Company utilizes interest rate swap agreements and
interest rate cap agreements to match assets more closely to liabilities.
Interest rate 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 interest rate swap agreements to reduce asset duration and to
better match interest earned on longer-term fixed-rate assets with interest
credited to policyholders. The Company had 64 and 42 outstanding interest rate
swap agreements with an aggregate notional principal amount of $2.8 billion and
$2.4 billion as of March 31, 1999 and December 31, 1998, respectively.
Interest rate 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 March 31,
1999 and December 31, 1998.
With respect to the Company's equity-indexed annuities, the Company buys
call options and futures on the S&P 500 Index to hedge its obligations to
provide returns based upon this index. The Company had call options with a
carrying value of $585.5 million and $535.7 million as of March 31, 1999 and
December 31, 1998, respectively. The Company had futures with a carrying value
of $(0.1) million and $(0.6) million as of March 31, 1999 and December 31, 1998,
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 non-performance. 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. Futures contracts trade on organized exchanges and
therefore, have minimal credit risk. In addition, swap and cap agreements have
interest rate risk and call options and futures 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 and futures 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 and futures 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. The Company'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
15
<PAGE>
500 Index call options and futures 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 on the balance sheet 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 impact of this
statement.
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,
short-term and long-term borrowings and offerings of preferred and common stock.
In April, 1999, the Company replaced its $60.0 million revolving credit
facility, which was utilized to finance sales commissions paid in connection
with the distribution of mutual fund shares sold with 12b-1 distribution fees
and contingent deferred sales charges, with a new $150.0 million revolving
credit facility (the "Facility") to be used for the same purpose. This new
five year Facility is secured by such 12b-1 distribution fees and contingent
deferred sales charges. Interest accrues on the outstanding borrowings under
the Facility at a rate determined by sales of highly rated commercial paper
backed in part by the security interest in such fees and charges. At April
30, 1999, the interest paid on borrowings under the Facility was at the rate
of 5.30% per annum.
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 March 31, 1999, the amount of dividends that
Keyport could pay without such approval was $59.1 million. Keyport paid
dividends of $20.0 million during 1998 but had not previously paid any dividends
since its acquisition in 1988. Future regulatory changes and credit agreements
may 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 may 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, private capital 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 the
Facility described above.
16
<PAGE>
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 March 31, 1999, $10.6 billion, or 74.4% 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. In addition, the
Company's fixed-rate products incorporate surrender charges to encourage
persistency and to make the cost of its policyholder balances more predictable.
Approximately 79.8% of the Company's fixed annuity policyholder balances were
subject to surrender charges or restrictions as of March 31, 1999.
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.
The Company relies significantly on computer systems and applications in its
operations. Some of these systems are not presently Year 2000 compliant. If not
corrected, this could cause system failures. Such failures could have an adverse
effect on the Company causing disruption of operations, including, among other
things, an inability to process transactions.
In addressing the Year 2000 issue, the Company has completed an inventory
of its information technology systems and assessed its Year 2000 readiness. The
Company's systems include internally developed programs, third-party purchased
programs and third-party custom developed programs. For programs which were
identified as not being Year 2000 compliant, the Company has implemented a
remediation plan which includes repairing or replacing the programs and testing
for Year 2000 compliance. The remediation plan is substantially complete and is
currently in the final testing phase. The Company also identified its
non-information technology systems affected by Year 2000 issues. The Company
initiated remediation efforts in this area and expects to complete this phase
during 1999.
The Company has initiated communication with third parties to determine the
extent to which the Company's systems are vulnerable to those third parties'
failure to remediate their own Year 2000 issues. The Company received feedback
from such parties and is in the process of requesting confirmation from these
parties with respect to remediation of their Year 2000 issues.
The Company is developing, and will continue to develop, contingency plans
for dealing with adverse effects that are known 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 systems rely 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.
17
<PAGE>
EFFECTS OF INFLATION
Inflation has not had a material effect on the Company's consolidated
results of operations to date. 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 example, 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. Inflation may result in
increased operating expenses that may not be readily recoverable in the prices
of the services charged by the Company.
FORWARD-LOOKING STATEMENTS
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act").
Investors are cautioned that all statements, trend analyses and other
information contained in this report or in any of the Company's filings under
Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), relative to the markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate", "believe", "plan", "estimate", "expect", "intend"
and other similar expressions, constitute forward-looking statements under the
Reform Act. These forward-looking statements are subject to known and unknown
risks, uncertainties and other factors, many of which are beyond the Company's
control, that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) general economic conditions and market factors, such as
prevailing interest rate levels, stock market performance and fluctuations in
the market for retirement-oriented savings products and investment management
products, which may adversely affect the ability of the Company to sell its
products and services and the market value of the Company's investments and
assets under management and, therefore, the portion of its revenues that are
based on a percentage of assets under management; (2) the Company's ability to
manage effectively its investment spread (i.e. the amount by which investment
income exceeds interest credited to annuity and life insurance policyholders) as
a result of changes in interest rates and crediting rates to policyholders,
market conditions and other factors (the Company's results of operations and
financial condition are significantly dependent on the Company's ability to
manage effectively its investment spread); (3) levels of surrenders, withdrawals
and net redemptions of the Company's retirement-oriented insurance products and
investment management products; (4) relationships with investment management
clients, including levels of assets under management; (5) the ability of the
Company to manage effectively certain risks with respect to its investment
portfolio, including risks relating to holding below investment grade securities
and the ability to dispose of illiquid and/or restricted securities at desired
times and prices, and the ability to manage and hedge against interest rate
changes through asset/liability management techniques; (6) competition in the
sale of the Company's products and services, including the Company's ability to
establish and maintain relationships with distributors of its products; (7)
changes in financial ratings of Keyport or those of its competitors; (8) the
Company's ability to attract and retain key employees, including senior
officers, portfolio managers and sales executives; (9) the impact of and
compliance by the Company with existing and future regulation, including
restrictions on the ability of certain subsidiaries to pay dividends and any
obligations of the Company under any guaranty fund assessment laws; (10) changes
in applicable tax laws which may affect the relative tax advantages and
attractiveness of some of the Company's products; (11) the result of any
litigation or legal proceedings involving the Company; (12) changes in generally
accepted accounting principles and the impact of accounting principles and
pronouncements on the Company's financial condition and results of operation;
(13) the impact of Year 2000 issues on the operations of the Company and its
subsidiaries; (14) changes in the Company's senior debt ratings; and (15) the
other risk factors or uncertainties contained from time to time in any document
incorporated by reference in this report or otherwise filed by the Company under
the Exchange Act. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements and no assurances
can be given that the estimates and expectations reflected in such statements
will be achieved.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes during the first quarter of 1999 in the
Company's market risks or in the methods which the Company uses to manage such
risks, which are described in the Company's 1998 Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 Revolving Credit Agreement dated as of April 12, 1999 among Liberty
Funds Group LLC, Corporate Receivables Corporation, Citibank,
N.A. and Citicorp North America, Inc.
10.2 Pledge and Security Agreement dated as of April 12, 1999 between
Liberty Funds Distributor, Inc. and Citicorp North America, Inc.
10.3 Undertaking dated as of April 12, 1999 among Liberty Financial
Companies, Inc., Colonial Management Associates, Inc., Newport Fund
Management, Inc., Crabbe Huson Group, Inc., Stein Roe & Farnham
Incorporated and Citicorp North America, Inc.
12 Statement re Computation of Ratios
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended March 31,
1999.
19
<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: May 13, 1999
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------ -----
<S> <C> <C>
10.1 Revolving Credit Agreement dated as of April 12, 1999 among Liberty Funds Group
LLC, Corporate Receivables Corporation, Citibank, N.A. and Citicorp North America,
Inc. 22
10.2 Pledge and Security Agreement dated as of April 12, 1999 between Liberty Funds
Distributor, Inc. and Citicorp North America, Inc. 81
10.3 Undertaking dated as of April 12, 1999 among Liberty Financial
Companies, Inc., Colonial Management Associates, Inc., Newport
Fund Management, Inc., Crabbe Huson Group, Inc., Stein Roe &
Farnham Incorporated and Citicorp North America, Inc.
110
12 Statement re Computation of Ratios 130
27 Financial Data Schedule 131
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
REVOLVING CREDIT AGREEMENT
among
LIBERTY FUNDS GROUP LLC,
as Borrower
CORPORATE RECEIVABLES CORPORATION,
as Lender
CITIBANK, N.A.,
as Secondary Lender
and
CITICORP NORTH AMERICA, INC.,
as Agent
Dated as of April 12, 1999
- --------------------------------------------------------------------------------
<PAGE>
13620.110 #69659 [Type VII-C]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
<S> <C>
SECTION 1.01. Definitions; Terminology; Rules of Construction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Computation of Time Periods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
ADVANCES TO THE BORROWER
SECTION 2.01. Advance Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.02. Making of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.03. Advance Notes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.04. Maturity of the Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.05. Prepayment of the Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.06. Yield.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.07. Increased Costs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.08. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.09. Additional Yield on Eurodollar Rate Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.10. Termination or Reduction of the Total Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.11. Rescission or Return of Payment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
i
<PAGE>
SECTION 2.12. Fees Payable by Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.13. Post Default Interest.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.14. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.15. Borrower's Obligations Absolute.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ii
<PAGE>
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent to the Effectiveness of this Agreement.. . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.02. Conditions Precedent to All Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Borrower.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 5.02. Negative Covenants of the Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 7.02. Agent's Reliance, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. No Waiver; Modifications in Writing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
iii
<PAGE>
SECTION 8.03. Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 8.04. Costs and Expenses; Indemnification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 8.05. Execution in Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 8.06. Assignability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 8.07. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 8.08. Severability of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 8.09. Confidentiality.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 8.10. Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 8.11. No Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 8.12. Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 8.13. Submission to Jurisdiction; Waivers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 8.14. Waiver Of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
APPENDIX A DEFINITIONS LIST
EXHIBITS
EXHIBIT A Form of Advance Note
EXHIBIT B Form of Notice of Borrowing
EXHIBIT C Form of Assignment and Acceptance
</TABLE>
13620.110 #69659
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REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT, dated as of April 12, 1999 (this
Agreement") among CORPORATE RECEIVABLES CORPORATION, CITIBANK, N.A. and the
other Secondary Lenders (as hereinafter defined) from time to time parties
hereto, CITICORP NORTH AMERICA, INC., as agent for the Lender (as hereinafter
defined) and the Secondary Lenders (in such capacity, together with its
successors and assigns, the "Agent") and LIBERTY FUNDS GROUP LLC (together with
its permitted successors and assigns, the "Borrower").
W I T N E S S E T H:
WHEREAS, the Borrower desires that the Lender and the Secondary
Lenders from time to time make advances to the Borrower on the terms and subject
to the conditions set forth in this Agreement;
WHEREAS, the Lender and the Secondary Lenders are willing to make such
advances to the Borrower for such purposes on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01. DEFINITIONS; TERMINOLOGY; RULES OF CONSTRUCTION.
Unless otherwise defined herein capitalized terms shall have the
meanings assigned to such terms in Appendix A hereto. For all purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires (a) each use in this Agreement of a singular version of a
pronoun shall be deemed to include references to the plural, and vice versa, as
appropriate, (b) Article and Section headings are for convenience of reference
only and shall not affect the construction of this Agreement, and (c) references
to "this section" or words of similar import shall be deemed to refer to the
entire section and not to a particular subsection, and references to
"hereunder," "herein" or words of similar import shall be deemed to refer to
this entire Agreement and not to the particular section or subsection.
References in this Agreement to "including" means including without limiting the
generality of any description preceding such term. Each of the parties to this
Agreement and its counsel have reviewed and revised, or requested revisions to,
this Agreement, and the usual rule of construction that any
<PAGE>
ambiguities are to be resolved against the drafting party shall be inapplicable
in the construction and interpretation of this Agreement.
SECTION 1.02. COMPUTATION OF TIME PERIODS.
Unless otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" both mean "to but
excluding".
ARTICLE II
ADVANCES TO THE BORROWER
SECTION 2.01. ADVANCE FACILITY.
On the terms and conditions hereinafter set forth, including without
limitation, Sections 3.01 and 3.02, CRC may, in its sole discretion, make
Advances to the Borrower on any Borrowing Date from the date hereof to the
Lender Termination Date. On the terms and conditions hereinafter set forth,
including without limitation, Sections 3.01 and 3.02 and during the period from
the date hereof to the Secondary Lender Termination Date, the Secondary Lenders
shall make Advances to the Borrower, ratably in accordance with their respective
Secondary Lender Commitments, to the extent CRC has determined not to make such
Advance or if the Lender Termination Date has occurred. Under no circumstances
shall CRC or any Secondary Lender make any such Advance, to the extent that
after giving effect to the making of such Advance the aggregate principal amount
of all outstanding Advances would exceed the Total Commitment.
SECTION 2.02. MAKING OF ADVANCES.
(a) The Borrower shall give the Agent written notice (which notice
shall be irrevocable and effective only upon receipt by the Agent) of each
request for an Advance (each such request a "Notice of Borrowing") not later
than 12:00 noon (New York City time) on the day which is three (3) Business Days
prior to the proposed borrowing date, which notice shall specify (i) the
proposed borrowing date therefor (each such date, a "Borrowing Date"), and
(ii) the principal amount of the proposed Advance. Any such Notice of Borrowing
shall be substantially in the form of Exhibit B hereto, dated the date such
request is being made, and otherwise appropriately completed. Each Advance
shall be in a principal amount of at least $1,000,000 and in integral multiples
of $1,000,000 in excess thereof. During the period prior to the Lender
Termination Date, the Agent shall promptly notify the Borrower whether CRC has
determined to make such Advance. If CRC has determined not to make a
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proposed Advance or if the Lender Termination Date has occurred prior to the
Secondary Lender Termination Date, the Agent shall promptly send notice of the
proposed Advance to all of the Secondary Lenders concurrently by telecopier,
telex or cable specifying the Borrowing Date for such Advance, each Secondary
Lender's Percentage multiplied by the principal amount of such Advance and
whether the Yield for such Advance during the initial Settlement Period for such
Advance is to be calculated based on the Eurodollar Rate or the Alternate Base
Rate. On any Borrowing Date the Lender or the Secondary Lenders shall, subject
to the terms and conditions of this Agreement, make available to the Borrower at
the Borrower's Account the principal amount of the requested Advance in
immediately available funds. To the extent not covered by Section 2.08, the
Borrower shall indemnify CRC, each Secondary Lender and the Agent against any
loss or expense incurred by them as a result of any failure by the Borrower to
accept any Advance requested in a Notice of Borrowing or as a result of the
failure of the Borrower to receive any Advance requested in a Notice of
Borrowing as a result of the failure of any condition precedent to the making of
such Advance to be satisfied, including, without limitation, any loss or expense
incurred by reason of the liquidation or reemployment of funds acquired or
requested to fund such Advance.
(b) The parties hereto agree that on the Maturity Date of the
Advances made by CRC (the "CRC Maturity Date") so long as no Default or Event of
Default shall have occurred and be continuing on such date, and subject to the
other terms and conditions of this Agreement (other than the obligation to
deliver a Notice of Borrowing), the Secondary Lenders shall make an Advance (the
"Committed Advance") on such date in a principal amount equal to the outstanding
principal amount of the Advances funded by CRC, unless on or prior to the second
Business Day preceding the CRC Maturity Date the Borrower has delivered a
written notice to the Agent stating that it has elected not to receive such
Committed Advance. Notwithstanding anything in this Agreement to the contrary,
the principal amount of such Committed Advance shall be made ratably by the
Secondary Lenders to the Agent's Account and shall constitute a payment in full
by the Borrower in respect of the outstanding principal amount of the Advances
maturing on the CRC Maturity Date and shall be applied by the Agent on the CRC
Maturity Date to the outstanding principal amount of the Advances made by CRC.
SECTION 2.03. ADVANCE NOTES.
(a) All Advances by CRC and each Secondary Lender to the Borrower
shall be evidenced by separate Advance Notes, with appropriate insertions, which
shall (i) be payable to the order of CRC or each Secondary Lender, as the case
may be, and provide for the payment of the unpaid principal amount of the
Advances evidenced thereby on the Maturity Date for such Advances, (ii) require
that the Borrower pay Yield on the outstanding principal amount as provided in
Section 2.06 hereof, and (iii) be entitled to the benefits of this Agreement and
the other Facility Documents. The date and principal amount of each Advance and
of each repayment of principal thereon shall be recorded by CRC or the Secondary
Lenders, as the case may be, or their designee on Schedule I attached to CRC's
or such Secondary Lender's Advance Note and the aggregate unpaid principal
amount shown on such schedules shall be rebuttable presumptive evidence of the
principal amount owing and unpaid on the Advances. The failure to record or any
error in recording any such amount on such schedule shall not, however, limit or
otherwise affect the obligations of the Borrower hereunder or under any Advance
Note to repay
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the principal amount of the Advances together with all Yield thereon.
(b) The Borrower agrees that upon any Eligible Assignee becoming a
Secondary Lender hereunder in accordance with Section 8.06, it shall promptly
upon the request of the Agent execute and deliver an Advance Note payable to the
order of such Secondary Lender and otherwise appropriately completed.
SECTION 2.04. MATURITY OF THE ADVANCES.
It is understood and agreed that the principal amount of and the
unpaid Yield on each outstanding Advance shall be due and payable on the
Maturity Date for such Advance.
SECTION 2.05. PREPAYMENT OF THE ADVANCES.
(a) It is understood and agreed that the Borrower shall have the
right at any time and from time to time, upon not less than three (3) Business
Days' prior written or telephonic notice (in the case of telephonic notice,
promptly confirmed in writing) to the Agent specifying the date and amount of
such prepayment, to prepay all or a portion of the outstanding Advances,
together with unpaid Yield thereon, on a Business Day; provided, that any such
prepayment, if a partial prepayment, shall be an integral multiple of $1,000,000
with a minimum amount of $1,000,000.
(b) If at any time the Borrower is not in full compliance with the
Borrowing Base Test then the Borrower shall (A) promptly notify the Agent of
such failure to comply (which notice shall specify the amount by which Credits
Outstanding will have to be reduced to be in compliance with the Borrowing Base
Test (the "Excess Amount")), and (B) promptly (and no later than the next
Business Day) prepay the outstanding principal amount of the Advances (together
with Yield) in an amount necessary to remove such Excess Amount.
(c) The amount of each prepayment under this Section 2.05 shall be
applied to the Advances in the order in which such Advances were made.
SECTION 2.06. YIELD.
The Borrower hereby agrees to pay the Yield computed with reference to
the principal amount of each Advance outstanding from time to time. Yield
accruing in respect of any Advance for any Settlement Period shall be due and
payable on the Settlement Date immediately succeeding such Settlement Period and
as required by Section 2.05. It is the intention of the parties hereto that the
Yield on the Advances shall not exceed the maximum rate permissible under
applicable law. Accordingly, anything herein or in any Advance Note to the
contrary notwithstanding, in the event any Yield is charged to, collected from
or received from or on behalf of the Borrower by the Lender or the Secondary
Lenders pursuant hereto or thereto in excess of such maximum lawful rate, then
the excess of such payment over that maximum shall be applied first to the
payment of amounts
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owing by the Borrower to the Lender, the Secondary Lenders and the Agent under
the Facility Documents (other than in respect of principal and Yield on
Advances) and then to the reduction of the outstanding principal balance of the
Advances.
SECTION 2.07. INCREASED COSTS.
If, due to either (i) the introduction of or any change (other than
any change by way of imposition or increase of reserve requirements reflected in
the Eurodollar Rate Reserve Percentage) in or in the interpretation of any
Applicable Law or (ii) the compliance with any guideline or request from any
central bank or other Authority (whether or not having the force of law, but, if
not having the force of law, generally applicable to and complied with by banks
or financial institutions of the same general type as the Lender or the
Secondary Lender, as the case may be), there shall be any increase in the cost
to the Lender or any Secondary Lender, any entity which enters into a commitment
to make or purchase Advances of any interest therein under any Program
Documents, or any of their respective Affiliates or any corporation controlling
the Lender or any Secondary Lender (each an "Affected Person") of agreeing to
make or making, funding or maintaining Eurodollar Rate Advances to the Borrower,
then the Borrower shall from time to time, upon demand by such Affected Person
pay to the Agent for the account of such Affected Person additional amounts
sufficient to compensate such Affected Person for such increased cost. A
certificate as to the amount of such increased cost, submitted to the Borrower
by an Affected Person, shall be conclusive and binding for all purposes, absent
manifest error.
If an Affected Person determines that compliance with any Applicable
Law or request from any central bank or other Authority charged with the
interpretation or administration thereof (whether or not having the force of
law, but, if not having the force of law, generally applicable to and complied
with by banks or financial institutions of the same general type as such
Affected Person) affects or would affect the amount of capital required or
expected to be maintained by such Affected Person and that the amount of such
capital is increased by or based upon the existence of such Affected Person's
commitment under the Facility Documents or upon such Affected Person's making,
funding or maintaining Advances, then, upon demand of such Affected Person (with
a copy of such demand to the Agent), the Borrower shall immediately pay to the
Agent for the account of such Affected Person, from time to time as specified by
such Affected Person, additional amounts sufficient to compensate such Affected
Person in light of the circumstances. A certificate setting forth in reasonable
detail such amounts submitted to the Borrower by an Affected Person shall be
conclusive and binding for all purposes, absent manifest error.
SECTION 2.08. COMPENSATION.
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The Borrower shall compensate the Lender and each Secondary Lender,
upon its written request (which request shall set forth the basis for requesting
such amounts), for all reasonable losses, expenses and liabilities (including,
without limitation, any interest paid by the Lender and each Secondary Lender to
lenders of funds borrowed by it to make or carry its Eurodollar Rate Advances
and any loss sustained by the Lender or any such Secondary Lender in connection
with the re-employment of such funds), which the Lender or any such Secondary
Lender may sustain (other than losses and expenses for which the Borrower has
compensated the Lender or the Secondary Lenders through the payment of a
Liquidation Fee): (i) if for any reason (other than a default by the Lender or
such Secondary Lender) a borrowing of any Eurodollar Rate Advance by the
Borrower does not occur on a date specified therefor in the Notice of Borrowing
(whether or not withdrawn), (ii) if any prepayment of any of the Borrower's
Eurodollar Rate Advances occurs on a date which is not the last day of a
Settlement Period applicable thereto, (iii) if any prepayment of any of the
Borrower's Eurodollar Rate Advances is not made on any date specified in a
notice of prepayment given by the applicable Borrower, or (iv) as a consequence
of any other default by the Borrower to repay its Eurodollar Rate Advances when
required by the terms of this Agreement.
SECTION 2.09. ADDITIONAL YIELD ON EURODOLLAR RATE ADVANCES.
So long as the Lender or any Secondary Lender shall be required under
the regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, the Borrower shall pay to the Lender or such
Secondary Lender, the Eurodollar Additional Yield on the principal amount of
each outstanding Advance on each date on which Yield is payable on such Advance.
Such Eurodollar Additional Yield shall be determined by the Lender or such
Secondary Lender and notified to the Borrower through the Agent within thirty
(30) days after any Interest payment is made with respect to which such
additional Yield is requested. A certificate as to such Eurodollar Additional
Yield submitted to the Borrower and the Agent shall be conclusive and binding
for all purposes, absent manifest error.
SECTION 2.10. TERMINATION OR REDUCTION OF THE TOTAL COMMITMENT.
The Borrower may at any time, upon thirty (30) days' prior written
notice to the Agent terminate in whole or reduce in part the unused portion of
the Total Commitment; provided, that each such partial reduction of the Total
Commitment shall be in an amount equal to at least $5,000,000 or an integral
multiple thereof.
SECTION 2.11. RESCISSION OR RETURN OF PAYMENT.
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The Borrower further agrees that, if at any time all or any part of
any payment theretofore made by it to any Secured Party or their designees is or
must be rescinded or returned for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of the Borrower or any
of its Affiliates), the obligation of the Borrower to make such payment to such
Secured Party shall, for the purposes of this Agreement, to the extent that such
payment is or must be rescinded or returned, be deemed to have continued in
existence and this Agreement shall continue to be effective or be reinstated, as
the case may be, as to such obligations, all as though such payment had not been
made.
SECTION 2.12. FEES PAYABLE BY BORROWER.
The Borrower agrees to pay the Agent such fees as are set forth in the
Fee Letter.
SECTION 2.13. POST DEFAULT INTEREST.
The Borrower hereby promises to pay interest on the unpaid principal
amount of each Advance and any other amount payable by the Borrower hereunder,
in each case, which shall not be paid in full when due, for the period
commencing on the due date thereof until but not including the date the same is
paid in full at the Post-Default Rate. Interest payable at the Post-Default
Rate shall be payable on the Agent's demand.
SECTION 2.14. PAYMENTS.
(a) All amounts owing and payable by the Borrower to the Agent, the
Lender or any Secondary Lender, in respect of the Advances, including, without
limitation, the principal thereof, Yield, fees, expenses or other amounts
payable under the Facility Documents, shall be paid in Dollars, in immediately
available funds on or prior to 11:00 a.m. (New York City time) on the date due
without counterclaim, setoff, deduction, defense, abatement, suspension or
deferment to the Agent's Account. Any payment paid after 11:00 a.m. (New York
City time) on any day shall be deemed to have been made on the next Business Day
for all purposes of this Agreement.
(b) All computations of interest at the Post-Default Rate and all
computations of Yield, fees and other amounts hereunder shall be made on the
basis of a year of 360 days for the actual number of days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
such payment or deposit.
(c) Upon receipt of funds deposited into the Agent's Account, the
Agent shall distribute such funds, first to the Lender and the Secondary Lenders
in payment in full of all accrued and unpaid Yield owing to the Lender and
Secondary Lenders, second to the Lenders,
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the Secondary Lenders or the Agent in payment of any other fees or other amounts
owed by the Borrower to the Lender, the Secondary Lender and the Agent under
this Agreement and the other Facility Documents (other than in respect of the
principal amount of the Advances), and third to the payment of the principal
amount of the Advances.
SECTION 2.15. BORROWER'S OBLIGATIONS ABSOLUTE.
The Borrower's obligations under this Agreement and under the other
Facility Documents shall be absolute, unconditional and irrevocable, and shall
be paid strictly in accordance with the terms hereof and thereof, under any and
all circumstances and irrespective of any setoff, counterclaim or defense to
payment which the Borrower, any Advisor, the Distributor or any other Person may
have or have had against the Agent, the Lender, any Secondary Lender or any
other Person.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AGREEMENT.
The effectiveness of this Agreement and the Lender's and the Secondary
Lender's obligations hereunder shall be subject to the conditions precedent that
the Agent shall have received on or before the initial Borrowing Date the
following, each (unless otherwise indicated) in form and substance reasonably
satisfactory to the Agent in sufficient copies for the Lender and the Secondary
Lenders:
(a) each of the Facility Documents duly executed and delivered by the
parties thereto, which shall each be in full force and effect;
(b) the signed opinions of counsel to the Borrower, the Distributor,
the Parent and each Advisor addressed to the Agent, the Lender and each
Secondary Lender as to such matters as the Agent, the Lender and each Secondary
Lender shall have reasonably requested;
(c) all Governmental Authorizations, Private Authorizations and
Governmental Filings, if any, which may be required in connection with the
transactions contemplated by the Facility Documents;
(d) a certificate of the Secretary or Assistant Secretary or the
Clerk or Assistant Clerk, as the case may be, of each of the Distributor, the
Advisors, the Parent and, the Borrower certifying (i) as to its organizational
documents (ii) as to the resolutions of its Board of Directors, as applicable,
approving the Facility Documents to which it is a party and the transactions
contemplated thereby, (iii) that its representations and warranties set forth in
the Facility Documents are true and correct, and (iv) the incumbency and
specimen signature of each of its officers who have executed the Facility
Documents;
(e) acknowledgment copies or time stamped receipt copies of proper
financing statements, duly filed on or before the date of such initial borrowing
under the UCC in all jurisdictions that the Agent may deem necessary or
desirable in order to perfect the Secured
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Parties' first priority security interests in the Assigned Collateral;
(f) acknowledgment copies or time stamped receipt copies of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in the Assigned Collateral previously granted by the
Distributor;
(g) a pro forma Investor Report, which shall evidence compliance with
the terms of the Facility Documents after giving effect to the initial borrowing
of Advances under this Agreement;
(h) the fees to be received by it on or prior to the Closing Date
under the Fee Letter;
(i) the results of a recent search by a Person satisfactory to the
Agent of all UCC lien filings with respect to the Distributor, and such results
shall be satisfactory to the Agent;
(j) true, correct and complete copies of the Distribution Agreement,
Distribution Plans, Prospectuses and Advisory Agreements in respect of each
Fund, which shall each be in full force and effect; and
(k) such other instruments, certificates and documents as the Agent
shall have reasonably requested, all in form and substance satisfactory to the
Agent.
SECTION 3.02. CONDITIONS PRECEDENT TO ALL ADVANCES.
The obligation of the Lender and the Secondary Lenders to make any
Advance (including the initial Advance) on any Borrowing Date shall be subject
to the fulfillment of the following conditions:
(a) each of the representations and warranties of the Borrower, the
Distributor, the Parent and each Advisor contained in this Agreement, the
Security Agreement, the Undertaking and the other Facility Documents shall be
true and correct as of such date;
(b) no Default or Event of Default shall have occurred and be
continuing at the time of the making of such Advance or shall result from the
making of such Advance;
(c) the conditions precedent set forth in Section 3.01 shall have
been fully satisfied;
(d) the Agent shall have received true, correct and complete copies
of each Distribution Plan, Prospectus and Advisory Agreement for each Fund in
respect of which after the Closing Date the Distributor acts as distributor;
(e) immediately after giving effect to such Advance the Borrowing
Base Test shall be fully complied with;
(f) immediately after the making of any such Advance, the aggregate
outstanding principal amount of all Advances shall not exceed the Total
Commitment;
(g) the Agent shall have received such other instruments,
certificates
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and documents as the Agent shall reasonably request; and
(h) the Undertaking shall be in full force and effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
The Borrower represents and warrants to each of the Secured Parties on
and as of the Closing Date, each Borrowing Date and the last day of each
Settlement Period, as follows:
(a) the Borrower is duly organized and validly existing in good
standing under the laws of the State of Delaware, with full power and authority
to own and operate its assets and properties, conduct the business in which it
is now engaged and to execute and deliver and perform its obligations under this
Agreement and the other Facility Documents to which it is a party;
(b) the Borrower is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business, assets and
properties, including, without limitation, the performance of its obligations
under this Agreement and the other Facility Documents to which it is a party,
requires such qualification, except where the failure to be so qualified could
not give rise to the reasonable possibility of a Material Adverse Effect;
(c) the execution, delivery and performance by the Borrower of the
Facility Documents to which it is a party and the other instruments and
agreements contemplated thereby are within its powers and have been duly
authorized by all requisite action by the Borrower and have been duly executed
and delivered by the Borrower and constitute the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms;
(d) neither the execution and delivery by the Borrower of this
Agreement, the other Facility Documents to which it is a party, or any
instrument or agreement referred to herein or therein, or contemplated hereby or
thereby, nor the consummation of the transactions herein or therein
contemplated, nor compliance with the terms, conditions and provisions hereof or
thereof by it, will (i) conflict with, or result in a breach or violation of, or
constitute a default under its, LFSI's, the Parent's, any Advisor's, any of
their respective Subsidiaries' or LMIC's organizational documents, (ii) conflict
with or contravene any (A) Applicable Law, (B) any contractual restriction
binding on or affecting the Borrower, LFSI, the Parent, any Advisor, any of
their respective Subsidiaries, LMIC or any of their respective assets or
properties, (C) any order, writ, judgment, award, injunction or decree binding
on or affecting the Borrower, LFSI, the Parent, any Advisor, any of their
respective Subsidiaries, LMIC or any of their respective assets or properties,
(iii) result in a breach or violation of, or constitute a default under, or
permit the acceleration of any obligation or liability in, or but for any
requirement of the giving of notice or the passage of time (or both) would
constitute such a conflict with, breach or violation of, or
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default under, or permit any such acceleration in, any contractual obligation
or any agreement or document to which it, LFSI, the Parent, any Advisor, any of
their respective Subsidiaries or LMIC is a party or by which the Borrower, LFSI,
the Parent, any Advisor, any of their respective Subsidiaries, LMIC or any of
their respective properties are bound (or to which any such obligation,
agreement or document relates), (iv) result in any Adverse Claim upon any of the
Assigned Collateral, or (v) result in the termination of any Distribution
Agreement or Distribution Plan;
(e) the Borrower has obtained all necessary Governmental
Authorizations and Private Authorizations, and made all Governmental Filings
necessary for the execution, delivery and performance by the Borrower of this
Agreement, the other Facility Documents to which it is a party and the
agreements and instruments contemplated hereby or thereby, and no Governmental
Authorization, Private Authorization or Governmental Filing which have not been
obtained or made, is required to be obtained or made by it in connection with
the execution, delivery or performance of this Agreement and the other Facility
Documents, including without limitation the pledge of the Assigned Collateral
contemplated by this Agreement;
(f) the representations and warranties of the Distributor and each
Advisor set forth in the Facility Documents are true and correct;
(g) there are no pending or, to the best of the Borrower's knowledge,
threatened investigations, actions, suits or proceedings involving the Borrower
which give rise to a reasonable possibility of a Material Adverse Effect;
(h) the Prospectus, each Investor Report, each Notice of Borrowing
and all other written information, reports and statements provided by or on
behalf of the Borrower or any Affiliate of the Borrower to any Secured Party for
purposes of or in connection with this Agreement, the other Facility Documents
or the transactions contemplated hereby or thereby is, and all such information,
notices, reports and statements hereafter provided by or on behalf of the
Borrower or any of its Affiliates to any Secured Party will be true, correct and
complete in all material respects on the date such information, notice, report
or statement is stated or certified and on and as of the date such information,
notice, report or statement is stated or certified to, such information, notice,
report or statement does not contain, and will not contain, any
misrepresentation of a material fact or any omission to state therein matters
necessary to make the statements made therein not misleading in any material
respect when considered in its entirety;
(i) the Borrower is in compliance in all material respects with
Applicable Law;
(j) the Parent owns directly or indirectly all of the issued and
outstanding capital stock of Newport Fund Management, Inc. and Stein Roe &
Farnham Incorporated, the Parent directly owns all of the issued and outstanding
capital stock of LFSI and Crabbe Huson Group, Inc., LFSI is the sole member of
the Borrower, the Borrower directly owns all of the issued and outstanding
capital stock of Colonial Management Associates, Inc., and Colonial Management
Associates, Inc. directly owns all of the issued and outstanding stock of the
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Distributor;
(k) it and its Subsidiaries have fulfilled their obligations, if any,
under the minimum funding standards of ERISA and the Code with respect to any
Plan or Multi Employer Plan and is in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and has not incurred
any liability to the Pension Benefit Guaranty Corporation, a Multi Employer Plan
or a Plan under Title IV of ERISA other than a liability to the Pension Benefit
Guaranty Corporation for premiums under Section 407 of ERISA;
(l) its obligations under this Agreement to make payments to the
Secured Parties rank at least equally with indebtedness of the Borrower which is
not contractually subordinated;
(m) on each Borrowing Date and immediately after the making of each
Advance, it is in full compliance with the Borrowing Base Test and the other
conditions specified in Article III;
(n) the Borrower is taking all reasonable actions necessary to
mitigate the effect of the Year 2000 Problem on its computer systems;
(o) the Borrower has filed all United States Federal income tax
returns and all other material tax returns which are required to be filed by it,
if any, and has paid all taxes due pursuant to such returns, if any, or pursuant
to any assessment received by it, except for any taxes or assessments which are
being contested in good faith by appropriate proceedings and with respect
thereto adequate reserves have been established in accordance with GAAP and
which could otherwise not give rise to a reasonable possibility of a Material
Adverse Effect; and the charges, accruals and reserves on the books of the
Borrower in respect of taxes or other governmental charges, if any, are, in the
opinion of the Borrower, adequate;
(p) the statement of assets and liabilities of the Borrower as at
December 31, 1998, certified by Ernst & Young, LLP, certified public
accountants, fairly present in conformity with GAAP the financial position of
the Borrower at such date and since such date there has been no material adverse
change in the business, financial position or results of operations of the
Borrower; and
(q) the Shares of each Fund can only be exchanged for the Shares of
another Fund in respect of which the Agent has a first priority perfected
security interest in the Receivables relating to such Fund.
ARTICLE V
COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that it shall:
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(a) (i) duly observe, comply with and conform in all material
respects to all requirements of Applicable Law relative to the conduct of its
business or to its assets or properties, (ii) preserve and keep in full force
and effect its legal existence and its rights, privileges, qualifications and
franchises, and (iii) obtain, maintain and keep in full force and effect all
Governmental Authorizations, Private Authorizations and Governmental Filings
which are necessary or appropriate to properly carry out its business and the
transactions contemplated to be performed by the Borrower under this Agreement
and the other Facility Documents;
(b) cause to be computed, paid and discharged when due all taxes,
assessments and other governmental charges or levies imposed upon it, or upon
any of its income, assets or properties, prior to the day on which penalties are
attached thereto, unless and to the extent that the same shall be contested in
good faith by appropriate proceedings and with respect to which adequate
reserves have been established on the books of the Borrower in accordance with
GAAP and which could not otherwise subject it or its assets to any risk of
foreclosure, distraint, sale or other similar proceedings or give rise to a
reasonable possibility of a Material Adverse Effect;
(c) promptly, at its expense, execute and deliver such further
instruments and take such further action in order to establish and protect the
rights, interests and remedies created, or intended to be created, in favor of
the Secured Parties including, without limitation, all such actions which are
necessary or advisable to maintain and protect the Secured Parties' first
priority perfected security interest in the Assigned Collateral;
(d) keep proper books of record and account in accordance with its
normal business practice and GAAP in which full and appropriate entries shall be
made of all dealings or transactions in relation to its business and activities;
(e) promptly deliver to the Agent copies of any amendments or
modifications to its certificate of formation or limited liability company
agreement or other organizational documents, certified by an authorized officer
of LFSI;
(f) promptly give written notice to the Agent of the occurrence of
any Default or Event of Default or the failure of any conditions precedent set
forth in Article III to be fully satisfied;
(g) to the extent obtained or received by it, furnish or cause to be
furnished to the Agent a copy of all Private Authorizations and all Governmental
Authorizations obtained or required to be obtained by the Borrower in connection
with the transactions contemplated by the Facility Documents;
(h) permit the Agent, the Lender and the Secondary Lenders to, upon
reasonable advance notice, during normal business hours and with reasonable
frequency, visit and inspect the Borrower's books, records and accounts, its
finances and the Borrower's performance under the Program Documents and to
discuss the foregoing with the officers, employees and accountants of the
Borrower and LFSI, all as often as the Agent may reasonably request;
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(i) promptly deliver to the Agent copies of all material notices,
requests, agreements, amendments, supplements, waivers and other documents
received or delivered by the Borrower (except if received from the Agent) under
or with respect to any of the Facility Documents;
(j) immediately upon becoming aware, provide written notice to the
Agent, of any action by the board of directors or trustees or officers of the
Distributor or, the shareholders or board of directors or trustees of any Fund
(and in respect of any Fund which constitutes a Portfolio, the Board of
Directors of the Company related to such Fund) to make any modification,
amendment or supplement to, or any waiver of any provisions of, or any
termination of any Distribution Plan, any Advisory Agreement, any CDSC
arrangement, or Conversion Feature, any Distribution Agreement or the
interpretation of any thereof, in effect on the Closing Date (or in respect of
any Fund for which the Distributor did not act as principal distributor on the
Closing Date, the date the Distributor first began acting as distributor for
such Fund), or any modification, amendment, supplement or waiver in the amounts
payable or actually being paid thereunder, each as in effect on the date of this
Agreement, or if a new distribution plan, investment advisory agreement,
contingent deferred sales charge arrangement, prospectus or distribution
agreement is proposed to be approved and entered into in respect of Shares of
any Fund, provide the Agent with copies of any such proposed modification,
amendment, supplement or waiver, as adopted, and a newly adopted distribution
plan, contingent deferred sales charge arrangement, investment advisory
agreement or distribution agreement promptly after such proposal, modification,
amendment, supplement, waiver or adoption has been made (such notice to include
specific written reference concerning any aspect of any of the foregoing which
gives rise to a reasonable possibility of a Material Adverse Effect and a copy
of any of the foregoing in the form finally adopted); PROVIDED, HOWEVER, that
the Borrower shall not be required to provide the Agent with written notices of
any amendment, modification, supplement or waiver (i) to any Advisory Agreement
under this Section, unless such amendments or supplements provide for the
replacement of an Advisor or otherwise give rise to a reasonable possibility of
a Material Adverse Effect, or (ii) to the interpretation of any Distribution
Plan, Distribution Agreement, Advisory Agreement, CDSC arrangement or conversion
feature unless such modification or waiver could give rise to a reasonable
possibility of a Material Adverse Effect;
(k) promptly notify the Agent of any material adverse change with
respect to the business, properties, financial conditions, or results of
operations of the Borrower, the Parent, the Distributor or any Advisor since
December 31, 1998;
(l) furnish to the Agent:
(A) annually within 90 days after the end of each fiscal
year: (i) audited consolidated financial statements of the
Parent and its consolidated Subsidiaries prepared in
accordance with GAAP for such fiscal year, and (ii) audited
financial statements of the Distributor and the Advisors if
not included in the financial statements provided under
clause (i) above, prepared in accordance
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with GAAP for such fiscal year and, in any event, an unaudited
income statement and balance sheet of the Distributor prepared in
accordance with GAAP for such year;
(B) within 45 days after each of the first three fiscal
quarters of each year: (i) unaudited consolidated financial
statements of the Parent and its consolidated Subsidiaries
prepared in accordance with GAAP for such fiscal quarter;
and (ii) unaudited financial statements of the Distributor
and the Advisors if not included in the financial statements
provided under clause (i) above prepared in accordance with
GAAP for such fiscal quarter and, in any event, an unaudited
income statement and balance sheet of the Distributor
prepared in accordance with GAAP for such fiscal quarter;
and
(C) such other information as the Agent may reasonably
request;
(m) at all times comply with the Borrowing Base Test;
(n) do all things reasonably necessary to ensure that the Year 2000
Problem will not have a Material Adverse Effect on its computer systems;
(o) from time to time, at its expense, promptly to execute and
deliver all further instruments and documents, and to take all further actions,
that may be necessary or desirable, or that the Agent may reasonably request, to
perfect, protect or more fully evidence the Secured Parties' first priority
perfected security interest in the Assigned Collateral and to enable the Secured
Parties to exercise and enforce their respective rights and remedies under this
Agreement and the other Facility Documents;
(p) after the Agent's delivery of a Remittance Notice, immediately
upon its receipt of any Collections relating to any Fund (or in respect of any
Fund which constitutes a Portfolio, from the related Company in respect of such
Fund), remit such amounts to the Agent's Account and ensure that such amounts
are not commingled with any other funds;
(q) continue to own directly or indirectly all of the outstanding
capital stock of the Distributor and Colonial Management Associates, Inc.,
unless consented to in writing by the Agent (which consent shall not be
unreasonably withheld);
(r) comply and cause its Subsidiaries to comply, in all material
respects, with the provisions of ERISA and the Code and with all minimum funding
requirements applicable to them with respect to any Plan or Multiemployer Plan
pursuant to Section 302 of ERISA or Section 412 of the Code; and
(s) remit or cause to be remitted all of the proceeds of each Advance
to the Distributor.
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SECTION 5.02. NEGATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that the Borrower shall not:
(a) permit to exist any Adverse Claim attributable to the Borrower or
any Affiliate of the Borrower or any party claiming through the Borrower or any
Affiliate of the Borrower (including any Selling Agent) on, or otherwise attempt
to transfer, pledge or assign any interest in, any Assigned Collateral or any
interest in any of the foregoing or take any other action which could adversely
affect the Secured Parties' first priority perfected security interest in the
Assigned Collateral;
(b) cancel, terminate, amend, modify, supplement or waive any term or
condition of any Distribution Agreement, any Distribution Plan, any Irrevocable
Payment Instruction or the CDSC obligations of any holder of Shares of any Fund
(subject to Permitted Free Redemptions and Permitted Free Exchanges), each as in
effect on the Closing Date or take any action to permit any Company or any Fund
to do so, unless a responsible officer of the Borrower shall have certified to
the Agent that immediately after giving effect to all such cancellations,
terminations, amendments, modifications and waivers, (i) the Borrower will be in
full compliance with the Borrowing Base Test, and (ii) no Default or Event of
Default will be continuing or will result therefrom, or change or modify any
interpretation of any term or condition of any Distribution Agreement,
Distribution Plan, Irrevocable Payment Instruction or of any such CDSC
obligations to the extent that such change or modification could give rise to a
reasonable possibility of a Material Adverse Effect;
(c) change its operations in a manner which could reasonably be
expected to give rise to a Material Adverse Effect;
(d) without the prior written consent of the Agent (which consent
shall not be unreasonably withheld), merge with or into or consolidate with or
into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions), all or substantially all of its
assets (whether now owned or hereafter acquired) to, or acquire all or
substantially all of the assets or capital stock or other ownership interest of,
or enter into any joint venture or partnership agreement with, any Person, other
than as contemplated by the Facility Documents;
(e) enter into any agreement containing any provision which would be
violated or breached by the performance of its obligations under any Facility
Document;
(f) (i) permit the Accumulated Benefit Obligations
16
<PAGE>
under any Benefits Arrangement to exceed the fair market value of the assets of
such Benefits Arrangement allocable to such benefits by more than $1,000,000,
(ii) withdraw, or permit any other person who is a member of any ERISA Group 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, or (iii) any time
permit 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, to exceed $1,000,000;
(g) extend credit to others for the purpose of buying or carrying any
"margin stock" in such a manner as to violate Regulation T, Regulation U or
Regulation X;
(h) create, incur, assume or otherwise become liable with respect to
any Debt or Guarantee other than Permitted Debt; or
(i) create, incur or enter into, or suffer to be created, any Lien on
any of its assets or properties now owned or hereinafter acquired except for
Permitted Liens.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT.
If any of the following events (each an "Event of Default") shall
occur:
(a) the Borrower, the Distributor, the Parent or any Advisor, shall
fail to make or cause to be made in the manner and when due any payment or
deposit to be made or to be caused to be made by it under this Agreement, or any
other Facility Document; PROVIDED, HOWEVER, with respect to the failure to pay
any Yield or fees payable under the Fee Letter when due, such failure shall
continue for two (2) Business Days; or
(b) the Borrower, the Distributor, the Parent or any Advisor shall
fail to perform or observe any other term, covenant or agreement on its part to
be performed or observed under any Facility Document and, if (i) such failure is
capable of being cured by the Person involved within seven (7) Business Days,
(ii) the Person whose failure is involved is diligently using its best efforts
to cure such failure, and (iii) such failure does not give rise to a reasonable
possibility of a Material Adverse Effect, such failure shall continue for seven
(7) Business Days; or
(c) any representation or warranty made or deemed made by the
Borrower, the Distributor, the Parent or any Advisor (or any of their respective
officers) under or in connection with any Facility Document shall have been
incorrect in any material respect when made or
17
<PAGE>
deemed made; or
(d) the Borrower, the Distributor, the Parent, any Advisor, any of
their respective Subsidiaries or LMIC shall fail to pay when due any amount in
respect of any Debt, the outstanding principal amount of which is in the
aggregate in excess of (i) in the case of the Parent or LMIC, $10,000,000, and
(ii) in the case of the Borrower, the Distributor, each Advisor or their
Subsidiaries, $1,000,000, when the same becomes due and payable, or there shall
occur any default by the Borrower, the Distributor, the Parent, any Advisor, any
of their Subsidiaries or LMIC which results in any of its Debt in excess of the
threshold set forth above being declared due and payable prior to its stated
maturity date or due date; or
(e) (i) the Borrower, the Distributor, the Parent, any Advisor or any
of their respective Affiliates shall generally not pay its Debts as such Debts
become due, or shall admit in writing its inability to pay its Debts generally,
or shall make a general assignment for the benefit of creditors or in the case
of the Distributor, the Distributor shall otherwise become "insolvent" within
the meaning of SIPA; or (ii) any proceeding shall be instituted by or against
the Borrower, the Distributor, the Parent, any Advisor, any such Affiliate,
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its Debts under any Law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of thirty (30)
days; or (iii) any of the actions sought in any proceeding described in (ii)
above (including an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any substantial part
of its property) shall occur; or (iv) the Borrower, the Distributor, the Parent,
any Advisor or any such Affiliate, shall take any action to authorize any of the
actions set forth above in this Section 6.01(e); or
(f) there shall have occurred any material adverse change in the
financial condition or results of operations of the Borrower, the Distributor,
the Parent or any Advisor since December 31, 1998; or
(g) the Securities Investor Protection Corporation, established under
SIPA, shall have applied for a protective decree against the Distributor and the
Distributor shall have failed to obtain a dismissal of such application within
sixty (60) days after such application; or
(h) the SEC shall have revoked the broker/dealer registration of the
Distributor; or
(i) the Distributor shall have failed to meet the minimum capital
requirements prescribed from time to time by Rule 15c3-1 under the Exchange Act
and such failure is not cured within fifteen (15) days after the Distributor has
knowledge of such failure or should have had knowledge of such failure; or
(j) the SEC or any other Authority shall have modified or terminated
or
18
<PAGE>
propose to modify, revoke, repeal or terminate Rule 12b-1 or Rule 6c-10 under
the Investment Company Act or Rule 2830 of the Conduct Rules, respectively, in a
manner which the Agent reasonably concludes gives rise to a reasonable
possibility of a Material Adverse Effect, unless waived in writing by the Agent;
or
(k) the Distributor shall cease to be registered as a broker/dealer
under the Exchange Act and with the NASD or any Advisor shall cease to be
registered as an investment adviser under the Investment Advisors Act; or
(l) any material provision of any Facility Document shall cease to be
a legal, valid and binding obligation of any of the parties purported to be
bound thereby, enforceable in accordance with its respective terms or the
Borrower, the Parent, the Distributor or any Advisor shall so assert in writing;
or
(m) any judgment or order, or any series of judgments or orders,
shall have been entered against the Borrower, the Parent, any Advisor or the
Distributor, provided that (i) such judgments or orders shall aggregate to
(x) in the case of the Parent, $10,000,000 or more, and (y) in the case of the
Borrower, any Advisor or the Distributor, $1,000,000 or more, and
(ii) enforcement actions have been commenced with respect thereto and have not
been dismissed or stayed within twenty (20) days thereafter; or
(n) the Agent on behalf of the Secured Parties shall for any reason
cease to have a valid and perfected first priority security interest in all or
any portion of the Assigned Collateral free and clear of all Adverse Claims; or
(o) the Parent shall cease to have a senior unsecured long-term
public senior debt rating from Moody's and S&P of at least "Baa3" and "BBB-,"
respectively;
then, and in any such event, in addition to all rights and remedies
specified in this Agreement and the Security Agreement, including without
limitation, Article II of the Security Agreement, and the rights and remedies of
a secured party under Applicable Law including, without limitation the UCC, the
Agent may, by notice to the Borrower, declare the Lender Termination Date and
the Secondary Lender Termination Date to have occurred (in which case the Lender
Termination Date, the Secondary Lender Termination Date and the Maturity Date
shall be deemed to have occurred); PROVIDED, that, upon the occurrence of any
event (without any requirement for the passage of time or the giving of notice,
or both) described in subsection (e) of this Section 6.01, the Lender
Termination Date, the Secondary Lender Termination Date and the Maturity Date
shall be deemed to have automatically occurred.
ARTICLE VII
THE AGENT
SECTION 7.01. AUTHORIZATION AND ACTION.
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<PAGE>
The Lender and each of the Secondary Lenders hereby irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Facility Documents as
are delegated to the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. As to any matters not expressly
provided for by this Agreement or the other Program Documents, the Agent shall
not be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Lender or the
Secondary Lenders; PROVIDED, HOWEVER, that the Agent shall not be required to
take any action which exposes the Agent to personal liability or which is
contrary to this Agreement, the other Facility Documents or Applicable Law.
SECTION 7.02. AGENT'S RELIANCE, ETC.
Neither the Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them under or in connection with this Agreement or any of the other Program
Documents, except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Agent: (i) may consult
with legal counsel (including counsel for the Borrower, the Parent or any
Advisor and independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts;
(ii) makes no warranty or representation to the Lender or any Secondary Lender
and shall not be responsible to the Lender or any Secondary Lender for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement or the other Program Documents; (iii) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or the other
Program Documents on the part of the Borrower, the Distributor, the Parent, any
Advisor, any Fund, any Transfer Agent, any Selling Agent or any other Person or
to inspect the property (including the books and records) of the Borrower, any
Fund or any Advisor; (iv) shall not be responsible to the Lender or any
Secondary Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, the other Program Documents
or any other instrument or document furnished pursuant hereto or thereto; and
(v) shall incur no liability under or in respect of this Agreement or any other
Program Document by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
ARTICLE VIII
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MISCELLANEOUS
SECTION 8.01. NO WAIVER; MODIFICATIONS IN WRITING.
No failure or delay on the part of any Secured Party exercising any
right, power or remedy hereunder or with respect to the Advances shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to any
Secured Party, at law or in equity. Without limiting the generality of the
foregoing, the Borrower acknowledges and agrees that it will be impossible to
measure in money the damage to the Secured Parties in the event of a breach of
any of the terms and provisions of this Agreement or any other Program Document,
and that, in the event of any such breach, the Secured Parties may not have an
adequate remedy at Law, and the Borrower shall not argue and hereby waives any
defense that there is an adequate remedy available at Law. No amendment,
modification, supplement, termination or waiver of this Agreement shall be
effective unless the same shall be in writing and signed by the Agent. Any
waiver of any provision of this Agreement, and any consent to any departure by
any Secured Party from the terms of any provision of this Agreement, shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
SECTION 8.02. NOTICES, ETC.
Except where telephonic instructions are authorized herein to be
given, all notices, demands, instructions and other communications required or
permitted to be given to or made upon any party hereto shall be in writing and
shall be personally delivered or sent by registered, certified or express mail,
postage prepaid, or by prepaid telegram (with messenger delivery specified in
the case of a telegram), or by facsimile transmission, or by prepaid courier
service, and shall be deemed to be given for purposes of this Agreement on the
day that such writing is received by the intended recipient thereof in
accordance with the provisions of this Section 8.02. Unless otherwise specified
in a notice sent or delivered in accordance with the foregoing provisions of
this Section 8.02, notices, demands, instructions and other communications in
writing shall be given to or made upon the respective parties hereto at their
respective addresses (or to their respective facsimile numbers) indicated below,
and, in the case of telephonic instructions or notices, by calling the telephone
number or numbers indicated for such party below:
If to the Lender: Corporate Receivables Corporation
21
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c/o Citicorp North America, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: U.S. Securitization
Telephone No. (914)899-7122
Facsimile No. (914)899-7890
If to the Agent: Citicorp North America, Inc.
U.S. Securitization
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: U.S. Securitization
Telephone No. (914) 899-7122
Facsimile No. (914) 899-7890
If to Citibank: Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Maximization Unit
Telephone No.: (212) 559-0754
Facsimile No.: (212) 758-6272
If to the Borrower: Liberty Funds Group LLC
One Financial Center
Boston, Massachusetts 02111
Attention: Ms. Nancy L. Conlin
Telephone No.: (617) 772-3053
Facsimile No.: (617) 345-0919
With a copy to: Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Mr. Robert A. Licht
Telephone: (617) 371-2265
Facsimile: (617) 742-7338
SECTION 8.03. TAXES.
(a) Any and all payments by the Borrower, the Parent, the Distributor
or any Advisor under this Agreement, the Advance Notes or any other Facility
Document shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of the Secured
Parties, (i) United States federal withholding taxes and (ii) income and
franchise taxes imposed on it by any taxing
22
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Authority in any jurisdiction which asserts jurisdiction to impose such taxes on
the basis of contacts which the Secured Party in question maintains with such
jurisdiction other than contacts arising out of the execution, delivery or
performance of the Facility Documents or the transactions contemplated thereby
(all such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If the Borrower, the
Distributor, the Parent or any Advisor shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder, under any Advance Note or
under any other Facility Document to any Secured Party, the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 8.03) such Secured Party receives an amount equal to the sum it would
have received had no such deductions been made and the Borrower shall pay the
full amount deducted to the relevant taxation Authority or other Authority in
accordance with Applicable Law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made by the Borrower hereunder,
under the Advance Notes or under any other Program Document or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, the Advance Note or under any other Program Document (hereinafter
referred to as "Other Taxes").
(c) The Borrower will indemnify each Secured Party for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this
Section 8.03) paid by any Secured Party in respect of the Borrower and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted, except to the extent such liability arises from such Secured
Party's gross negligence or willful misconduct. This indemnification shall be
made within thirty (30) days from the date the Secured Party makes written
demand therefor to the Borrower.
(d) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes, the Borrower will furnish to the Agent the original or a certified
copy of a receipt, or other evidence reasonably acceptable to the Agent,
evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreement and obligations of the Borrower contained in
this Section 8.03 shall survive the payment in full of principal and Yield
hereunder and under the Advance Notes.
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SECTION 8.04. COSTS AND EXPENSES; INDEMNIFICATION.
(a) The Borrower agrees to promptly pay on demand all reasonable
costs and expenses of each of the Secured Parties in connection with the
preparation, review, negotiation, reproduction, execution, delivery,
administration, modification and amendment of this Agreement, the Advance Notes
or any other Facility Document, including, without limitation, the reasonable
fees and disbursements of a single law firm as counsel for the Secured Parties
with respect thereto and with respect to advising each of the Secured Parties as
to its rights, remedies and responsibilities under this Agreement and the other
Facility Documents, UCC filing fees, periodic auditing expenses and all other
related fees and expenses. The Borrower further agrees to pay on demand all
reasonable costs and expenses of the Secured Parties (including, without
limitation, the fees and disbursements of counsel), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Advance Notes and the other Program Documents.
(b) The Borrower agrees to indemnify and hold harmless each Secured
Party, their successors, assigns, transferees and participants and each of their
Affiliates and the respective officers, directors, employees, agents, managers
of, and any Person controlling any of, the foregoing (each, an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities,
obligations, expenses, penalties, actions, suits, judgments and disbursements of
any kind or nature whatsoever, (including, without limitation, the reasonable
fees and disbursements of counsel) (collectively the "Liabilities") that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of the execution, delivery,
enforcement, performance, administration of or otherwise arising out of or
incurred in connection with this Agreement or any other Program Document or any
transaction contemplated hereby or thereby (and regardless of whether or not any
such transactions are consummated), including, without limitation any such
Liability that is incurred or arises out of or in connection with, or by reason
of any one or more of the following: (i) preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with this Agreement or any other Program Document or any of the
transactions contemplated hereby or thereby; (ii) any breach or alleged breach
of any covenant by the Borrower, the Distributor, any Advisor, any Fund or any
Transfer Agent in any Program Document; (iii) any representation or warranty
made or deemed made by the Borrower, the Distributor, any Advisor, any Fund or
any Transfer Agent contained in any Program Document or in any certificate,
statement or report delivered in connection therewith is, or is alleged to be,
false or misleading; (iv) any failure by the Borrower, the Distributor, any
Advisor, any Fund, any Transfer Agent or any Selling Agent to
24
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comply with any Applicable Law or contractual obligation binding upon it;
(v) any failure to vest, or delay in vesting, in the Secured Parties a first
priority perfected security interest in all of the Assigned Collateral; (vi) any
action or omission, not expressly authorized by the Program Documents, by the
Borrower, the Distributor, any Advisor, any Fund, any Transfer Agent or any
Selling Agent, which has the effect of reducing or impairing the Assigned
Collateral or the rights of the Agent or the Secured Parties with respect
thereto; and (vii) any Default or Event of Default; except to the extent any
such Liability is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. The Secured Parties agree to use reasonable
efforts to utilize the same legal counsel in connection with any matter for
which the Secured Parties are entitled to indemnification under this Section
8.04(b); PROVIDED, that nothing herein shall be deemed to limit any Secured
Party's right to employ separate counsel if such Secured Party determines that
there may be legal defenses or claims available to it which are not available to
the other Secured Parties or which are different from or additional to those of
the other Secured Parties.
SECTION 8.05. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Agreement.
SECTION 8.06. ASSIGNABILITY.
(a) This Agreement and the Lender's rights and obligations hereunder
(including the outstanding Advances) shall be assignable by the Lender and its
successors and assigns; PROVIDED, that without the prior written consent of the
Borrower (which consent shall not be unreasonably withheld or delayed) the
Lender shall not assign its rights and obligations to any Person other than to a
U.S. Affiliate of CRC or the Agent or pursuant to the Asset Purchase Agreement.
Each such assignor shall notify the Agent and the Borrower of any such
assignment. Each such assignor may, in connection with the assignment or
participation, disclose to the assignee or participant any information relating
to the Borrower, including the Assigned Collateral, furnished to such assignor
by or on behalf of the Borrower or by the Agent; PROVIDED that, prior to any
such disclosure, the assignee or participant agrees to preserve the
confidentiality of any confidential information relating to the Borrower
received by it from any of the foregoing entities.
(b) Each Secondary Lender may, with the consent of the Borrower
(which consent shall not be unreasonably withheld or
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delayed), assign to any Eligible Assignee or to any other Secondary Lender all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Secondary Lender Commitment and the
outstanding Advances or interests therein owned by it). The parties to each such
assignment shall execute and deliver to the Agent an Assignment and Acceptance.
In addition, Citibank or any of its Affiliates may assign any of its rights
(including, without limitation, rights to payment of principal and Yield on the
Advances) under this Agreement to any Federal Reserve Bank without notice to or
consent of the Borrower or the Agent.
(c) This Agreement and the rights and obligations of the Agent herein
shall be assignable by the Agent and its successors and assigns.
(d) The Borrower may not assign its rights or obligations hereunder
or any interest herein without the prior written consent of the Agent (which
consent shall not be unreasonably withheld or delayed).
(e) The Borrower acknowledges and agrees that the Secondary Lender's
source of funds may derive in part from its participants. Accordingly,
references in Sections 2.06, 2.07, 2.08, 8.03 and 8.04 and the other terms and
provisions of this Agreement and the other Program Documents to rates,
determinations, reserve and capital adequacy requirements, expenses, increased
costs, reduced receipts and the like as they pertain to the Secondary Lenders
shall be deemed also to include those of each of its participants.
SECTION 8.07. GOVERNING LAW.
THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF SAID STATE.
SECTION 8.08. SEVERABILITY OF PROVISIONS.
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
SECTION 8.09. CONFIDENTIALITY.
(a) The Borrower agrees that it shall and shall cause each of its
Affiliates (i) to keep this Agreement and the other Facility Documents, the
proposal relating to the structure of the
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facility contemplated by this Agreement and the other Facility Documents (the
"Facility"), any analyses, computer models, information or document prepared by
the Agent, Citibank or any of their respective Affiliates in connection with the
Facility, the Agent's or its Affiliate's written reports to the Borrower, any
Advisor, any Fund or any of their respective Affiliates and any related written
information (collectively, the "Product Information") confidential and to
disclose Product Information only to those of its officers, employees, agents,
accountants, legal counsel and other representatives (collectively, the
"Borrower Representatives") who have a need to know such Product Information for
the purpose of assisting in the negotiation, completion and administration of
the Facility; (ii) to use the Product Information only in connection with the
Facility and not for any other purpose; and (iii) to cause the Borrower
Representatives to comply with the provisions of this Section 8.09 and to be
responsible for any failure of any Borrower Representative to so comply.
The provisions of this Section 8.09(a) shall not apply to any Product
Information that is a matter of general public knowledge or that has heretofore
been made available to the public by any Person other than the Borrower, any
Advisor, any Fund, any of their respective Affiliates or any Borrower
Representative or that is required to be disclosed by Applicable Law or is
requested by any Authority with jurisdiction over the Borrower, the Advisors or
any of their respective Affiliates.
(b) Each of the Secured Parties agrees (i) to keep all non-public
information with respect to the Borrower, the Parent, the Advisors and their
respective Affiliates which such Secured Party receives pursuant to the Facility
Documents (collectively, the "Borrower Information") confidential and to
disclose Borrower Information only to those of its officers, employees, agents,
accountants, legal counsel and other representatives of the Secured Parties
(collectively, the "Secured Party Representatives") and to S&P, Moody's and each
other rating agency rating CRC's commercial paper notes which, in each case, may
have a need to know or review such Borrower Information for the purpose of
assisting in the negotiation, completion, administration and evaluation of the
Facility; (ii) to use the Borrower Information only in connection with the
Facility and not for any other purpose; and (iii) to cause its related Secured
Party Representatives to comply with the provisions of this Section 8.09(b).
The provisions of this Section 8.09(b) shall not apply to any Borrower
Information that is a matter of general public knowledge or that has heretofore
been made available to the public by any Person other than such Secured Party
Representative or that is required to be disclosed by Applicable Law or is
requested by any Authority with jurisdiction over any Secured Party or Secured
Party Representative or any of its
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Affiliates.
Notwithstanding the foregoing, the Borrower Information may be
disclosed by any Secured Party Entity to permitted assignees and participants
and potential assignees and participants in the Facility to the extent such
disclosure is made pursuant to a written agreement of confidentiality
substantially similar to this Section 8.09(b).
SECTION 8.10. MERGER.
The Facility Documents taken as a whole incorporate the entire
agreement between the parties thereto concerning the subject matter thereof.
The Facility Documents supersede any prior agreements among the parties relating
to the subject matter thereof.
SECTION 8.11. NO PROCEEDINGS.
Each of the Borrower, the Agent, the Secondary Lenders, each assignee
of a Advance or any interest therein and each entity which enters into a
commitment to make Advances to the Borrower hereunder hereby agrees that it will
not institute against CRC any proceeding of the type referred to in Section
6.01(e) so long as any commercial paper or other senior indebtedness issued by
CRC shall be outstanding or there shall not have elapsed one year plus one day
since the last day on which any such commercial paper or other senior
indebtedness shall have been outstanding.
SECTION 8.12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The rights and remedies with respect to any breach of any
representation and warranty made by the Borrower pursuant to Article IV, the
indemnification and payment provisions of Sections 2.06, 2.07, 2.08, 2.09, 2.11,
2.13, 8.03 and 8.04, the Borrower's obligations under Sections 8.09(a) and 8.11
and the Agent's, the Lender's and the Secondary Lenders' obligations under
Section 8.09(b) shall be continuing and shall survive any termination of this
Agreement and the other Program Documents.
SECTION 8.13. SUBMISSION TO JURISDICTION; WAIVERS.
The Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement or the other Program Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and the appellate courts of any of them;
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(b) consents that any such action or proceeding may be brought in any
of such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in Section 8.02 or at such other address as may be permitted
thereunder;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction or court; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.
SECTION 8.14. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER FACILITY DOCUMENT OR FOR ANY COUNTERCLAIM THEREIN OR
RELATING THERETO.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
CORPORATE RECEIVABLES CORPORATION,
as Lender
By: Citicorp North America, Inc.,
its Managing Agent
By:____________________________
Name:
Title:
CITICORP NORTH AMERICA, INC.,
as Agent
By:____________________________
Name:
Title:
CITIBANK, N.A.,
as Secondary Lender
By:____________________________
Name:
Title:
Percentage: 100%
LIBERTY FUNDS GROUP LLC
as Borrower
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By:_____________________________
Name:
Title:
13620.110 #69659
31
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APPENDIX A
DEFINITIONS LIST
"ADVANCE" means each borrowing by the Borrower pursuant to Article II
of the Credit Agreement.
"ADVANCE NOTE" means each promissory note issued by the Borrower to
the Lender or a Secondary Lender evidencing the Advances made to the Borrower
by the Lender or a Secondary Lender, as the case may be, substantially in the
form of Exhibit A hereto, as the same may from time to time be amended,
supplemented, waived or modified.
"ADVERSE CLAIM" means any Lien or other right, claim, encumbrance in,
of or on any Person's assets or properties in favor of any other Person, other
than any such Lien, right or claim of any Secured Party created by or pursuant
to the Security Agreement.
"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.
"ADVISOR" means each of Colonial Management Associates, Inc., Crabbe
Huson Group, Inc., Newport Fund Management, Inc. and Stein Roe & Farnham
Incorporated, together with their permitted successors and assigns.
"ADVISORY AGREEMENT" means with respect to any Fund, the investment
advisory agreement between an Advisor and such Fund (or if such Fund
constitutes a Portfolio, the related Company in respect of such Fund) and any
replacement agreement as may be adopted in the future, pursuant to which an
Advisor may receive advisory or management fees relating to such Fund, as the
same may from time to time be amended, supplemented, waived or modified.
"AFFILIATE" means, in respect of a referenced Person another Person
controlling, controlled by or under common control with such referenced Person
(which in the case of Corporate Receivables Corporation and the Agent, shall
also include any Person who has a relationship to the Agent comparable to that
of Corporate Receivables Corporation). The terms "control," "controlling,"
"controlled" and the like mean the direct or indirect possession of the power
to direct or cause the direction of the management or policies of a Person or
the disposition of its assets or properties, whether through ownership, by
contract,
<PAGE>
arrangement or understanding, or otherwise.
"AGENT" means Citicorp North America, Inc. in its capacity as agent
for the Lender and the Secondary Lenders under the Credit Agreement, the
Security Agreement and the Undertaking, together with its successors and
assigns.
"AGENT'S ACCOUNT" means the special account (account number 40517805,
ABA No. 021000089) of the Agent maintained at the office of Citibank at its
Principal Office or to such other account as the Agent shall designate in
writing to the Borrower.
"ALTERNATE BASE RATE" means a fluctuating interest rate per annum as
shall be in effect from time to time, which rate shall be at all times equal to
the Applicable Margin above the highest of:
(a) the Base Rate;
(b) one-half of one percent above the latest three-week moving
average of secondary market morning offering rates in the United States
for three-month certificates of deposit of major United States money
market banks, such three-week moving average being determined weekly on
each Monday (or, if such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the previous Friday by
Citibank on the basis of such rates reported by certificate of deposit
dealers to and published by the Federal Reserve Bank of New York or, if
such publication shall be suspended or terminated, on the basis of
quotations for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected by
Citibank, in either case adjusted to the nearest 1/16 of one percent or,
if there is no nearest 1/16 of one percent, to the next higher 1/16 of one
percent; and
(c) one half of one percent per annum above the Federal Funds Rate.
"APPLICABLE LAW" means any Law of any Authority, including, without
limitation, all Federal and state banking or securities laws, to which the
Person in question is subject or by which it or any of its property is bound.
"APPLICABLE MARGIN" means, (i) with respect to the Eurodollar Rate,
.75% per annum; and (ii) with respect to the Alternate Base Rate, 0% per annum;
PROVIDED, HOWEVER, that during the continuance of any Event of Default the
"Application Margin" shall mean with respect to the Eurodollar Rate and the
Alternate Base Rate, 2.00% per annum; PROVIDED, FURTHER, that during any period
that Yield in respect of any Advance is computed by reference to the
Post-Default Rate, the "Applicable Margin"
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applicable to such Advance during such period shall be deemed to be zero.
"AMORTIZED MAXIMUM AGGREGATE SALES CHARGE ALLOWABLE" means with
respect to the Receivables relating to any Shares of any Fund as of any date of
determination, (i) an amount equal to the Maximum Aggregate Sales Charge
Allowable payable in respect of such Receivables, minus (ii) the aggregate
amounts previously paid by such Fund (or if such Fund constitutes a Portfolio,
by the related Company in respect of such Fund) and the holders of such Shares
relating thereto.
"ASSET BASED SALES CHARGE" shall have the meaning set forth in Rule
2830 of the Conduct Rules; it being understood that such term does not include
the Service Fee.
"ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement entered
into by a Secondary Lender (other than Citibank) concurrently with the
Assignment and Acceptance pursuant to which it became party to this Agreement.
"ASSIGNED COLLATERAL" shall have the meaning assigned to such term in
Section 2.01 of the Security Agreement.
"ASSIGNEE RATE" means in respect of any Advance for any Settlement
Period an interest rate per annum equal to the Applicable Margin above the
Eurodollar Rate for such Settlement Period; PROVIDED, HOWEVER, that in case of:
(i) any Settlement Period on or prior to the first day of
which a Lender (other than CRC) or Secondary Lender shall have notified
the Agent that the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful, or any central
bank or other governmental authority asserts that it is unlawful, for such
Lender or Secondary Lender to fund such Advance at the Assignee Rate set
forth above (and such Secondary Lender shall not have subsequently
notified the Agent that such circumstances no longer exist);
(ii) any Settlement Period of one to (and including) 27 days;
(iii) any Settlement Period as to which the Agent does not
receive notice, by no later than 12:00 noon (New York City time) on the
third Business Day preceding the first day of such Settlement Period, that
such Advances will not be funded by issuance of commercial paper; or
(iv) any Settlement Period for which the aggregate principal
amount of the outstanding Advances is less than $500,000;
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then the "Assignee Rate" for such Settlement Period shall be an
interest rate per annum equal to the Alternate Base Rate in effect on the first
day of such Settlement Period.
"ASSIGNMENT AND ACCEPTANCE" means the Assignment and Acceptance, in
substantially the form of Exhibit C to the Credit Agreement, entered into by a
Secondary Lender, an Eligible Assignee and the Agent, pursuant to which such
Eligible Assignee may become a party to the Credit Agreement.
"AUTHORITY" means any governmental or quasi-governmental authority,
whether executive, legislative, judicial, administrative or other, or any
combination thereof, including, without limitation, any Federal, state,
territorial, county, municipal or other government or governmental or
quasi-governmental agency, arbitrator, board, body, branch, bureau, commission,
corporation, court, department, instrumentality, master, mediator, panel,
referee, system or other political unit or subdivision or other entity of any
of the foregoing, whether domestic or foreign.
"BASE RATE" means the rate of interest from time to time announced
publicly by Citibank at its Principal Office as its base rate. The Base Rate
is a reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer of Citibank.
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"BORROWER" means Liberty Funds Group LLC, together with its
successors and permitted assigns.
"BORROWER OBLIGATIONS" means the payment of all indebtedness, whether
absolute, fixed or contingent, at any time or from time to time owing by the
Borrower, the Distributor, the Parent or any Advisor to any Secured Party under
or in connection with the Credit Agreement, the Security Agreement, the Advance
Notes, the Undertaking, the Asset Purchase Agreement or any other Facility
Document, including without limitation, all amounts payable by the Borrower in
respect of the Advances, with interest thereon, and the amounts payable under
Sections 2.06, 2.07, 2.08, 2.09, 2.11, 2.12, 2.13, 8.03 and 8.04 of the Credit
Agreement.
"BORROWER'S ACCOUNT" means Account No. 521-27463, ABA No. 011-000-390
maintained withBankBoston, NA, or such other account as the Borrower shall
designate in writing to the Agent.
"BORROWING BASE TEST" means as of any date of determination Credits
Outstanding shall not exceed the product of (i) the Present Value Adjusted
Sales Charge Amount, and (ii) eighty percent (80%).
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"BORROWING DATE" shall have the meaning assigned to such term in
Section 2.02(a) of the Credit Agreement.
"BUSINESS DAY" means any day on which (i) banks are not authorized or
required to close in New York City, and (ii) if this definition of "Business
Day" is utilized in connection with a Eurodollar Advance, dealings are carried
out in the London interbank market.
"CDSC" means with respect to any Fund, the contingent deferred sales
charges payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares relating to such Fund in accordance with the Prospectus
relating to such Fund.
"CITIBANK" means Citibank, N.A.
"CLOSING DATE" means the first date on which the conditions precedent
specified in Article III of the Credit Agreement shall have been fully
satisfied.
"CODE" means the Internal Revenue Code of 1986, as amended or any
successor statute.
"COLLECTIONS" means all amounts paid or payable by each Fund (or in
respect of each Fund which constitutes a Portfolio, by each Company in respect
of each related Fund) in respect of the Receivables relating to such Fund and
by each shareholder of such Fund in respect of the Receivables relating to such
Fund (including all CDSCs in respect of Receivables payable by such
shareholders and withheld from redemption proceeds payable to such shareholder
by such Fund) and all Proceeds of the foregoing.
"COMMISSION SHARES" means all Shares of any Fund other than Shares
originally issued in connection with the automatic reinvestment of dividends
paid by such Fund.
"COMMITTED ADVANCE" shall have the meaning assigned to such term in
Section 2.02(b) of the Credit Agreement.
"COMPANY" means each of Colonial Trust I, Colonial Trust II, Colonial
Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and Colonial
Trust VII, together with each other open-end investment company in respect of
which the Distributor acts or has acted as distributor for Shares of such
investment company or any Portfolio for such investment company.
"CONDUCT RULES" means the Conduct Rules of the NASD, as amended, and
the rules, regulations and interpretations (including examples and
explanations) of the NASD in respect thereto.
"CONVERSION FEATURE" means with respect to any Share of any Fund, a
mandatory or elective provision (including, without limitation, a provision
which permits or requires such Share to be converted into a share of a
different class) which may result in a reduction or
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termination of any amount owing from such Fund or the shareholder in respect of
the Receivables relating to such Share (or the share obtained by virtue of the
conversion of such Share) at some point in the future prior to the redemption
thereof.
"CRC" means Corporate Receivables Corporation, together with its
successors and assigns that constitute special purpose entities that issue
commercial paper notes or other debt securities.
"CREDIT AGREEMENT" means the Revolving Credit Agreement dated as of
April 12, 1999 among the Borrower, the Lender, the Secondary Lenders and the
Agent, as the same may from time to time be amended, supplemented, waived or
modified from time to time.
"CREDITS OUTSTANDING" means at any time a determination thereof is
made, an amount equal to (i) the outstanding principal amount of all Advances,
and (ii) the unpaid Yield accrued and to accrue on the outstanding Advances
until the last day of the next succeeding calendar month for such Advances
computed by reference to the Assignee Rate for a thirty (30) day period in
effect as of the time of determination.
"DEBT" means with respect to any Person, at any date, without
duplication, (i) all obligations of such Person for borrowed money, including
without limitation, reimbursement obligations relating to letters of credit,
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services, (iv) all obligations of such
Person as lessee which are capitalized in accordance with GAAP, (v) all Debt of
others secured by a Lien on any asset of such Person, whether or not such Debt
is assumed by such Person, (vi) payment obligations, fixed or contingent, under
investment, financial derivative or similar contracts (other than covered short
sales); (vii) all Debt of others Guaranteed by such Person, and (viii) to the
extent not otherwise included, all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of
such Person's balance sheet.
"DEFAULT" means any event which, with the passage of time, the giving
of notice, or both, would constitute an Event of Default.
"DISTRIBUTION AGREEMENT" means with respect to any Shares of any
Fund, the agreement between the Distributor and such Fund (or with respect to
any Fund which constitutes a Portfolio, the related Company in respect of such
Fund), in respect of such Shares of such Fund and any replacement agreement as
may be adopted in the future, pursuant to which the Distributor has been
appointed the principal underwriter in respect of such Fund.
"DISTRIBUTION PLAN" means with respect to any Shares of
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any Fund the distribution plan of such Fund, pursuant to which such Shares of
such Fund are distributed by the Distributor, together with any successor or
replacement distribution plan, as the same may be amended, supplemented, waived
or modified from time to time.
"DISTRIBUTOR" means Liberty Funds Distributor, Inc., together with
its successors and permitted assigns.
"DOLLARS" and "$" mean lawful money of the United States of America.
"ELIGIBLE ASSIGNEE" means Citicorp North America, Inc., Citibank, any
of their respective Affiliates, any Person managed by Citibank, Citicorp North
America, Inc. or any of their respective Affiliates, or any financial or other
institution acceptable to the Agent.
"ELIGIBLE FUND" means a Fund:
(i) in respect of which the Distributor acts as the
principal distributor and an Advisor acts as investment advisor;
(ii) the Asset Based Sales Charge relating to Shares of such
Fund and CDSC arrangement relating to the Shares and the payments provided
for, in, and actually being made pursuant to, the related Distribution
Plan, the Distribution Agreement and/or the Prospectus for such Fund are
fairly and accurately described in the related Distribution Plan, the
Distribution Agreement and/or the Prospectus relating to such Fund and
such CDSC arrangements conform to Schedule II to the Security Agreement;
(iii) such Fund (and in respect of each Fund which constitutes
a Portfolio, each Company related to such Funds) and the Distribution
Agreement, the Distribution Plan, and the Irrevocable Payment Instruction
relating to each Fund are in compliance, in all material respects, with
Applicable Law, including, without limitation, Rule 12b-1 of the
Investment Company Act and the Conduct Rules;
(iv) the Sales Charges paid and payable in respect of such
Fund (or, in respect of each Fund which constitutes a Portfolio, by each
Company in respect of each related Fund) in respect of the sales of Shares
of each such Fund pursuant to the related Distribution Agreement,
Distribution Plan and Prospectus and pursuant to the Conduct Rules (as are
interpreted by each such Fund (or in respect of each Fund which
constitutes a Portfolio, by each Company in
38
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respect of each related Fund) and the Distributor as of the date hereof),
is the Maximum Aggregate Sales Charge Allowable in respect of such sales,
which, as of the Closing Date, is equal to not less than the sum of (i)
6.25% of the total original issue price of the Shares of such Fund, PLUS
(ii) the Maximum Interest Allowable on the amount in clause (i) above,
which is equal to not less than the prime rate in effect plus one percent
(1%) per annum, and such amount accrues daily and is made payable in
installments which aggregate on an annual basis an amount equal to .75% of
the average daily Net Asset Value of the Shares of such Fund or through
the payment of CDSCs;
(v) which shall have a Distribution Agreement, Advisory
Agreement and Distribution Plan in full force and effect;
(vi) the Distributor for such Fund (or if such Fund
constitutes a Portfolio, the Company in respect of such Fund) and the
Transfer Agent for such Fund shall have executed an Irrevocable Payment
Instruction which is in full force and effect and the Agent shall have
received a copy thereof;
(vii) such Fund shall not be prevented by any Authority or by
any Applicable Law from paying Collections in respect of amounts owed with
respect to the Assigned Collateral relating to such Fund to the Agent's
Account in accordance with the applicable Irrevocable Payment Instruction
and such Fund (or if such Fund constitutes a Portfolio, the Company in
respect of such Fund) shall not have so asserted in writing;
(viii) unless otherwise consented to in writing by the Agent,
the Prospectus for such Fund does not permit or provide for Free
Redemptions other than in connection with a Permitted Free Redemption;
(ix) the Shares of such Fund can not be redeemed and
reinvested in shares of any other mutual fund under circumstances which
relieves or defers, in whole or in part, such shareholder's obligation to
pay the CDSC which would have been payable in respect of such Share,
except in connection with a Permitted Free Exchange;
(x) such Fund (and in the case of any Fund which constitutes
a Portfolio, the related Company in respect of such Fund) shall not have
adopted a plan of dissolution, liquidation, reincorporation,
recapitalization, restructuring or partial dissolution or partial
liquidation or similar plan other than in connection with a Transaction
permitted in clause (xi) below;
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(xi) such Fund (and in the case of any Fund which constitutes
a Portfolio, the related Company in respect of such Fund) shall not have
proposed or effected a merger, consolidation or other combination with or
sale of its assets to another Person (each a "Transaction"); PROVIDED,
HOWEVER, that a Transaction involving such Fund (and in the case of any
Fund which constitutes a Portfolio, the related Company in respect of such
Fund) shall not cause this condition precedent to not be satisfied if:
(A) a Fund is the surviving entity; (B) such Transaction does not
adversely affect the rights or obligations of the parties to the Program
Documents; (C) any such Transaction involving the sale of assets, involves
the transfer of substantially all of the assets of such Fund or the
related Company to the surviving entity, as the case may be, and
(D) immediately after such Transaction, no Default or Event of Default
shall have occurred or be continuing;
(xii) such Fund shall not be required by any Authority or any
Applicable Law to suspend the sale of Shares;
(xiii) such Fund shall not have ceased to regularly offer
Shares to the public under circumstances that give rise to a reasonable
possibility of a Material Adverse Effect;
(xiv) such Fund or the Transfer Agent for such Fund shall not
have failed to perform any material term, covenant or agreement on its
part to be performed under any Program Document; and
(xv) as of the end of any calendar month after the Closing
Date, the Net Asset Value of such Fund shall not have decreased by
twenty-five percent (25%) or more from the Net Asset Value of such Fund as
of the end of the immediately preceding calendar month.
"ELIGIBLE RECEIVABLE" means a Receivable: (a) the Asset Based Sales
Charge portion of which arises out of a Distribution Agreement between the
Distributor and an Eligible Fund; (b) which represents an obligation of a
United States Person which is not an Authority; (c) which constitutes an
"account" or "general intangible," as such terms are defined in the UCC of all
jurisdictions the laws of which are applicable for determining whether the
interests created by the this Agreement are perfected; (d) which is denominated
and payable in Dollars; (e) which constitutes a legal, valid and binding
contractual obligation of the obligor thereof which is fully vested, not
executory and is not subject to a dispute, offset, counterclaim, defense or
Adverse Claim whatsoever; (f) which does not contravene any Applicable Law; (g)
with respect to which the related Share does not have a Conversion Feature
other than a
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<PAGE>
Permitted Conversion Feature; and (h) which is freely transferable.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA GROUP" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which are treated as a single employer under Section 414 of the Code.
"EUROCURRENCY LIABILITIES" shall have the meaning assigned to such
term in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"EURODOLLAR ADDITIONAL YIELD" means additional Yield on the
outstanding principal of each Advance during the Settlement Period in respect
of such Advance in respect of which Yield is computed by reference to the
Eurodollar Rate, for such Settlement Period, at a rate per annum equal at all
times during such Settlement Period to the remainder obtained by subtracting
(i) the Eurodollar Rate for such Settlement Period from (ii) the rate obtained
by dividing such Eurodollar Rate referred to in clause (i) above by that
percentage equal to one-hundred percent (100%) minus the Eurodollar Rate
Reserve Percentage of the Lender or a Secondary Lender, as the case may be, for
such Settlement Period.
"EURODOLLAR RATE" means, for any Advance for any Settlement Period,
an interest rate per annum equal to the rate per annum at which deposits in
Dollars are offered by the principal office of Citibank in London, England to
prime banks in the London interbank market at 11:00 A.M. (London time) two (2)
Business Days before the first day of such Settlement Period in an amount
substantially equal to the outstanding principal amount of such Advance on such
first day and for a period equal to such Settlement Period.
"EURODOLLAR RATE ADVANCE" means an Advance the Yield on which is
computed with reference to the Eurodollar Rate.
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Settlement Period for
any Eurodollar Rate Advance means the reserve percentage applicable during such
Settlement Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) (or if more than one
such percentage shall be applicable, the daily average of such percentages for
those days in such Settlement Period during which any such percentage shall be
so applicable) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for the Lender or any Secondary Lender with respect to liabilities
or assets consisting of or including Eurocurrency Liabilities (or any other
category of liabilities that includes
41
<PAGE>
deposits by reference to which the interest rate on Eurocurrency Liabilities is
determined) having a term comparable to such Settlement Period.
"EVENT OF DEFAULT" means any of the events, acts or occurrences set
forth in Section 6.01 of the Credit Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder, all as from time to time
in effect, or any successor law, rules or regulations, and any reference to any
statutory or regulatory provision shall be deemed to be a reference to any
successor statutory or regulatory provision.
"EXCHANGE SHARE" means, in respect of any Fund, Shares of such Fund
that were issued in connection with a simultaneous redemption of Shares of any
other Fund where the proceeds of such redemption are reinvested in the Shares
in question pursuant to an exchange privilege given to the holder of the
redeemed Shares of the other Fund (whether in a Permitted Free Exchange or
otherwise).
"FACILITY DOCUMENTS" means the Credit Agreement, the Advance Notes,
the Security Agreement, the Undertaking, the Irrevocable Payment Instructions,
the Asset Purchase Agreement, the Fee Letter and the other agreements,
documents and instruments entered into or delivered in connection herewith.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period 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 published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by Citibank from three (3) Federal funds brokers of
recognized standing selected by it.
"FEE LETTER" means that certain letter agreement dated as of
April 12, 1999 between the Borrower and the Agent, as the same may from time to
time be amended, supplemented, waived or modified.
"FREE REDEMPTIONS" means a redemption of Shares of any Fund (other
than (x) redemptions of Shares obtained by the redeeming shareholder through
the automatic reinvestment of dividends (whether ordinary, capital gain or
exempt-interest dividends or other distributions) paid by such Fund in respect
of such Share, and (y) redemption of Shares representing the appreciated value
of such Shares over the initial issue price paid for such Shares) by a
shareholder of such Fund under any arrangement which relieves or defers, in
whole or in part, such shareholder's obligation to pay the maximum CDSC which
would have been payable in the absence of such arrangement by any other
shareholder of such Fund redeeming a Share of such Fund held by such other
shareholder for the same period as the Shares of such Fund had been held by the
shareholder in question, including, without limitation, (i) arrangements
pursuant to which certain Persons are entitled to acquire Shares of such Fund
under circumstances in
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<PAGE>
which no CDSCs will be payable by them, and (ii) arrangements described in the
Prospectus for such Fund on the date hereof pursuant to which CDSCs are
deferred in connection with the redemption of Shares of such Fund because the
redeeming shareholder is reinvesting all or a portion of the proceeds of such
redemption in Shares of another Fund.
"FUND" means each Company or Portfolio in respect of which the
Distributor has at any time acted as distributor in respect of the issuance of
Shares.
"FUNDAMENTAL INVESTMENT OBJECTIVES AND POLICIES" means, with respect
to any Fund, the fundamental investment objectives and policies of such Fund as
reflected in the Prospectus of such Fund.
"GAAP" means generally accepted accounting principles in the United
States, in effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORIZATIONS" means all franchises, permits,
licenses, approvals, consents and other authorizations of all Authorities.
"GOVERNMENTAL FILINGS" means all filings, including franchise and
similar tax filings, and the payment of all fees, assessments, interests and
penalties associated with such filing with all Authorities.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"INVESTMENT ADVISORS ACT" means the Investment Advisors Act of 1940,
as amended, and the rules and regulations of the SEC thereunder, all as from
time to time in effect, or any successor law, rules or regulations, and any
reference to any statutory or regulatory provision shall be deemed to be a
reference to any successor statutory or regulatory provision.
"INVESTMENT COMPANY" means any entity registered as a separate
investment company under the Investment Company Act.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC thereunder, all as from time
to time in effect, or any successor law, rules or regulations, and any
reference to any statutory or regulatory provision shall be deemed to be a
reference to any successor statutory or regulatory provision.
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<PAGE>
"INVESTOR REPORT" means the Investor Report of the Borrower
substantially in the form of Schedule I to the Security Agreement.
"IRREVOCABLE PAYMENT INSTRUCTION" means in respect of any Fund, the
Borrower's irrevocable payment instruction in effect in respect of such Fund
and its Transfer Agent, in the form of Exhibit A to the Security Agreement, as
the same may be amended or supplemented as contemplated thereby and hereby.
"LAW" means any (a) judicial, executive, legislative, administrative
or other decree, directive, enactment, finding, guideline, law, injunction,
interpretation, judgment, order, ordinance, policy statement, proclamation,
promulgation, regulation, requirement, rule, rule of public policy, settlement
agreement, statute, or writ, of any Authority, whether domestic or foreign, or
any particular section, part or provision thereof, (b) common law or other
legal or quasi-legal precedent, or (c) arbitrator's, mediator's or referee's
decision, finding, award or recommendation.
"LENDER" means CRC, together with all Persons which acquire any
interest in any Advance under the Asset Purchase Agreement.
"LENDER RATE" for each day during a Settlement Period for any
Advance, means to the extent the Lender funds such Advance on such day by
issuing commercial paper notes, the per annum rate equivalent to the weighted
average of the per annum rates paid or payable by the Lender from time to time
as interest on or otherwise (by means of interest rate hedges or otherwise) in
respect of those commercial paper notes issued by the Lender that are
allocated, in whole or in part, by the Agent (on behalf of the Lender) to fund
the making or maintenance of such Advance on such day as determined by the
Agent (on behalf of the Lender) and reported to the Borrower, which rates shall
reflect and give effect to the commissions of placement agents and dealers
(which as of the Closing Date do not exceed 0.05% per annum of the face amount
of such commercial paper notes) in respect of such commercial paper notes, to
the extent such commissions are allocated, in whole or in part, to such
commercial paper notes by the Agent on behalf of the Lender; provided, however,
that if any component of such rate is a discount rate, in calculating the
"Lender Rate" for such day the Agent shall for such component use the rate
resulting from converting such discount rate to an interest bearing equivalent
rate per annum.
"LENDER TERMINATION DATE" means the date which is the earliest to
occur of (i) April 12, 2004 or such later date as shall be agreed to in writing
by the Borrower and the Agent, (ii) the date which is one (1) Business Day
prior to the Secondary Lender Stated Expiration Date, and (iii) the date on
which the Total Commitment shall terminate pursuant to Section 2.10 or Section
6.01 of the Credit Agreement.
"LFSI" means Liberty Financial Services, Inc., together with its
successors and assigns.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien or security interest (statutory or other), or
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any
44
<PAGE>
conditional sale or other title retention agreement and any financing lease
having substantially the same economic effect as any of the foregoing).
"LIQUIDATION FEE" means, in respect of any Advance for any Settlement
Period during which the principal on such Advance is repaid by the Borrower in
whole or in part prior to the last Business Day in such Settlement Period, the
amount, if any, by which (i) the additional Yield (calculated without taking
into account any Liquidation Fee or any shortened duration of such Settlement
Period) which would have accrued during such Settlement Period on the reduction
of the outstanding principal amount of such Advance relating to such Settlement
Period had such reductions remained as outstanding principal, exceeds (ii) that
income, if any, received by the Lender's investing the proceeds of such
reductions of principal.
"LMIC" means Liberty Mutual Insurance Company, together with its
successors and assigns.
"MATERIAL ADVERSE EFFECT" means (i) any occurrence of any Adverse
Claim on the Assigned Collateral, (ii) any material adverse effect upon the
Secured Parties' first priority perfected security interest in the Assigned
Collateral, (iii) any material adverse effect upon the Borrower's, the
Distributor's, any Advisor's, any Company's, any Selling Agent's, any Transfer
Agent's or any Fund's ability to pay or fully perform any of its respective
obligations under any Program Document in a timely manner, (iv) the occurrence
of any event or circumstances that would cause any of the representations and
warranties set forth in any Facility Document to no longer be true and correct
in any material respect, (v) any material adverse effect on the status of any
Receivables as Eligible Receivables, (vi) any material adverse effect on the
amount of or timing of any payment of any Collections, (vii) any material
adverse effect on any of the other rights or remedies of any of the Secured
Parties under any Program Document, or (viii) any material adverse effect on
the business, financial position, operations, assets or properties of the
Borrower, the Distributor, any Advisor or the Parent.
"MATURITY DATE" means (i) with respect to any Advance made by the
Lender, the Lender Termination Date (or if such day is not a Business Day, the
Business Day immediately preceding such date) or such earlier date as provided
in Section 6.01 of the Credit Agreement, and (ii) with respect to any Advance
made by a Secondary Lender, the date which is one (1) year after the Borrowing
Date of such Advance (or if such day is not a Business Day, the Business Day
immediately preceding such date) or such earlier date as provided in Section
6.01 of the Credit Agreement.
"MAXIMUM AGGREGATE SALES CHARGE ALLOWABLE" means, at any time with
respect to the Receivables relating to Shares of any Fund, the maximum
aggregate Sales Charges which may be paid by such Fund (or if such Fund
constitutes a Portfolio, by the related Company in respect of such Fund) to the
Distributor pursuant to the Distribution Agreement, the Distribution Plan and
the Prospectus, together with interest thereon at the Maximum Interest
Allowable, relating to such Shares and pursuant to the "maximum sales charge
rule" set forth in Rule 2830 of the Conduct Rules, assuming such Fund pays a
separate Service Fee in connection with such Shares, unreduced by payments
previously made in respect thereof by such Fund (or if such Fund
45
<PAGE>
constitutes a Portfolio, by the related Company in respect of such Fund).
"MAXIMUM INTEREST ALLOWABLE" means the maximum interest which may be
taken into account under Rule 2830 of the Conduct Rules in computing the
Maximum Aggregate Sales Charge Allowable.
"MOODY'S" means Moody's Investors Service, Inc., together with its
successors.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA (29 USC Section
1002(37)) to which any member of the ERISA Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions, including for these purposes any Person which ceased to be
a member of the ERISA Group during such five year period.
"NASD" means both the National Association of Securities Dealers,
Inc. and NASD Regulation, Inc. or any successor entity.
"NET ASSET VALUE" means, (i) with respect to any Fund, as of the date
any determination thereof is made, the net asset value of such Fund computed in
the manner such value is required to be computed by such Fund in its reports to
its shareholders, and (ii) with respect to any Share of such Fund as of any
date, the quotient obtained by dividing: (A) the net asset value of such Fund
(as computed in accordance with clause (i) above) allocated to Shares of such
Fund (in accordance with the Distribution Plan and Distribution Agreement for
such Fund) as of such date, by (B) the number of Shares of such Fund
outstanding on such date.
"NORMAL DISTRIBUTIONS" means, in respect of any Fund, distributions
out of (a) "investment company taxable income," (b) "exempt-interest dividends"
and (c) "capital gain dividends," of such Fund, in each case, (i) as such terms
are used in Section 852 of the Code and (ii) to the extent required to be
distributed by such Fund (or if such Fund constitutes a Portfolio, by the
related Company in respect of such Fund) in accordance with Section 852 or
Section 4982 of the Code in order to avoid taxation at the entity level, and
(iii) to the extent the gains giving rise to the distributions requirement
described in clause (ii) arose in the ordinary course of such Fund's investment
activities (including shifts in the proportion of assets held in cash or cash
equivalents) and in accordance with such Fund's Fundamental Investment
Objectives and Policies (it being understood that this clause (iii) includes
gains resulting from sales to raise funds to satisfy shareholder redemption
requests made in the ordinary course of business).
"NOTICE OF BORROWING" shall have the meaning assigned to such term in
Section 2.02 of the Credit Agreement.
"PARENT" means Liberty Financial Companies, Inc., together with its
permitted successors and assigns.
"PERCENTAGE" of any Secondary Lender means, (a) with respect to
Citibank, the percentage set forth on the signature page to the Credit
Agreement, or such amount as reduced by any Assignment and Acceptance entered
into with an Eligible Assignee, or (b) with respect to a
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<PAGE>
Secondary Lender that has entered into an Assignment and Acceptance, the amount
set forth therein as such Secondary Lender's Percentage, or such amount as
reduced by an Assignment and Acceptance entered into between such Secondary
Lender and an Eligible Assignee.
"PERMITTED CONVERSION FEATURE" means with respect to any Share of any
Fund, a Conversion Feature described in Schedule III to the Security Agreement,
as such schedule may be amended from time to time in accordance with this
Agreement.
"PERMITTED DEBT" means, in respect of any Person, (i) Debt arising
under the Facility Documents, and (ii) accrued expenses payable in the ordinary
course of such Person's business, which are not overdue for a period of more
than thirty (30) days or which are being contested in good faith by appropriate
proceedings.
"PERMITTED FREE EXCHANGE" means any exchange of Shares of one Fund
(the "Redeeming Fund") for Exchange Shares of another Fund (the "Issuing
Fund"), where, pursuant to the applicable constituent documents of the Issuing
Fund: (i) Exchange Shares of the Issuing Fund are deemed for all purposes
(including the computation of the amount of, and timing of payment of the
related CDSC) to have been acquired at the time when the exchanged Shares of
the Redeeming Fund were acquired (or deemed to have been acquired) by the
holder thereof; (ii) the exchanging shareholder becomes obligated to pay in
respect of the Issuing Fund the same CDSC in respect of the Exchange Shares of
the Issuing Fund and on the same terms as such holder was obligated to pay in
respect of the Redeeming Fund in respect of the Shares of the Redeeming Fund so
exchanged; (iii) the date upon which such Exchange Shares of the Issuing Fund
received in the exchange are converted pursuant to the Permitted Conversion
Feature is the same as the date the exchanged Shares of the Redeeming Fund were
to be converted pursuant to the Permitted Conversion Feature of the exchanged
Shares; (iv) the Amortized Maximum Aggregate Sales Charge Allowable in respect
of the Shares of the Issuing Fund to which such Exchange Shares belong is
increased or decreased, depending upon whether the amount of the adjustment
described below is a positive or negative number, respectively, effective as of
the beginning of the calendar month immediately following the calendar month in
which such Free Exchange occurred, by the product obtained by multiplying (a)
the "Net Asset Value Exchange Adjustment" (as hereinafter defined which may be
a positive or negative number) for such class of Shares of such Fund for the
calendar month in which such Free Exchange occurred by (b) a fraction the
numerator of which is the sum obtained by adding for each Fund the Amortized
Maximum Aggregate Sales Charge Allowable in respect of each identical class of
Shares of each such Fund and the denominator of which is the sum obtained by
adding for each Fund the aggregate Net Asset Value of all outstanding Shares of
each identical class of Shares of each such Fund; both the numerator and
denominator shall be computed as of the end of the calendar month immediately
preceding the calendar month in which such Free Exchange occurred, it being
understood that for purposes of this clause (iv) the term "Net Asset Value
Exchange Adjustment" means, in respect of any class of Shares of any Fund for
any calendar month, the negative or positive number obtained by adding (x)
positive numbers equal to the aggregate Net Asset Value of all Exchange Shares
of such class of Shares (determined in each case as of the date of issuance of
each such Share) issued by such Fund during such calendar month in connection
with Free Exchanges and (y) negative numbers equal to the aggregate Net Asset
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<PAGE>
Value of all Shares of such class of Shares (determined in each case as of the
date of the redemption of each such Share) the class of Shares redeemed by such
Fund during such calendar month in connection with Free Exchanges; PROVIDED,
that the amount of such increase shall not exceed the Amortized Maximum
Aggregate Sales Charge Allowable in respect of such Shares of the Redeeming
Fund immediately prior to the exchange; (v) the Amortized Maximum Aggregate
Sales Charge Allowable in respect of the Shares of the Redeeming Fund to which
such Exchanged Shares belong is adjusted in accordance with the procedure in
clause (iv) above, it being understood that the adjustment in clause (iv) in
respect of the Issuing Fund and the adjustment in this clause (v) in respect of
the Redeeming Fund are complementary adjustments when viewed solely in the
context of those two Funds -- i.e., there will be a positive adjustment to one
and a negative adjustment to the other; and (vi) both the redemption of the
Shares of the Redeeming Fund so exchanged and the issuance of the Shares of the
Issuing Fund are effected at the Net Asset Value of such Shares at the date of
the exchange without any reduction for fees or expenses attributable to such
exchange.
"PERMITTED FREE REDEMPTION" means the specific circumstances
specified in the Prospectuses for the Funds in effect on the Closing Date which
expressly provides for Free Redemptions or permits the waiver of a CDSC.
"PERMITTED LIENS" means in respect of any Person, Liens (i) to secure
taxes, assessments and other governmental charges, to the extent that payment
thereof shall not at the time be required by Section 5.01(b); (ii) Liens
relating to deposits or pledges made (A) in connection with, or to secure
payment of, worker's compensation, unemployment insurance, old age pensions or
other social security payments, (B) in connection with casualty insurance, or
(C) to secure statutory obligations or surety or appeal bonds, (iii) Liens of
carriers, warehousemen, mechanics and similar Liens, in each case (A) in
existence less than ninety (90) days from the date of creation thereof, or (B)
being contested in good faith by such Person in appropriate proceedings (so
long as such Person shall, in accordance with GAAP, have set aside on its books
adequate reserves with respect thereto); (iv) 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 Borrower, and (v) set-off rights of depositary
institutions with which such Person maintains deposit accounts.
"PERSON" means an individual or a corporation (including a business
trust), partnership, trust, incorporated or unincorporated association, joint
stock company, limited liability company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PLAN" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees
of any member of the ERISA Group or (ii) has at any time within the preceding
five years been maintained, or contributed to, by any Person which
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was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"PORTFOLIO" means a separate investment portfolio or series of a
Company.
"POST-DEFAULT RATE" means in respect of all amounts payable to any
Secured Party under any Facility Document not paid when due (whether at stated
maturity, by acceleration or otherwise), including, without limitation, the
principal and Yield on any Advance not paid when due, a rate per annum during
the period commencing on the due date until such amount is paid in full equal
to the Alternative Base Rate as in effect from time to time plus two percent
(2%).
"PRESENT VALUE ADJUSTED SALES CHARGE AMOUNT" means as of any date of
determination the present value of the Amortized Maximum Aggregate Sales Charge
Allowable in respect of the Eligible Receivables of each Eligible Fund
calculated in accordance with and pursuant to the Investor Report.
"PRINCIPAL OFFICE" means the principal office of Citibank presently
located at 399 Park Avenue, New York, New York.
"PRIVATE AUTHORIZATIONS" means all franchises, permits, licenses,
approvals, consents and other authorizations of all Persons (other than
Authorities) including, without limitation, those with respect to trademarks,
service marks, trade names, copyrights, computer software programs, technical
and other know-how.
"PROCEEDS" shall have, with reference to any asset or property, the
meaning assigned to it under the UCC and, in any event, shall include, but not
be limited to, any and all amounts from time to time paid or payable under or
in connection with such asset or property.
"PROGRAM DOCUMENTS" means the Facility Documents, the Distribution
Plans, the Distribution Agreements, the Advisory Agreements, and the other
agreements, documents and instruments entered into or delivered in connection
or therewith.
"PROSPECTUS" means with respect to any Fund the prospectus filed with
the SEC as a part of such Fund's registration statement on Form N-1A, as
amended (or any successor SEC form), and shall include, without limitation, the
related statement of additional information included in such registration
statement.
"RECEIVABLES" means with respect to each Fund, all of the
Distributor's rights under the related Distribution Agreement, the related
Distribution Plan, the related Prospectus and the applicable Conduct Rules to
receive amounts paid or payable in respect of Asset Based Sales Charges
(including interest at the Maximum Interest Allowable) and CDSCs, in each case
in respect of any Shares issued by such Fund (or if such Fund constitutes a
Portfolio, by the related Company in respect of such Fund), including, without
limitation, any similar amount paid or payable under any replacement
distribution agreement, distribution plan, prospectus or the Conduct Rules, and
any continuation payments in respect thereof paid or payable by such Fund (or
if such Fund constitutes a Portfolio, by the related Company in respect of such
Fund) in the
49
<PAGE>
event of a termination of the related Distribution Plan or the related
Distribution Agreement; it being understood that such term does not include the
Service Fee.
"REGULATION T" means Regulation T of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REMITTANCE NOTICE" means a notice from the Agent to a Fund and the
Transfer Agent for such Fund substantially in the form of Annex A to the
Irrevocable Payment Instruction.
"S&P" means Standard & Poor's Ratings Group, together with its
successors.
"SALES CHARGE" shall have the meaning set forth in Section 2830 of
the Conduct Rules.
"SEC" means the Securities and Exchange Commission or any other
governmental authority of the United States of America at the time
administrating the Securities Act, the Investment Company Act or the Exchange
Act.
"SECONDARY LENDER COMMITMENT" means (a) with respect to Citibank, an
amount equal to the Total Commitment, as such amount shall be reduced by any
Assignment and Acceptance entered into between Citibank and an Eligible
Assignee, or (b) with respect to a Secondary Lender that has entered into an
Assignment and Acceptance, the amount set forth therein as such Secondary
Lender's "Secondary Lender Commitment," in each case as such amount may be
reduced by an Assignment and Acceptance entered into between such Secondary
Lender and an Eligible Assignee, and as may be further reduced (or terminated)
pursuant to the next sentence. Any reduction (or termination) of the Total
Commitment pursuant to the terms of this Agreement shall reduce ratably (or
terminate) each Secondary Lender's Secondary Lender Commitment.
"SECONDARY LENDER STATED EXPIRATION DATE" means April 10, 2000,
unless, prior to such date (or the date so extended pursuant to this clause),
upon the Borrower's request to the Agent, made not more than sixty (60) days
nor less than thirty (30) days prior to the then current Secondary Lender
Stated Expiration Date, one or more Secondary Lenders having 100% of the Total
Commitment shall in their sole discretion consent, which consent shall be given
not less than twenty (20) days prior to the then current Secondary Lender
Stated Expiration Date (the date any such consent is given, the "Extension
Date"), to the extension of the Secondary Lender Stated Expiration Date to the
date occurring 364 days after such Extension Date; PROVIDED, HOWEVER, that any
failure of any Secondary Lender to respond to the Borrower's request for such
extension shall be deemed a denial of such request by such Secondary Lender.
50
<PAGE>
"SECONDARY LENDER TERMINATION DATE" means the earlier of (a) the
Secondary Lender Stated Expiration Date, and (b) the date the Total Commitment
shall terminate pursuant to Section 2.10 or Section 6.01 of the Credit
Agreement.
"SECONDARY LENDERS" means Citibank and each Eligible Assignee that
becomes a party to this Agreement pursuant to Section 8.06 of the Credit
Agreement.
"SECURED PARTIES" means the Agent, the Lender, the Secondary Lenders
and their respective successors and assigns.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as from time to time in
effect, or any successor law, rules or regulations, and any reference to any
statutory or regulatory provisions shall be deemed to be a reference to any
successor statutory or regulatory provision.
"SECURITY AGREEMENT" means the Pledge and Security Agreement dated as
of April 12, 1999 between the Distributor and the Agent, as the same may from
time to time be amended, supplemented, waived or modified.
"SELLING AGENT" means each Person which acts as the Distributor's
direct or indirect distributor, underwriter, broker, dealer or agent for the
Shares of a Fund.
"SERVICE FEE" shall have the meaning set forth in Section 2830 of the
Conduct Rules.
"SETTLEMENT DATE" means the date which is two (2) Business Days after
the end of each Settlement Period.
"SETTLEMENT PERIOD" means in respect of any Advance:
(a) in the case of any Settlement Period in respect of which Yield
is computed by reference to the Lender Rate, the period beginning on the date
such Advance was made and ending on the last day of the calendar month in which
such Advance was made and thereafter each successive period commencing on the
first day of each calendar month during the term of this Agreement and ending
on the last day of such calendar month during the term of this Agreement;
provided, however, that in the case of any Settlement Period for any Advance
which commences before the Maturity Date for such Advance and would otherwise
end on a date occurring after such Maturity Date, such Settlement Period shall
end on such Maturity Date and the duration of each Settlement Period which
commences on or after the Maturity Date for such Advance may be any period
(including, without limitation, a period of one day) as shall be selected from
time to time by the Agent;
(b) in the case of any Settlement Period in respect of which Yield
is computed by reference to the Assignee Rate, the period beginning on the date
such Advance was made and ending on the last day of the calendar month in which
such Advance was made and thereafter each successive period commencing on the
first day of each calendar month during the term of
51
<PAGE>
this Agreement and ending on the last day of such calendar month during the
term of this Agreement; provided, however, that any Settlement Period which is
other than the monthly Settlement Period shall be of such duration as shall be
selected by the Agent; and
(c) in the case of any Settlement Period in respect of which Yield
is computed by reference to the Alternate Base Rate, such Settlement Period
shall be of such duration as shall be selected by the Agent.
"SHARES" means, in respect of any Fund, the Class B shares, Class F
shares and Class H shares of such Fund, together with all other shares or
capital stock of such Fund which are issued on a deferred sales charge basis
and which have a sales load structure substantially similar to that of the
Class B shares, Class F shares or Class H shares, PROVIDED, THAT, for the
avoidance of doubt the Class C shares of any Fund shall not be deemed to
constitute "Shares".
"SIPA" means the Securities Investor Protection Act of 1970, as
amended from time to time and the regulations promulgated and the rulings
issued thereunder.
"SUBSIDIARY" means, in respect of a referenced Person another Person
which is directly or indirectly through one or more of its Subsidiaries,
controlled by such referenced Person. The terms "control," "controlling,"
"controlled" and the like mean the direct or indirect possession of the power
to direct or cause the direction of the management or policies of a Person or
the disposition of its assets or properties, whether through ownership, by
contract, arrangement or understanding, or otherwise.
"TOTAL COMMITMENT" means $150,000,000 as such amount may be reduced
pursuant to Section 2.10 of the Credit Agreement. References to the unused
portion of the Total Commitment shall mean, at any time, the Total Commitment
then in effect, minus the outstanding principal amount of the Advances.
"TRANSFER AGENT" means, in respect of the Shares of any Fund at any
time, the Person who acts at such time as the transfer agent for such Fund in
respect of such Shares or any successor transfer agent for such Fund.
"UCC" means the Uniform Commercial Code, as from time to time in
effect in the applicable jurisdictions.
"UNDERTAKING" means the Undertaking dated as of the date hereof among
the Agent, the Parent and the Advisors, as the same may from time to time be
amended, supplemented, waived or modified.
"U.S. GOVERNMENT SECURITIES" means any securities which are direct
obligations of, or obligations the principal and interest on are
unconditionally guaranteed by the United
52
<PAGE>
States of America.
"YEAR 2000 PROBLEM" means in respect of any Person the risk that
computer applications used by such Person may be unable to recognize and
properly perform date-sensitive functions involving certain dates prior to,
during and after the year 2000.
"YIELD" means for each Advance for each Settlement Period:
(i) for each day during such Settlement Period to the extent
such Advance will be funded on such day by CRC through the issuance of
commercial paper notes,
LR x P + LF
---
360
(ii) for each day during such Settlement Period to the extent
such Advance will not be funded on such day by the issuance of commercial
paper notes,
AR x P + LF
---
360
where:
AR = the Assignee Rate for such Advance for such Settlement
Period
P = the outstanding principal amount of such Advance on such
day
LR = the Lender Rate for such Advance on such day
LF = the Liquidation Fee, if any, for such Advance for such
Settlement Period;
PROVIDED, FURTHER, that Yield for any Advance shall not be considered
paid by any distribution to the extent that at any time all or a portion of
such distribution is rescinded or must otherwise be returned for any reason.
53
<PAGE>
EXHIBIT A
[FORM OF ADVANCE NOTE]
$__________ _________, ____
FOR VALUE RECEIVED, on the Maturity Date (as defined in the Advance
Agreement hereinafter referred to) of each Advance made by the [Lender]
[Secondary Lender] to the undersigned (the "Borrower") pursuant to the Credit
Agreement (defined below), the Borrower hereby promises to pay to the order of
[INSERT NAME OF LENDER OR SECONDARY LENDER] (together with its successors and
assigns the ["Lender"] ["Secondary Lender"]) the unpaid principal amount of each
such Advance, in immediately available funds and in lawful money of the United
States of America, and to pay Yield on the unpaid balance of said principal
Advance from the Borrowing Date thereof, until the principal amount thereof
shall have been paid in full, in like funds and money as provided in said Credit
Agreement for Advances made by the [Lender] [Secondary Lender] and at the
maturity thereof. Capitalized terms used in this promissory note unless
otherwise defined herein shall have the meaning assigned to such terms in the
Credit Agreement.
This promissory note is an Advance Note referred to in the Revolving
Credit Agreement dated as of April 12, 1999 (as from time to time amended, the
"Credit Agreement") among the Borrower, [the Lender] [Secondary Lender], the
other banks and financial institutions parties thereto and Citicorp North
America, Inc., as agent. The date and principal amount of each Advance made to
the Borrower and of each repayment of principal thereon shall be recorded by the
[Lender] [Secondary Lender] or its designee on Schedule I attached to this
Advance Note, and the aggregate unpaid principal amount shown on such schedule
shall be rebuttable presumptive evidence of the principal amount owing and
unpaid on the Advances made by the [Lender] [Secondary Lender]. The failure to
record or any error in recording any such amount on such schedule shall not,
however, limit or otherwise affect the obligations of the Borrower hereunder or
under the Credit Agreement to repay the principal amount of the Advances
together with all Yield accrued thereon.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
LIBERTY FUNDS GROUP LLC
By: Liberty Financial Services, Inc.,
Its Sole Member
By:_____________________________
Name:
Title:
13620.110 #69659
<PAGE>
SCHEDULE I
TO EXHIBIT A
This Advance Note evidences Advances made by [INSERT NAME OF LENDER OR
SECONDARY LENDER], (the ["Lender"] ["Secondary Lender"]) under the
Revolving Credit Agreement dated as of April 12, 1999 among LIBERTY FUNDS
GROUP LLC, the [Lender] [Secondary Lender], the other banks and financial
institutions parties thereto and Citicorp North America, Inc., as agent in
the principal amounts and on the dates set forth below, subject to the
payments and prepayments of principal set forth below:
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT PAID BALANCE NOTATION
DATE ADVANCED OR PREPAID OUTSTANDING BY___
<PAGE>
EXHIBIT B
LIBERTY FUNDS GROUP LLC
One Financial Center
Boston, Massachusetts 02111
Citicorp North America, Inc.,
as Agent
[ADDRESS]
NOTICE OF BORROWING
This Notice of Borrowing is made pursuant to Section 2.02 of that
certain Revolving Credit Agreement dated as of April 12, 1999, among CORPORATE
RECEIVABLES CORPORATION, as lender (the "Lender"), CITIBANK, N.A. the other
banks parties thereto, CITICORP NORTH AMERICA, INC., as agent and LIBERTY FUNDS
GROUP LLC, as borrower (the "Borrower") (as the same may from time to time be
amended, supplemented, waived or modified, the "Credit Agreement"). Unless
otherwise defined herein, capitalized terms used herein have the meanings
assigned to those terms in the Credit Agreement.
1. The Borrower hereby requests that on _____________, ____ (the
"Borrowing Date") it receive an advance under the Credit Agreement in the
principal amount of _____________ Dollars ($_______).
2. The Borrower hereby gives notice of its request for such Advance
to the Agent pursuant to Section 2.02 of the Credit Agreement and requests the
Lender or the Secondary Lenders to remit, or cause to be remitted, the proceeds
thereof to [the Borrower's Account] [SPECIFY OTHER ACCOUNT, IF APPLICABLE].
3. The Borrower certifies that (i) the representations and warranties
of the Borrower contained or reaffirmed in Section 4.01 of the Credit Agreement
are true and correct in all material respects on and as of the date hereof to
the same extent as though made on and as of the date hereof (except to the
extent such representations and warranties expressly relate to any earlier
date); (ii) no Default or Event of Default has occurred and is continuing under
the Credit Agreement or will result from the proposed borrowing; (iii) the
Borrower has performed in all material respects all agreements and satisfied all
conditions under the Credit Agreement to be performed by it on or before the
date hereof, (iv) the conditions precedent to the making of the proposed Advance
set forth in Article III of the Credit Agreement
<PAGE>
have been fully satisfied and (v) immediately after giving effect to such
advance the Borrowing Base Test will be complied with.
57
<PAGE>
WITNESS my hand on this ____ day of _________, ____.
LIBERTY FUNDS GROUP LLC
By: Liberty Financial Services, Inc.,
Its Sole Member
By:_____________________________
Name:
Title:
58
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Revolving Credit Agreement dated as of April
12, 1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among CORPORATE RECEIVABLES CORPORATION (together with its
successors and assigns, the "Lender"), CITIBANK, N.A. (Citibank, N.A., together
with the other banks and financial institutions from time to time parties to the
Credit Agreement, the "Secondary Lenders"), CITICORP NORTH AMERICA, INC., as
agent for the under and the Secondary Lenders (in such capacity, together with
its successors and assigns, the "Agent") and LIBERTY FUNDS GROUP LLC (together
with its permitted successors and assigns, the "Borrower"). Terms defined in the
Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as
follows:
1. As of the Effective Date (as defined below), the Assignor hereby
absolutely and unconditionally sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse
to or representation of any kind (except as set forth below) from Assignor,
an interest in and to the Assignor's rights and obligations under the
Credit Agreement and under the other Program Documents equal to the
percentage interest specified on Schedule I hereto, including the
Assignor's Secondary Lender Commitment and Percentage and the Assignor's
portion of the outstanding principal amount of the Advances (such rights
and obligations assigned hereby being the "Assigned Interests"). After
giving effect to such sale, assignment and assumption, the Assignee's
"Secondary Lender Commitment" and the Assignee's "Percentage" will be as
set forth on Schedule I hereto.
2. The Assignor (i) represents and warrants that immediately prior
to the Effective Date it is the legal and beneficial owner of the Assigned
Interest free and clear of any Adverse Claim created by the Assignor; (ii)
makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Program Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security or ownership interest created or purported
to be created under or in connection with, the Program Documents or any
other instrument or document furnished pursuant thereto or the condition or
value of the Assigned Interest, Assigned Collateral, or any interest
therein; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the condition (financial or otherwise) of
the Parent, the Borrower, the Distributor, , any Advisor or any other
Person, or the performance or observance by any Person of any of its
obligations under any Program Document or any instrument or document
furnished pursuant thereto.
1.
<PAGE>
The Assignee (i) confirms that it has received a copy of the Credit
Agreement and the other Facility Documents, together with copies of any
financial statements delivered pursuant to Section 5.01 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 Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Agent, the Assignor, the Lender or any other Secondary 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
or in connection with any of the Facility Documents; (iii) confirms that it is
an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers and discretion under the
Facility Documents as are delegated to the Agent by the terms thereof, together
with such powers and discretion as are reasonably incidental thereto; (v) agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of the Facility Documents are required to be performed by it as a
Secondary Lender; (vi) confirms that the assignment hereunder complies with any
applicable legal requirements including the Securities Act of 1933, as amended;
(vii) confirms that such Assignee is a United States Person (as defined in
Section 7701 (a)(30) of the Code) or that such Assignee shall have provided the
Agent with two Internal Revenue Service forms 4224 (or a successor form)
certifying that the income from the Assigned Interest is effectively connected
with the conduct of such Person's trade or business in the United States; and
(viii) confirms that such Assignee is not a partnership, grantor trust or S
corporation (as such terms are defined in the Code).
3. Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for acceptance and recording by the Agent.
The effective date for this Assignment and Acceptance (the "Effective
Date") shall be the date of acceptance hereof by the Agent, unless a later
effective date is specified on Schedule I hereto.
4. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to and bound by the
provisions of the Credit Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Secondary
Lender thereunder and under any other Facility Document and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement and under any other Facility Document.
5. Upon such acceptance and recording by the Agent, from and after
the Effective Date, the Agent shall make all payments under the Credit
Agreement in respect of the Assigned Interest to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the
Credit Agreement and the Assigned Interests for periods prior to the
Effective Date directly between themselves.
60
<PAGE>
6. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
7. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery
of an executed counterpart of Schedule I to this Assignment and Acceptance
by telecopier shall be effective as a delivery of a manually executed
counterpart of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule I
to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.
61
<PAGE>
Schedule I
Percentage interest
transferred by Assignor: ___%
Assignee's "Secondary Lender Commitment": $___
Assignee's "Percentage" ___%
Assignor: [INSERT NAME OF ASSIGNOR],
as Assignor,
By:____________________________
Authorized Signatory,
Assignee: [INSERT NAME OF ASSIGNEE]
as Assignee
By:_____________________________
Authorized Signatory,
Accepted, Consented to and
Acknowledged this ___ day of
_______________, ____
CITICORP NORTH AMERICA, INC.,
as Agent
By:________________________________
Authorized Signatory
LIBERTY FUNDS GROUP LLC
By: Liberty Financial Services, Inc.
Its Sole Member
By:___________________________
Authorized Signatory
13620.100 #69659
<PAGE>
- --------------------------------------------------------------------------------
PLEDGE AND SECURITY AGREEMENT
between
LIBERTY FUNDS DISTRIBUTOR, INC.,
as Distributor
and
CITICORP NORTH AMERICA, INC.,
as Agent
Dated as of April 12, 1999
- --------------------------------------------------------------------------------
<PAGE>
[Type VII-C]
13620.110 #71862
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01. Definitions; Terminology; Rules of Construction.. . . . . . . .1
ARTICLE II
PLEDGE OF ASSIGNED COLLATERAL; RIGHTS OF THE AGENT
SECTION 2.01. Security Interests. . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.02. Rights and Remedies.. . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.03. Remedies Cumulative.. . . . . . . . . . . . . . . . . . . . . .3
SECTION 2.04. Enforcement of Remedies under the Distribution
Agreements and Distribution Plans. . . . . . . . . . . . . . .3
SECTION 2.05. Application of Proceeds.. . . . . . . . . . . . . . . . . . . .3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Distributor . . . . . . .4
ARTICLE IV
COVENANTS
SECTION 4.01. Affirmative Covenants of the Distributor. . . . . . . . . . . .7
SECTION 4.02. Negative Covenants of the Distributor.. . . . . . . . . . . . 11
ARTICLE V
MISCELLANEOUS
SECTION 5.01. No Waiver; Modifications in Writing.. . . . . . . . . . . . . 13
i
<PAGE>
SECTION 5.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.03. Indemnification.. . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.04. Execution in Counterparts.. . . . . . . . . . . . . . . . . . 15
SECTION 5.05. Assignability.. . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.06. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.07. Severability of Provisions. . . . . . . . . . . . . . . . . . 15
SECTION 5.08. Confidentiality.. . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.09. Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.10. No Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.11. Survival of Representations and Warranties, Etc.. . . . . . . 17
SECTION 5.12. Submission to Jurisdiction; Waivers.. . . . . . . . . . . . . 17
SECTION 5.13. Waiver Of Jury Trial. . . . . . . . . . . . . . . . . . . . . 17
SCHEDULES
SCHEDULE I Form of Investor Report
SCHEDULE II CDSCs
SCHEDULE III Permitted Conversion Features
EXHIBITS
EXHIBIT D Form of Irrevocable Payment Instruction
13620.110 #71862
ii
<PAGE>
SCHEDULE I
FORM OF INVESTOR REPORT
<PAGE>
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of April 12, 1999 (this
"Agreement") between CITICORP NORTH AMERICA, INC., as agent for the Secured
Parties (as defined below) (in such capacity, together with its successors and
assigns, the "Agent") and LIBERTY FUNDS DISTRIBUTOR, INC. (together with its
permitted successors and assigns, the "Distributor").
W I T N E S S E T H:
WHEREAS, contemporaneously with the execution of this Agreement,
Liberty Funds Group LLC (together with its successors and assigns, the
"Borrower"), Corporate Receivables Corporation (together with its successors and
assigns, the "Lender"), Citibank, N.A. and the other banks and financial
institutions from time to time parties thereto (together with Citibank, N.A. and
their respective successors and assigns, the "Secondary Lenders") are entering
into that certain Revolving Credit Agreement dated as of the date hereof (as
from time to time amended, the "Credit Agreement") pursuant to which the Lender
and the Secondary Lenders have agreed, subject to the terms and conditions
thereof, to make advances from time to time to the Borrower;
WHEREAS, an essential condition precedent to the Lender's and the
Secondary Lenders' making advances to the Borrower in accordance with the terms
of the Credit Agreement is that the Distributor enter into this Agreement and
assign and pledge to the Agent for the benefit of the Agent, the Lender and the
Secondary Lenders (each a "Secured Party" and collectively, the "Secured
Parties") all of its right, title and interest in, to and under the Assigned
Collateral (as defined below); and
WHEREAS, the Borrower shall make the proceeds of the advances made
under the Credit Agreement available to the Distributor;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, the receipt by the Distributor of substantial
economic benefit whether or not set forth herein, the receipt and sufficiency of
which are hereby acknowledged, and for other good and valuable consideration,
receipt and sufficiency of which are hereby acknowledged by each of the parties
hereto, the Distributor undertakes and agrees as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01. DEFINITIONS; TERMINOLOGY; RULES OF CONSTRUCTION.
Unless otherwise defined herein capitalized terms shall have the
meanings assigned to such terms in Appendix A to the Credit Agreement. For all
purposes of this Agreement, except as otherwise expressly provided or unless the
context otherwise requires (a) each use in this Agreement of a singular version
of a pronoun shall be deemed to include
<PAGE>
references to the plural, and vice versa, as appropriate, (b) Article and
Section headings are for convenience of reference only and shall not affect the
construction of this Agreement, and (c) references to "this section" or words of
similar import shall be deemed to refer to the entire section and not to a
particular subsection, and references to "hereunder," "herein" or words of
similar import shall be deemed to refer to this entire Agreement and not to the
particular section or subsection. References in this Agreement to "including"
means including without limiting the generality of any description preceding
such term. Each of the parties to this Agreement and its counsel have reviewed
and revised, or requested revisions to, this Agreement, and the usual rule of
construction that any ambiguities are to be resolved against the drafting party
shall be inapplicable in the construction and interpretation of this Agreement.
ARTICLE II
PLEDGE OF ASSIGNED COLLATERAL; RIGHTS OF THE AGENT
SECTION 2.01. SECURITY INTERESTS.
As collateral security for the prompt, complete and unconditional
payment and performance of all of the Borrower Obligations, the Distributor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers to the
Agent for the benefit of the Secured Parties and grants to the Agent for the
benefit of the Secured Parties a continuing first Lien upon and security
interest in, all of the Distributor's right, title and interest in, to and under
the following assets and properties now existing and hereafter arising or
acquired (collectively, the "Assigned Collateral"):
(i) all of the Receivables relating to all Funds;
(ii) all Collections;
(iii) all accounts into which any Collections are remitted; and
(iv) all Proceeds of any and all of the foregoing.
SECTION 2.02. RIGHTS AND REMEDIES.
The Agent (for itself and on behalf of the other Secured Parties)
shall have all of the rights and remedies of a secured party under the UCC and
other Applicable Law. Upon the occurrence and during the continuance of an Event
of Default, the Agent or its designees may (i) sell or otherwise dispose of the
Assigned Collateral, all without judicial process or proceedings; (ii) take
control of the Collections and Proceeds of any such Assigned Collateral; and/or
(iii) institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, any of the Assigned Collateral. In addition,
upon the occurrence and during the continuance of a Default or Event of Default,
the Agent may deliver a Remittance Notice to each Fund and the Transfer Agent
for each Fund. The Distributor authorizes the Agent to file financing or
continuation statements, and amendments thereto and assignments thereof,
relating to the Assigned Collateral without the signature of the Distributor
where permitted by law. A photocopy or other reproduction of this Agreement
shall be sufficient as a financing statement
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where permitted by law. For purposes of taking the actions described in this
Section 2.02 the Distributor hereby irrevocably appoints the Agent as its
attorney-in-fact (which appointment being coupled with an interest is
irrevocable while any of the Borrower Obligations remain unpaid), with power of
substitution, in the name of the Agent or in the name of the Distributor or
otherwise, for the use and benefit of the Agent, but at the cost and expense of
the Distributor and without notice to the Distributor.
SECTION 2.03. REMEDIES CUMULATIVE.
Each right, power, and remedy of the Agent and the other Secured
Parties, or any of them, as provided for in this Agreement or in the other
Program Documents or now or hereafter existing at law or in equity or by statute
or otherwise shall be cumulative and concurrent and shall be in addition to
every other right, power, or remedy provided for in this Agreement or in the
other Facility Documents or now or hereafter existing at law or in equity or by
statute or otherwise, and the exercise or beginning of the exercise by the Agent
or any other Secured Party of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by such Persons
of any or all such other rights, powers, or remedies.
SECTION 2.04. ENFORCEMENT OF REMEDIES UNDER THE DISTRIBUTION
AGREEMENTS AND DISTRIBUTION PLANS.
The Distributor agrees that it shall upon the request of the Agent
(and at the Distributor's own expense) (i) diligently exercise and enforce its
rights and remedies under the Distribution Agreements and the Irrevocable
Payment Instructions and in respect of the Assigned Collateral and at law or
equity against the Funds, (ii) respond to inquiries of the Agent relating to the
Assigned Collateral, and (iii) cause the Funds to comply with the Irrevocable
Payment Instructions for the breach of any term or agreement thereunder relating
to or affecting any Assigned Collateral. In enforcing and exercising such
rights and remedies the Distributor shall exercise the same degree and care that
it would exercise if this Agreement had not been entered into; provided, that
the Distributor shall not, in enforcing such rights and remedies, settle any
claim against any Fund without the prior written consent of the Agent (which
consent shall not be unreasonably withheld).
SECTION 2.05. APPLICATION OF PROCEEDS.
(a) After the occurrence of an Event of Default, all Collections and
other cash amounts received in respect of the Assigned Collateral, including all
Proceeds resulting from the sale or other disposition of the Assigned Collateral
shall be applied by the Agent in the following order and priority:
FIRST, to the payment of all amounts advanced or expended by the Agent
and all costs and expenses incurred by the Agent in connection with the
enforcement of the Secured Parties rights and remedies under the Program
Documents;
SECOND, to the extent funds are remaining after the above application,
to the
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Lenders and the Secondary Lenders for the payment of all accrued and unpaid
Yield on all outstanding Advances on a pro-rata basis according to the amount of
accrued Yield owing to each Lender and Secondary Lender;
THIRD, to the extent funds are remaining after the above applications,
to the Secured Parties for the payment of all fees payable under the Fee Letter
on a pro rata basis according to the amount of such fees owing to each Secured
Party;
FOURTH, to the extent funds are remaining after the above
applications, to the Lenders and the Secondary Lenders for the payment of the
principal amount of each outstanding Advance on a pro-rata basis according to
the amount of principal owing to each Lender and Secondary Lender;
FIFTH, to the extent funds are remaining after the above applications,
to the Secured Parties for the payment of all other amounts payable to the
Secured Parties pursuant to this Agreement and the other Program Documents on a
pro rata basis according to the amounts owed to each Secured Party.
The Agent shall, after the final payment in full of all Advances
and all other Borrower Obligations, remit the remaining excess Proceeds which it
had received from the sale or disposition of the Assigned Collateral to the
Distributor.
(b) For purposes of determining the application to be made of such
monies and other cash proceeds by the Agent to the Lender and the Secondary
Lenders pursuant to this Section 2.05, the Agent may rely exclusively upon a
certificate or other statement the Lender or such Secondary Lender, as the case
may be, setting forth in reasonable detail the Lender's and such Secondary
Lender's amount then owing to the Lender and such Secondary Lender, as the case
may be. The Agent shall not be liable for any application of funds in accordance
with any certificate or direction delivered pursuant to this Section 2.05;
provided, however, that no application of funds in accordance with any
certificate delivered pursuant to this Section 2.05 shall be deemed to restrict
or limit the right of any party to contest with the purported obligee its
respective liability in respect of the amount set forth in such certificate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE DISTRIBUTOR.
The Distributor represents and warrants to each of the Secured Parties
on and as of the Closing Date, each Borrowing Date and the last day of each
Settlement Period, as follows:
(a) the Distributor is duly organized and validly existing in good
standing under the laws of the Commonwealth of Massachusetts, with full
corporate power and authority to own and operate its assets and properties,
conduct the business in which it is now engaged and to execute and deliver and
perform its obligations under this Agreement and the other Program Documents to
which it is a party;
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(b) the Distributor is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business, assets and
properties, including, without limitation, the performance of its obligations
under this Agreement and the other Program Documents to which it is a party,
requires such qualification, except where the failure to be so qualified could
not give rise to a reasonable possibility of a Material Adverse Effect;
(c) the execution, delivery and performance by the Distributor of the
Program Documents to which it is a party and the other instruments and
agreements contemplated thereby are within its corporate powers and have been
duly authorized by all requisite corporate action by the Distributor and have
been duly executed and delivered by the Distributor and constitute the legal,
valid and binding obligations of the Distributor enforceable against the
Distributor in accordance with their respective terms;
(d) neither the execution and delivery by the Distributor of this
Agreement, the other Program Documents to which it is a party, or any instrument
or agreement referred to herein or therein, or contemplated hereby or thereby,
nor the consummation of the transactions herein or therein contemplated, nor
compliance with the terms, conditions and provisions hereof or thereof by it,
will (i) conflict with, or result in a breach or violation of, or constitute a
default under its certificate of incorporation, or by-laws or other
organizational documents, (ii) conflict with or contravene any (A) Applicable
Law, (B) any contractual restriction binding on or affecting the Distributor or
any of its assets or properties, (C) any order, writ, judgment, award,
injunction or decree binding on or affecting the Distributor or any of its
assets or properties, (iii) result in a breach or violation of, or constitute a
default under, or permit the acceleration of any obligation or liability in, or
but for any requirement of the giving of notice or the passage of time (or both)
would constitute such a conflict with, breach or violation of, or default under,
or permit any such acceleration in, any contractual obligation or any agreement
or document to which it is a party or by which it or any of its properties is
bound (or to which any such obligation, agreement or document relates),
(iv) result in any Adverse Claim upon any of the Assigned Collateral, or
(v) result in the termination of any Distribution Agreement or Distribution
Plan;
(e) the Distributor has obtained all necessary Governmental Authorizations
and Private Authorizations, and made all Governmental Filings necessary for the
execution, delivery and performance by the Distributor of this Agreement, the
other Program Documents to which it is a party and the agreements and
instruments contemplated hereby or thereby, and no Governmental Authorization,
Private Authorization or Governmental Filing which has not been obtained or
made, is required to be obtained or made by it in connection with the execution,
delivery or performance of this Agreement and the other Program Documents,
including without limitation the pledge of the Assigned Collateral contemplated
by this Agreement;
(f) this Agreement and the actions required to be taken pursuant to the
terms hereof are, and at all times shall be, effective to create and perfect in
the Agent for the benefit of the Secured Parties a first priority security
interest in the Assigned Collateral free and clear of all Adverse Claims;
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(g) the Distributor owns the Assigned Collateral free and clear of Adverse
Claims; and as of the initial Borrowing Date and at all times thereafter, the
Agent has a first priority perfected security interest in the Assigned
Collateral free and clear of all Adverse Claims and no actions, except as have
been taken, are necessary or advisable to perfect or protect such security
interest free and clear of Adverse Claims;
(h) no effective financing statements or other instruments similar in
effect covering any Assigned Collateral of the Distributor is on file in any
recording office, except those filed in favor of the Agent pursuant to this
Agreement;
(i) the Distributor is a wholly-owned subsidiary of Colonial Management
Associates, Inc., which is a wholly-owned subsidiary of the Borrower which is
wholly-owned by LFSI, which in turn is a wholly-owned subsidiary of the Parent
and the Distributor's principal place of business and chief executive office and
the place where its records concerning the Assigned Collateral are kept is at
the addresses referred to in Section 4.01(d);
(j) there are no pending or, to the best of the Distributor's knowledge,
threatened investigations, actions, suits or proceedings involving the
Distributor which give rise to a reasonable possibility of a Material Adverse
Effect;
(k) the Prospectus, each Investor Report, each Notice of Borrowing and all
other written information, reports and statements provided by or on behalf of
the Distributor or any of its Affiliates to any Secured Party for purposes of or
in connection with this Agreement, any other Facility Document or the
transactions contemplated hereby or thereby is, and all such information,
notices, reports and statements hereafter provided to any Secured Party will be
true, correct and complete in all material respects on the date such
information, notice, report or statement is stated or certified and on such date
no such information, notice, report or statement contains, or will contain, any
misrepresentation of a material fact or any omission to state therein matters
necessary to make the statements made therein not misleading in any material
respect when considered in its entirety;
(l) the Distributor is in compliance in all material respects with
Applicable Law, including, without limitation, the Securities Act, the Exchange
Act and the Investment Company Act;
(m) the Distributor is not a member of an ERISA Group and has no Benefit
Arrangement, Plan or Multiemployer Plan subject to ERISA;
(n) on each Borrowing Date and immediately after the making of each
Advance, the Borrower is in full compliance with the Borrowing Base Test and the
other conditions specified in Article III;
(o) the Distributor is taking all reasonable actions necessary to mitigate
the effect of the Year 2000 Problem on its computer systems;
(p) the Distributor has filed all United States Federal income tax returns
and
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all other material tax returns which are required to be filed by it, if any, and
has paid all taxes due pursuant to such returns, if any, or pursuant to any
assessment received by the Distributor, except for any taxes or assessments
which are being contested in good faith by appropriate proceedings and with
respect thereto adequate reserves have been established in accordance with GAAP
and which could otherwise not give rise to a reasonable possibility of a
Material Adverse Effect; and the charges, accruals and reserves on the books of
the Distributor in respect of taxes or other governmental charges, if any, are,
in the opinion of the Distributor, adequate;
(q) the statement of assets and liabilities of the Distributor as at
December 31, 1998, certified by Ernst & Young, LLP, certified public
accountants, fairly present in conformity with GAAP the financial position of
the Distributor at such date and since such date there has been no material
adverse change in the business, financial position or results of operations of
the Distributor;
(r) the Asset Based Sales Charge relating to Shares of each Fund and CDSC
arrangement relating to the Shares and the payments provided for in, and
actually being made pursuant to, the related Distribution Plan, the Distribution
Agreement and/or the Prospectus for each such Fund are fairly and accurately
described in the related Distribution Plan, the Distribution Agreement and/or
the Prospectus relating to such Fund;
(s) each Fund (and in respect of each Fund which constitutes a Portfolio,
each Company related to such Fund in respect thereof) has complied in all
material respects with the Fundamental Investment Objectives and Policies
relating to such Funds;
(t) each Fund (and in respect of each Fund which constitutes a Portfolio,
each Company related to such Fund) and the Distribution Agreement, the
Distribution Plan, and the Irrevocable Payment Instruction relating to each Fund
are in compliance, in all material respects, with Applicable Law, including,
without limitation, Rule 12b-1 of the Investment Company Act and the Conduct
Rules;
(u) the Sales Charges paid and payable in respect of each Fund (or, in
respect of each Fund which constitutes a Portfolio, by each Company in respect
of each related Fund) relating to the sales of Shares of each such Fund pursuant
to the related Distribution Agreement, Distribution Plan and Prospectus and
pursuant to the Conduct Rules (as are interpreted by each such Fund (or in
respect of each Fund which constitutes a Portfolio, by each Company in respect
of each related Fund) and the Distributor as of the date hereof), is the Maximum
Aggregate Sales Charge Allowable in respect of such sales;
(v) the CDSCs payable upon the redemption or conversion of the Shares
relating to the Receivables of each Fund shall continue to be payable in
accordance with Schedule II attached hereto after any termination or
modification of the Distribution Plan or the Distribution Agreement in respect
of such Fund; and
(w) the Shares of each Fund can only be exchanged for the Shares of
another Fund in respect of which the Agent has a first priority perfected
security interest in the Receivables relating to such Fund.
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ARTICLE IV
COVENANTS
SECTION 4.01. AFFIRMATIVE COVENANTS OF THE DISTRIBUTOR.
The Distributor covenants and agrees that it shall:
(a) (i)duly observe, comply with and conform in all material respects to
all requirements of Applicable Law relative to the conduct of its business or to
its assets or properties, including without limitation the Investment Company
Act, (ii) preserve and keep in full force and effect its legal existence and its
rights, privileges, qualifications and franchises, and (iii) obtain, maintain
and keep in full force and effect all Governmental Authorizations, Private
Authorizations and Governmental Filings which are necessary or appropriate to
properly carry out its business and the transactions contemplated to be
performed by the Distributor under this Agreement and the other Program
Documents;
(b) cause to be computed, paid and discharged when due all taxes,
assessments and other governmental charges or levies imposed upon it, or upon
any of its income, assets or properties, prior to the day on which penalties are
attached thereto, unless and to the extent that the same shall be contested in
good faith by appropriate proceedings and with respect to which adequate
reserves have been established on the books of the Distributor in accordance
with GAAP and which could not otherwise subject it or its assets to any risk of
foreclosure, distraint, sale or other similar proceedings or give rise to a
reasonable possibility of a Material Adverse Effect;
(c) promptly, at its expense, execute and deliver such further instruments
and take such further action in order to establish and protect the rights,
interests and remedies created, or intended to be created, in favor of the
Secured Parties including, without limitation, all such actions which are
necessary or advisable to maintain and protect the Secured Parties' first
priority perfected security interest in the Assigned Collateral;
(d) keep its principal place of business and chief executive office and
the office where it keeps its records concerning the Assigned Collateral at the
address of the Distributor set forth in Section 5.02 or, upon thirty (30) days'
prior written notice to the Agent, at any other locations in jurisdictions where
all actions reasonably requested by the Agent to protect and perfect the Secured
Parties' security interest in the Assigned Collateral have been taken and
completed;
(e) duly fulfill all obligations on its part to be performed under or in
connection with the Program Documents and will use its best efforts to cause
each Fund (and in respect of each Fund which constitutes a Portfolio, each
Company related to each Fund) to duly fulfill and perform its respective
obligations under the Program Documents;
(f) keep proper books of record and account in accordance with its normal
business practice and GAAP in which full and appropriate entries shall be made
of all dealings or transactions in relation to its business and activities,
including dealings and transactions resulting
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from activities of each Selling Agent;
(g) promptly deliver to the Agent copies of any amendments or
modifications to its certificate of incorporation or by-laws, certified by an
authorized officer of the Distributor;
(h) promptly give written notice to the Agent of the occurrence of any
Default or Event of Default or the failure of any conditions precedent set forth
in Article III to the Credit Agreement to be fully satisfied;
(i) to the extent obtained or received by it, furnish or cause to be
furnished to the Agent a copy of all Governmental Authorizations obtained or
required to be obtained by the Distributor in connection with the transactions
contemplated by the Program Documents and a copy of all Private Authorizations
required to be obtained by the Distributor in connection with the transactions
contemplated by the Facility Documents;
(j) (1) cause Ernst & Young, LLP or another nationally recognized
accounting firm reasonably acceptable to the Agent to enter the premises of the
Distributor and examine and audit the books, records and accounts relating to
the Assigned Collateral, the Collections in respect thereto and the
Distributor's performance under the Program Documents (which may be coordinated
as part of the Distributor's regular annual audit), (2) permit such accounting
firm to discuss the Distributor's affairs, finances, accounts and performance
under the Program Documents with the Distributor's officers, partners, employees
and accountants, (3) cause such accounting firm to provide the Agent with a
certified report in respect of the foregoing, which shall be in form and scope
reasonably satisfactory to the Agent, and (4) authorize such accounting firm to
discuss such affairs, finances, records and accounts with representatives of the
Secured Parties; PROVIDED, HOWEVER, that so long as no Default or Event of
Default has occurred, such audits shall be limited to one (1) per twelve (12)
month period;
(k) permit the Agent, the Lender and the Secondary Lenders to, upon
reasonable advance notice, during normal business hours, and with reasonable
frequency, visit and inspect the Distributor's books, records and accounts
relating to the Assigned Collateral, the Collections in respect thereto, the
Distributor's finances and the Distributor's performance under the Program
Documents and to discuss the foregoing with the officers, employees and
accountants of the Distributor, all as often as the Agent may reasonably
request, and during the continuance of a Default or Event of Default, permit the
Secured Parties to have full access to such books, records and accounts to the
extent necessary to enforce their rights and remedies under this Agreement and
the other Facility Documents;
(l) promptly deliver to the Agent copies of all material notices,
requests, agreements, amendments, supplements, waivers and other documents
received or delivered by the Distributor (except if received from the Agent)
under or with respect to any of the Program Documents;
(m) subject to its fiduciary obligations, if any, use its best efforts to
obtain the approval of a majority of the board of directors or trustees of each
Fund (or in respect of each Fund which constitutes a Portfolio, each Company in
respect of each related Fund), including a
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majority of the board of directors or trustees of each Fund (or in respect of
each Fund which constitutes a Portfolio, each Company in respect of each related
Fund) who are not "Interested Persons" (as defined in Section 2(a)(19) of the
Investment Company Act), to: (a) annually reapprove the Distribution Plan and
the Distribution Agreement relating to Shares of each Fund (if necessary in
order to continue payments in respect of the Receivables relating to Shares of
each such Fund) and its interpretation thereof by each Fund (or in respect of
each Fund which constitutes a Portfolio, by each Company in respect of each
related Fund) as of the date of this Agreement, and (b) in the event any of the
foregoing shall be terminated, to approve a new distribution plan and
distribution agreement between the Distributor and such Fund (and in respect of
each Fund which constitutes a Portfolio, the Company related to each Fund) so as
to permit the continued payments in respect of the Receivables relating to
Shares of each such Fund as though no such termination had occurred; PROVIDED,
HOWEVER, that in using its best efforts, the Distributor shall not be required
to resign or violate Applicable Law;
(n) immediately upon becoming aware, provide written notice to the Agent
of any action by the board of directors or trustees or officers of the
Distributor or, the shareholders or board of directors or trustees of any Fund
(and in respect of any Fund which constitutes a Portfolio, the Board of
Directors of the Company related to such Fund) to make any modification,
amendment or supplement to, or any waiver of any provisions of, or any
termination of any Distribution Plan, any Advisory Agreement, any CDSC
arrangement, or Conversion Feature, any Distribution Agreement, or the
interpretation of any thereof, in effect on the Closing Date, or any
modification, amendment, supplement or waiver in the amounts payable or actually
being paid thereunder, each as in effect on the Closing Date (or in respect of
any Fund for which the Distributor did not act as principal distributor on the
Closing Date, the date the Distributor began acting as distributor for such
Fund), or if a new distribution plan, investment advisory agreement, contingent
deferred sales charge arrangement or distribution agreement is proposed to be
approved and entered into in respect of Shares of any Fund, provide the Agent
with copies of any such proposed modification, amendment, supplement or waiver,
as adopted, and a newly adopted distribution plan, contingent deferred sales
charge arrangement, investment advisory agreement, prospectus or distribution
agreement promptly after such proposal, modification, amendment, supplement,
waiver or adoption has been made (such notice to include specific written
reference concerning any aspect of any of the foregoing which gives rise to a
reasonable possibility of a Material Adverse Effect and a copy of any of the
foregoing in the form finally adopted); PROVIDED, HOWEVER, that the Distributor
shall not be required to provide the Agent with written notices of any
amendment, modification, supplement or waiver (i) to any Advisory Agreements
under this Section 4.01(n), unless such amendments or supplements provide for
the replacement of an Advisor or otherwise give rise to a reasonable possibility
of a Material Adverse Effect, or (ii) to the interpretation of any Distribution
Agreement, Distribution Plan, Advisory Agreement, CDSC arrangement or Conversion
Feature unless such modification or waiver could give rise to a reasonable
possibility of a Material Adverse Effect;
(o) comply and cause its Subsidiaries to comply, in all material respects,
with the provisions of ERISA and the Code and with all minimum funding
requirements applicable to them with respect to any Plan or Multiemployer Plan
pursuant to Section 302 of ERISA or Section 412 of the Code;
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(p) promptly notify the Agent of any material adverse change with respect
to the business, properties, financial conditions, or results of operations of
the Distributor, any Company and any Fund since December 31, 1998;
(q) furnish to the Agent such information as the Agent may reasonably
request;
(r) on or before the tenth (10th) Business Day of each calendar month or
more frequently as the Agent shall request (which may be daily), furnish to the
Agent an Investor Report substantially in the form of Schedule I hereto,
together with a certificate of the Distributor in substantially the form of
Annex A to Schedule I hereto;
(s) use its best efforts to preserve its present relationship with each
Company and each Fund; PROVIDED, HOWEVER, that in using its best efforts, the
Distributor shall not be required to resign or violate Applicable Law;
(t) warrant and defend each of the Secured Parties' right and interest in
and to the Assigned Collateral thereof against all Adverse Claims of all Persons
whomsoever;
(u) cause to, at all times, be in full force and effect an Irrevocable
Payment Instruction with each Fund that issues Shares;
(v) do all things reasonably necessary to ensure that the Year 2000
Problem will not have a Material Adverse Effect on its computer systems;
(w) from time to time, at its expense, promptly to execute and deliver all
further instruments and documents, and to take all further actions, that may be
necessary or desirable, or that the Agent may reasonably request, to perfect,
protect or more fully evidence the Secured Parties' first priority perfected
security interest in the Assigned Collateral and to enable the Secured Parties
to exercise and enforce their respective rights and remedies under this
Agreement, including without limitation executing and filing such financing or
continuation statements, or amendments thereto, and such other instruments and
documents, that may be necessary or desirable, or that the Agent may reasonably
request, to perfect, protect or evidence the Assigned Collateral; and
(x) after the Agent's delivery of a Remittance Notice, immediately upon
its receipt of any Collections relating to any Fund (or in respect of any Fund
which constitutes a Portfolio, from the related Company in respect of such
Fund), remit such amounts to the Agent's Account and ensure that such amounts
are not commingled with any other funds.
SECTION 4.02. NEGATIVE COVENANTS OF THE DISTRIBUTOR.
The Distributor covenants and agrees that it shall not:
(a) permit to exist any Adverse Claim attributable to the
Distributor or any Affiliate of the Distributor or any party claiming through
the Distributor or any Affiliate of the
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Distributor (including any Selling Agent) on, or otherwise attempt to
transfer, pledge or assign any interest in, any Assigned Collateral or any
interest in any of the foregoing or take any other action which could
adversely affect the Secured Parties' first priority perfected security
interest in the Assigned Collateral;
(c)(b) move its principal executive office or the place where it keeps
its records concerning the Assigned Collateral from the offices specified in
Section 4.01(d), unless (a) it shall have given to the Agent not less than
twenty (20) days' prior written notice of its intention to do so, clearly
describing the new location, and (b) it shall have taken such action,
satisfactory to the Agent to maintain the Secured Parties' first priority
security interest in the Assigned Collateral at all times fully perfected and in
full force and effect;
(c) cancel, terminate, amend, modify, supplement or waive any term or
condition of any Distribution Agreement, any Distribution Plan, any Irrevocable
Payment Instruction or the CDSC obligations of any holder of Shares of any Fund
(subject to Permitted Free Redemptions and Permitted Free Exchanges), each as in
effect on the Closing Date or take any action to permit any Company or any Fund
to do so, unless a responsible officer of the Distributor shall have certified
to the Agent that immediately after giving effect to all such cancellations,
terminations, amendments, modifications and waivers, (i) the Borrower will be in
full compliance with the Borrowing Base Test, and (ii) no Default or Event of
Default will be continuing or will result therefrom, or change or modify any
interpretation of any term or condition of any Distribution Agreement,
Distribution Plan, Irrevocable Payment Instruction or of any CDSC obligations to
the extent such change or modification could give rise to a reasonable
possibility of a Material Adverse Effect;
(d) change its operations in a manner which could reasonably be
expected to give rise to a Material Adverse Effect;
(e) if any Default or Event of Default shall have occurred and be
continuing, permit any Free Redemption by any Fund or otherwise waive its right
to any CDSC relating to a Receivable relating to such Fund, other than in
connection with a Permitted Free Redemption or a Permitted Free Exchange;
(f) without the prior written consent of the Agent (which consent
shall not be unreasonably withheld), assign its rights under any Distribution
Agreement, merge with or into or consolidate with or into, or convey, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions), all or substantially all of its assets (whether now owned or
hereafter acquired) to, or acquire all or substantially all of the assets or
capital stock or other ownership interest of, or enter into any joint venture or
partnership agreement with, any Person, other than as contemplated by the
Facility Documents;
(g) permit any Fund to change the Transfer Agent for such Fund,
unless such successor Transfer Agent, the Fund and the Distributor have each
executed a new Irrevocable Payment Instruction;
(h) enter into any agreement containing any provision which would be
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violated or breached by the performance of its obligations under any Program
Document;
(i) create, assume or suffer to exist any Debt or any Guarantee,
except for Debt arising under this Agreement or the other Facility Documents and
Debt arising in the ordinary course of its business in connection with Persons
providing services to the Distributor and Permitted Debt;
(j) extend credit to others for the purpose of buying or carrying any
"margin stock" in such a manner as to violate Regulation T, Regulation U or
Regulation X; or
(k) change its name (i) without giving the Agent at least ten (10)
days' prior written notice, and (ii) unless all actions necessary and
appropriate to protect and perfect the Secured Parties' first priority security
interest in the Assigned Collateral have been taken and completed.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. NO WAIVER; MODIFICATIONS IN WRITING.
No failure or delay on the part of any Secured Party exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to any Secured Party, at law or in equity.
Without limiting the generality of the foregoing, the Distributor acknowledges
and agrees that it will be impossible to measure in money the damage to the
Secured Parties in the event of a breach of any of the terms and provisions of
this Agreement or any other Program Document, and that, in the event of any such
breach, the Secured Parties may not have an adequate remedy at Law, and the
Distributor shall not argue and hereby waives any defense that there is an
adequate remedy available at Law. No amendment, modification, supplement,
termination or waiver of this Agreement shall be effective unless the same shall
be in writing and signed by the Agent. Any waiver of any provision of this
Agreement, and any consent to any departure by the Agent from the terms of any
provision of this Agreement, shall be effective only in the specific instance
and for the specific purpose for which given. No notice to or demand on the
Distributor in any case shall entitle the Distributor to any other or further
notice or demand in similar or other circumstances.
SECTION 5.02. NOTICES, ETC.
Except where telephonic instructions are authorized herein to be
given, all notices, demands, instructions and other communications required or
permitted to be given to or made upon any party hereto shall be in writing and
shall be personally delivered or sent by registered, certified or express mail,
postage prepaid, or by prepaid telegram (with messenger delivery specified in
the case of a telegram), or by facsimile transmission, or by prepaid courier
service, and shall be deemed to be given for purposes of this Agreement on the
day that such writing is
13
<PAGE>
received by the intended recipient thereof in accordance with the provisions of
this Section 5.02. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section 5.02, notices, demands,
instructions and other communications in writing shall be given to or made upon
the respective parties hereto at their respective addresses (or to their
respective facsimile numbers) indicated below, and, in the case of telephonic
instructions or notices, by calling the telephone number or numbers indicated
for such party below:
If to the Agent: Citicorp North America, Inc.
U.S. Securitization
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: U.S. Securitization
Telephone No.: (914) 899-7122
Facsimile No.: (914) 899-7890
If to the Distributor: Liberty Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts 02111
Attention: Ms. Nancy L. Conlin
Telephone No.: (617) 772-3053
Facsimile No.: (617) 345-0919
With a copy to: Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Mr. Robert A. Licht
Telephone: (617) 371-2265
Facsimile: (617) 742-7338
SECTION 5.03. INDEMNIFICATION.
The Distributor agrees to indemnify and hold harmless each Secured
Party, their successors, assigns, transferees and participants and each of their
Affiliates and the respective officers, directors, employees, agents, managers
of, and any Person controlling any of, the foregoing (each, an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities,
obligations, expenses, penalties, actions, suits, judgments and disbursements of
any kind or nature whatsoever, (including, without limitation, the reasonable
fees and disbursements of counsel) (collectively the "Liabilities") that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of the execution, delivery,
enforcement, performance, administration of or otherwise arising out of or
incurred in connection with this Agreement or any transaction contemplated
hereby or thereby (and regardless of whether or not any such transactions are
consummated), including, without limitation any such Liability that is incurred
or arises out of or in connection with, or by reason of any one or more of the
following: (i) preparation for a defense of, any investigation, litigation
14
<PAGE>
or proceeding arising out of, related to or in connection with this Agreement or
any of the transactions contemplated hereby; (ii) any breach or alleged breach
of any covenant by the Distributor, any Fund or any Transfer Agent in any
Program Document; (iii) any representation or warranty made or deemed made by
the Distributor, any Fund or any Transfer Agent contained in any Program
Document or in any certificate, statement or report delivered in connection
therewith is, or is alleged to be, false or misleading; (iv) any failure by the
Distributor, any Advisor, any Fund, any Transfer Agent or any Selling Agent to
comply with any Applicable Law or contractual obligation binding upon it; (v)
any failure to vest, or delay in vesting, in the Secured Parties a first
priority perfected security interest in all of the Assigned Collateral; and(vi)
any action or omission, not expressly authorized by the Program Documents, by
the Distributor, any Fund, any Transfer Agent or any Selling Agent, which has
the effect of reducing or impairing the Assigned Collateral or the rights of the
Agent or the Secured Parties with respect thereto; except to the extent any such
Liability is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. The Secured Parties agree to use reasonable efforts to
utilize the same legal counsel in connection with any matter for which the
Secured Parties are entitled to indemnification under this Section 5.03(b);
PROVIDED, that nothing herein shall be deemed to limit any Secured Party's right
to employ separate counsel if such Secured Party determines that there may be
legal defenses or claims available to it which are not available to the other
Secured Parties or which are different from or additional to those of the other
Secured Parties.
SECTION 5.04. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Agreement.
SECTION 5.05. ASSIGNABILITY.
(a) This Agreement and the Secured Parties' rights and obligations
hereunder shall be assignable by the Secured Parties and their respective
permitted successors and assigns.
(b) This Agreement and the rights and obligations of the Agent herein
shall be assignable by the Agent and its successors and assigns.
(c) The Distributor may not assign its rights or obligations
hereunder or any interest herein without the prior written consent of the Agent
(which consent shall not be unreasonably withheld or delayed).
SECTION 5.06. GOVERNING LAW.
THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF SAID STATE.
15
<PAGE>
SECTION 5.07. SEVERABILITY OF PROVISIONS.
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
SECTION 5.08. CONFIDENTIALITY.
(a) The Distributor agrees that it shall and shall cause each of its
Affiliates (i) to keep this Agreement and the other Facility Documents, the
proposal relating to the structure of the facility contemplated by this
Agreement and the other Facility Documents (the "Facility"), any analyses,
computer models, information or document prepared by the Agent, Citibank or any
of their respective Affiliates in connection with the Facility, the Agent's or
its Affiliate's written reports to the Distributor, any Fund or any of their
respective Affiliates and any related written information (collectively, the
"Product Information") confidential and to disclose Product Information only to
those of its officers, employees, agents, accountants, legal counsel and other
representatives (collectively, the "Distributor Representatives") who have a
need to know such Product Information for the purpose of assisting in the
negotiation, completion and administration of the Facility; (ii) to use the
Product Information only in connection with the Facility and not for any other
purpose; and (iii) to cause the Distributor Representatives to comply with the
provisions of this Section 5.08 and to be responsible for any failure of any
Distributor Representative to so comply.
The provisions of this Section 5.08(a) shall not apply to any
Product Information that is a matter of general public knowledge or that has
heretofore been made available to the public by any Person other than the
Distributor, any Fund, any of their respective Affiliates or any Distributor
Representative or that is required to be disclosed by Applicable Law or is
requested by any Authority with jurisdiction over the Distributor, any Advisor
or any of their respective Affiliates.
(b) Each of the Secured Parties agrees (i) to keep all non-public
information with respect to the Distributor and its Affiliates which such
Secured Party receives pursuant to the Facility Documents (collectively, the
"Distributor Information") confidential and to disclose Distributor Information
only to those of its officers, employees, agents, accountants, legal counsel and
other representatives of the Secured Parties (collectively, the "Secured Party
Representatives") and to S&P, Moody's and each other rating agency rating CRC's
commercial paper notes which, in each case, may have a need to know or review
such Distributor Information for the purpose of assisting in the negotiation,
completion, administration and evaluation of the Facility; (ii) to use the
Distributor Information only in connection with the Facility and not for any
other purpose; and (iii) to cause its related Secured Party Representatives to
comply with the provisions of this Section 5.08(b).
The provisions of this Section 5.08(b) shall not apply to any
Distributor Information that is a matter of general public knowledge or that has
heretofore been made available to the public by any Person other than such
Secured Party Representative or that is
16
<PAGE>
required to be disclosed by Applicable Law or is requested by any Authority with
jurisdiction over any Secured Party or Secured Party Representative or any of
its Affiliates.
Notwithstanding the foregoing, the Distributor Information may be
disclosed by any Secured Party Representative to permitted assignees and
participants and potential assignees and participants in the Facility to the
extent such disclosure is made pursuant to a written agreement of
confidentiality substantially similar to this Section 5.08(b).
SECTION 5.09. MERGER.
The Facility Documents taken as a whole incorporate the entire
agreement between the parties thereto concerning the subject matter thereof.
The Facility Documents supersede any prior agreements among the parties relating
to the subject matter thereof.
SECTION 5.10. NO PROCEEDINGS.
The Distributor hereby agrees that it will not institute against CRC
any proceeding of the type referred to in Section 6.01(e) of the Credit
Agreement so long as any commercial paper or other senior indebtedness issued by
CRC shall be outstanding or there shall not have elapsed one year plus one day
since the last day on which any such commercial paper or other senior
indebtedness shall have been outstanding.
SECTION 5.11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.
The Secured Parties' rights and remedies with respect to any breach of
any representation and warranty made by the Distributor pursuant to Article III,
the indemnification and payment provisions of Section 5.03 and the Distributor's
obligations under Sections 5.08(a) and 5.10 and the Agent's, the Lender's and
the Secondary Lenders' obligations under Section 5.08(b) shall be continuing and
shall survive any termination of this Agreement and the other Facility
Documents.
SECTION 5.12. SUBMISSION TO JURISDICTION; WAIVERS.
The Distributor hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement or the other Program Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and the appellate courts of any of them;
(b) consents that any such action or proceeding may be brought in any
of such court and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be
17
<PAGE>
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Distributor at its
address set forth in Section 5.02 or at such other address as may be permitted
thereunder;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction or court; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.
SECTION 5.13. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER FACILITY DOCUMENT OR FOR ANY COUNTERCLAIM THEREIN OR
RELATING THERETO.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
LIBERTY FUNDS DISTRIBUTOR, INC.,
as Distributor
By:_____________________________
Name:
Title:
CITICORP NORTH AMERICA, INC.,
as Agent
By:____________________________
Name:
Title:
13620.110 #71862
19
<PAGE>
Annex A
to
Schedule I
- -------------------------------------------------------------------------------
Investor Report Officer's Certificate
The undersigned, ______________, [President] [Treasurer] [Chief
Accounting Officer] of Liberty Funds Distributor, Inc. (the "Distributor")
pursuant to that certain Pledge and Security Agreement, dated as of April 12,
1999 (the "Security Agreement") between the Distributor and Citicorp North
America, Inc., as agent (the "Agent"), as the same may be amended, modified or
supplemented from time to time, hereby certifies that:19
1. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED SHALL HAVE THE
MEANING ASCRIBED TO SUCH TERMS IN APPENDIX A TO THE CREDIT AGREEMENT.
2. THE INVESTOR REPORT FURNISHED HEREWITH TO THE AGENT PURSUANT TO
SECTION 4.01(r) OF THE SECURITY AGREEMENT IS TRUE, ACCURATE AND
COMPLETE AS OF THE DAY HEREOF.
3. No event has occurred and is continuing which would constitute a
Default or an Event of Default.
4. As of the date hereof, the Borrowing Base Test is fully complied with.
IN WITNESS WHEREOF, the undersigned has duly signed on behalf of the
Distributor as of the date set forth below.
DATED: ___________________________
Name:
Title:
- --------------------------------------------------------------------------------
13620.110 #71862
20
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
TYPE OF FEE
STRUCTURE: B1 B2 B3 B4 B5 B6 B7 B8
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
REDEMPTION
FEE:
- ------------------------------------------------------------------------------
Year 1 5% 5% 5% 5% 4% 3% 2% 4%
- ------------------------------------------------------------------------------
Year 2 4% 4% 4% 4% 3% 2% 2% 3%
- ------------------------------------------------------------------------------
Year 3 3% 4% 3% 3% 2% 1% 1% 2%
- ------------------------------------------------------------------------------
Year 4 3% 3% 3% 3% 2% 0% 1%
- ------------------------------------------------------------------------------
Year 5 2% 2% 2% 2% 1% 0%
- ------------------------------------------------------------------------------
Year 6 1% 1% 1% 1% 0% 0%
- ------------------------------------------------------------------------------
Year 7 0% 0% 0% 0% 0%
- ------------------------------------------------------------------------------
Year 8 0% 0% 0% 0% 0%
- ------------------------------------------------------------------------------
</TABLE>
Companies currently using B1 Structure: Colonial Trust I; Colonial Trust II;
Colonial Trust III, Colonial Trust IV; Colonial Trust V.
Companies currently using B2 Structure: Colonial Trust I; Colonial Trust II;
Colonial Trust III; Colonial Trust IV; Colonial Trust VI; Colonial Trust VII.
Companies currently using B3 Structure: Colonial Trust I.
Companies currently using B8 Structure: Colonial Trust II; Colonial Trust IV.
21
<PAGE>
EXHIBIT D
FORM OF IRREVOCABLE PAYMENT INSTRUCTION
[INSERT NAME AND ADDRESS OF FUND]
[NAME AND ADDRESS OF TRANSFER AGENT]
You are hereby notified that pursuant to that certain Revolving Credit
Agreement dated as of April 12, 1999 (as from time to time amended, the "Credit
Agreement") among Liberty Funds Group LLC (together with its successors and
assigns, "Liberty"), Corporate Receivables Corporation (together with its
successors and assigns, the "Lender"), Citibank, N.A., the banks and financial
institutions from time to time parties thereto (together with Citibank, N.A.,
the "Secondary Lenders") and Citicorp North America, Inc., as agent for the
Lender and the Secondary Lenders (together with its successors and assigns, the
"Agent"), the Lender and the Secondary Lenders have agreed to from time to time
make advances to Liberty which in turn shall make the proceeds of such advances
available to Liberty Funds Distributor, Inc., its wholly-owned subsidiary. You
are hereby further notified that in order to secure the obligations of Liberty
under the Credit Agreement to the Lenders, the Secondary Lenders and the Agent
(collectively, the "Secured Parties"), the Distributor, pursuant to that certain
Pledge and Security Agreement dated as of April 12, 1999 (as from time to time
amended, the "Security Agreement") between the Distributor and the Agent, has
pledged and assigned to the Agent for the benefit of the Secured Parties all of
its right, title and interest in, to and under the Receivables (defined below)
now owned or hereafter arising relating to all Funds (defined below).
Capitalized terms used herein shall have the following meanings:
"ASSET BASED SALES CHARGE" shall have the meaning set forth in Rule
2830 of the Conduct Rules it being understood that such term does not include
the Service Fee.
"BUSINESS DAY" means any day on which banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"CDSC" means with respect to any Fund, the contingent deferred sales
charges payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares relating to such Fund in accordance with the Prospectus.
22
<PAGE>
"CONDUCT RULES" means the Conduct Rules of the NASD, as amended, and
the rules, regulations and interpretations (including examples and explanations)
of the NASD in respect thereto.
"COMPANY" means [INSERT NAME OF INVESTMENT COMPANY], together with its
successors and assigns.
"DISTRIBUTION AGREEMENT" means with respect to any Shares of any Fund,
the agreement between the Distributor and the Company in respect of such Fund,
in respect of the Shares of such Fund and any replacement agreement as may be
adopted in the future, pursuant to which the Distributor has been appointed the
principal underwriter in respect of such Fund.
"DISTRIBUTION PLAN" means with respect to any Shares of the Fund the
distribution plan of the Company, pursuant to which such Shares of any Fund are
distributed by the Distributor, together with any successor or replacement
distribution plan, as the same may be amended, supplemented, waived or modified
from time to time.
"FUND" means each separate investment portfolio or series of the
Company.
"MAXIMUM AGGREGATE SALES CHARGE ALLOWABLE" means, at any time with
respect to the Receivables relating to Shares of any Fund, the maximum aggregate
Sales Charges which may be paid by such Fund to the Distributor pursuant to the
Distribution Agreement, the Distribution Plan and the Prospectus, together with
interest thereon at the Maximum Interest Allowable, relating to such Shares and
pursuant to the "maximum sales charge rule" set forth in Rule 2830 of the
Conduct Rules, assuming the Fund pays a separate Service Fee in connection with
such Shares, unreduced by payments previously made in respect thereof by the
Fund.
"MAXIMUM INTEREST ALLOWABLE" means the maximum interest which may be
taken into account under Rule 2830 of the Conduct Rules in computing the Maximum
Aggregate Sales Charge Allowable.
"NASD" means both the National Association of Securities Dealers, Inc.
and NASD Regulation, Inc. or any successor entity.
"PROSPECTUS" means with respect to any Fund the prospectus filed with
the SEC as a part of such Fund's registration statement on Form N-1A, as amended
(or any successor SEC form), and shall include, without limitation, the related
statement of additional information included in such registration statement.
"RECEIVABLES" means with respect to any Fund, all of the Distributor's
rights under the Distribution Agreement, the Distribution Plan, the Prospectus
and the applicable Conduct Rules to receive amounts paid or payable in respect
of Asset Based Sales Charges (including interest at the Maximum Interest
Allowable) and CDSCs, in each case in respect of any Shares issued by such Fund,
including, without limitation, any similar amount paid or payable under any
replacement distribution agreement, distribution plan, prospectus or the Conduct
Rules, and any continuation payments in respect thereof paid or payable by such
Fund in the event of a
23
<PAGE>
termination of the related Distribution Plan or the related Distribution
Agreement; it being understood that such term does not include the Service Fee.
"SALES CHARGE" shall have the meaning set forth in Section 2830 of the
Conduct Rules.
"SERVICE FEE" shall have the meaning set forth in Section 2830 of the
Conduct Rules.
"SHARES" means, in respect of any Fund, the Class B Shares of such
Fund, together with all other shares or capital stock of such Fund which are
issued on a deferred sales charge basis and which have a sales load structure
substantially similar to that of the Class B shares, PROVIDED, THAT, for the
avoidance of doubt the Class C shares of any Fund shall not be deemed to
constitute "Shares".
You are hereby directed upon your receipt from the Agent of a notice
in the form of Annex A hereto (the "Remittance Notice") to make all payments in
respect of all amounts paid or payable by each of the Funds pursuant to the
Distribution Agreements, the Distribution Plan, the Prospectuses and the Conduct
Rules in respect of the Receivables relating to each Fund and all proceeds
therefrom (hereinafter, "Payments"), which otherwise would be payable by you to
the Distributor on or prior to the second (2nd) Business Day of each calendar
month directly by wire in immediately available funds to an account of the
Agent, Acct. No. 40517805, ABA No. 021000089 (the "Agent's Account") maintained
at the office of Citibank, N.A. at 399 Park Avenue, New York, New York 10043 or
to such other account as the Agent shall designate in writing.
You are further notified that:
(1) this Irrevocable Payment Instruction is delivered on behalf of
the Secured Parties and is irrevocable and cannot be changed without the
consent of the Secured Parties and the Distributor;
(2) by your acknowledgment, you authorize the Distributor to deliver
a copy of this Irrevocable Payment Instruction and your acknowledgment to the
Secured Parties and their respective successors and assigns; and
(3) after your receipt of a Remittance Notice any payment by you
other than in compliance with the directions herein shall not be deemed to
discharge your obligations in respect of the Payments.
24
<PAGE>
THIS IRREVOCABLE PAYMENT INSTRUCTION SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT
REGARD TO ITS CONFLICTS OF LAWS PROVISIONS.
By your execution of this Irrevocable Payment Instruction you hereby
acknowledge and agree to abide by the foregoing instructions, it being
understood that such acknowledgment and waiver does not constitute a waiver of
any defenses.
LIBERTY FUNDS DISTRIBUTOR, INC.
By:____________________________
Name:
Title:
Acknowledged and
Agreed to as of the date
first written above:
[INSERT NAME OF COMPANY]
By:_____________________
Name:
Title:
[INSERT NAME OF TRANSFER AGENT]
By:_____________________
Name:
Title:
25
<PAGE>
ANNEX A
to
Irrevocable Payment Instruction
CITICORP NORTH AMERICA, INC.
U.S. Securitization
450 Mamaroneck Avenue
Harrison, New York 10528
[INSERT NAME OF COMPANY]
[ADDRESS]
[INSERT NAME OF TRANSFER AGENT]
[ADDRESS]
REMITTANCE NOTICE
Reference is made to that certain Irrevocable Payment Instruction
dated as of April 12, 1999 (the "Payment Instruction") from Liberty Funds
Distributor, Inc. to each of you. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings assigned to such terms in the Payment
Instruction.
Pursuant to the Payment Instruction we hereby instruct you to make all
Payments in respect of the Receivables directly by wire transfer to the Agent's
Account in accordance with the terms of the Payment Instruction.
26
<PAGE>
Very truly yours,
CITICORP NORTH AMERICA, INC.
as Agent
By:_________________________
Authorized Signatory
13620.110 #71862
27
<PAGE>
UNDERTAKING
among
LIBERTY FINANCIAL COMPANIES, INC.,
COLONIAL MANAGEMENT ASSOCIATES, INC.,
NEWPORT FUND MANAGEMENT, INC.,
CRABBE HUSON GROUP, INC.,
STEIN ROE & FARNHAM INCORPORATED
<PAGE>
and
CITICORP NORTH AMERICA, INC.,
as Agent
Dated as of April 12, 1999
[Type VII-C]
13620.110 #70013
<PAGE>
TABLE OF CONTENTS
Page
----
UNDERTAKING
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions; Terminology; Rules of Construction. 2
ARTICLE II
GENERAL UNDERTAKINGS
SECTION 2.01. Covenants; Payment of Borrower Obligations. 2
SECTION 2.02. Agreement Not Affected. 3
SECTION 2.03. Waiver of Notice; No Offset. 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties. 4
ARTICLE IV
COVENANTS
SECTION 4.01. Covenants. 7
SECTION 4.02. Additional Covenants of the Advisors. 9
ARTICLE V
MISCELLANEOUS
SECTION 5.01. No Waiver; Modifications in Writing. 11
SECTION 5.02. Notices, Etc. 12
SECTION 5.03. Indemnification. 13
SECTION 5.04. Execution in Counterparts. 14
SECTION 5.05. Assignability. 14
SECTION 5.06. Governing Law. 14
SECTION 5.07. Severability of Provisions. 14
SECTION 5.08. Confidentiality. 15
SECTION 5.09. Merger. 15
SECTION 5.10. No Proceedings. 15
SECTION 5.11. Survival of Representations and Warranties. 15
SECTION 5.12. Submission to Jurisdiction; Waivers. 16
SECTION 5.13. Waiver Of Jury Trial. 16
13620.110 #70013
i
<PAGE>
UNDERTAKING
UNDERTAKING dated as of April 12, 1999 (this "Agreement") among
LIBERTY FINANCIAL COMPANIES, INC. (together with its permitted successors and
assigns, the "Parent"), COLONIAL MANAGEMENT ASSOCIATES, INC. ("CMA"), NEWPORT
FUND MANAGEMENT, INC. ("NFM"), CRABBE HUSON GROUP, INC. ("CHG"), STEIN ROE &
FARNHAM INCORPORATED ("SRF") (CMA, NFM, CHG and SRF, together with their
respective permitted successors and assigns, each an "Advisor" and collectively,
the "Advisors") and CITICORP NORTH AMERICA, INC., as agent for the Lender (as
defined below) and the Secondary Lenders (as defined below) (together with its
successors and assigns, the "Agent").
WHEREAS, contemporaneously with the execution of this Agreement,
Liberty Funds Group LLC (together with its successors and assigns, the
"Borrower"), Corporate Receivables Corporation (together with its successors and
assigns, the "Lender"), Citibank, N.A. and the other banks and financial
institutions from time to time parties thereto (together with Citibank, N.A. and
their respective successors and assigns, the "Secondary Lenders") are entering
into that certain Revolving Credit Agreement dated as of the date hereof (as
from time to time amended, the "Credit Agreement") pursuant to which the Lender
and the Secondary Lenders have agreed, subject to the terms and conditions
thereof, to make advances from time to time to the Borrower;
WHEREAS, contemporaneously with the execution of this Agreement,
Liberty Funds Distributor, Inc. (together with its successors and assigns, the
"Distributor") and the Agent are entering into that certain Pledge and Security
Agreement dated as of the date hereof (as from time to time amended, the
"Security Agreement") pursuant to which the Distributor has assigned and pledged
to the Agent for the benefit of the Agent, the Lender and the Secondary Lenders
(each a "Secured Party" and collectively, the "Secured Parties") all of its
right, title and interest in, to and under the Assigned Collateral (as defined
in the Security Agreement); and
WHEREAS, an essential condition precedent to the Lender's and the
Secondary Lenders' making advances to the Borrower in accordance with the terms
of the Credit Agreement is that the Parent and each Advisor (each a "Liberty
Entity" and collectively the "Liberty Entities") enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, the receipt by each of the Liberty Entities of
substantial economic benefit whether or not set forth herein, the receipt and
sufficiency of which are hereby acknowledged by each of the Liberty Entities,
and for other good and valuable consideration, the receipt and
<PAGE>
sufficiency of which are hereby acknowledged by each of the parties hereto,
each of the Liberty Entities undertakes and agrees as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS; TERMINOLOGY; RULES OF CONSTRUCTION.
Unless otherwise defined herein capitalized terms shall have the
meanings assigned to such terms in Appendix A to the Credit Agreement. For all
purposes of this Agreement, except as otherwise expressly provided or unless the
context otherwise requires (a) each use in this Agreement of a singular version
of a pronoun shall be deemed to include references to the plural, and vice
versa, as appropriate, (b) Article and Section headings are for convenience of
reference only and shall not affect the construction of this Agreement, and
(c) references to "this section" or words of similar import shall be deemed to
refer to the entire section and not to a particular subsection, and references
to "hereunder," "herein" or words of similar import shall be deemed to refer to
this entire Agreement and not to the particular section or subsection.
References in this Agreement to "including" means including without limiting the
generality of any description preceding such term. Each of the parties to this
Agreement and its counsel have reviewed and revised, or requested revisions to,
this Agreement, and the usual rule of construction that any ambiguities are to
be resolved against the drafting party shall be inapplicable in the construction
and interpretation of this Agreement.
ARTICLE II
GENERAL UNDERTAKINGS
SECTION 2.01. COVENANTS; PAYMENT OF BORROWER OBLIGATIONS.
(a) The Parent hereby irrevocably and unconditionally agrees to (i)
perform and punctually and completely carry out or cause the Borrower, the
Distributor or the Advisors, as the case may be, to perform and punctually and
completely carry out each and every covenant and agreement of the Borrower, the
Distributor and each Advisor under this Agreement, the Credit Agreement, the
Security Agreement and each of the other Facility Documents in accordance with
the terms thereof, and (ii) promptly (at its own expense) take or cause to be
taken all measures as may be necessary or appropriate and can lawfully be
effected to prevent the occurrence of any Default or Event of Default and to
promptly cure or make good any such Default or Event of Default which may at any
time occur. Each of the covenants and agreements of the Borrower, the
Distributor and each Advisor set forth in the Facility Documents shall be deemed
to be made by the Parent in the same manner, to the same extent and with the
same effect as if the Parent made the same and such covenants referred to the
Parent. The Parent hereby absolutely, unconditionally and irrevocably guarantees
to the Agent
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on behalf of the Secured Parties the full and punctual payment when due, whether
at stated maturity, by scheduled repayment, required prepayment, declaration,
acceleration, demand or otherwise (including, without limitation, all amounts
which would have become due but for the operation of the automatic stay under
Section 362(a) of the United States Bankruptcy Code), of each of the Borrower
Obligations, whether such payment obligations are outstanding on the Closing
Date or arise or are incurred at any time thereafter.
(b) The Parent covenants and agrees that all payment obligations
arising under the Facility Documents incurred or to be assumed by the Parent
hereunder shall be paid strictly in accordance with the terms and provisions of
the Facility Documents.
(c) The Parent agrees that the guarantee and the undertakings under
this Agreement shall continue to be effective or shall be reinstated, as the
case may be, if at any time any payment (in whole or in part) of any of the
Borrower Obligations is rescinded or must otherwise be restored by any Secured
Party upon the insolvency, bankruptcy or reorganization of the Borrower, the
Distributor, any Advisor or any of their Affiliates or otherwise, all as though
such payment had not been made.
SECTION 2.02. AGREEMENT NOT AFFECTED.
The Secured Parties may proceed to exercise any right or remedy which
it might have pursuant to this Agreement without regard to any actions or
omissions of any Secured Party or any other Person. The validity of this
Agreement shall not be affected by any action or inaction which may be taken
under or in respect of any Program Document. The Secured Parties at their
option may proceed in the first instance against the Parent to obtain a remedy
to which it is entitled under any Facility Document in the amount and in the
manner set forth in such Facility Document, without being obliged to resort
first to any claim or action against the Borrower, the Distributor, any Advisor
or any other Person, it being understood that the liability of the Parent is a
primary obligation hereunder with respect to each provision of the Facility
Documents that binds the Parent. The liabilities and obligations of the Parent
under this Agreement shall be absolute, unconditional and irrevocable,
irrespective of (a) any lack of validity or enforceability of this Agreement or
any other Program Document or any other instrument relating to any thereof or to
any of the Borrower Obligations; (b) any change in the corporate existence,
structure or ownership of the Borrower, the Parent, any Advisor or any of their
Affiliates, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting any such Person or any property of any such Person or any
resulting release or discharge of any Borrower Obligation contained in any
Facility Document; (c) any defense, set-off or counterclaim which may at any
time be available or be asserted by the Borrower, the Distributor, any Advisor,
any of their respective Affiliates or any other Person against any Secured
Party; or (d) any other circumstance which might otherwise constitute a
suretyship or other defense available to, or a legal or equitable discharge of,
the Borrower, the Distributor, any Advisor, any of their respective Affiliates
or any other guarantor of any of the Borrower Obligations.
SECTION 2.03. WAIVER OF NOTICE; NO OFFSET.
The Parent hereby waives any and all notices or demands to which it
may otherwise be entitled in connection with the pursuit of any remedy
hereunder, under any other Facility Document or, to the extent permitted under
Applicable Law; PROVIDED, that this sentence shall not constitute a waiver on
behalf of the Parent of any notice or demand to which the Parent
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is entitled under the Facility Documents. The obligations of the Parent under
this Agreement shall not be subject to any counterclaim or right of offset which
the Parent, any Advisor, the Borrower, the Distributor or any other Person has
or may have against any Secured Party, or any defense which the Borrower, the
Distributor, the Parent, any Advisor or any other Person may have against any
Secured Party, in each case whether in respect of this Agreement, any other
Facility Document, any Assigned Collateral or otherwise. Any and all payments
by the Parent under this Agreement shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES.
Each of the Liberty Entities represents and warrants to the Agent on
behalf of each of the Secured Parties on and as of Closing Date, each Borrowing
Date and the last day of each Settlement Period as follows:
(a) it is duly organized and validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the corporate
power and authority to own and operate its properties, conduct its business and
to execute, deliver and perform its obligations under this Agreement and the
other Program Documents to which it is a party;
(b) it is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the performance of its
obligations under this Agreement and the other Program Documents to which it is
a party requires such qualification, except where the failure to be so qualified
could not give rise to a reasonable possibility of a Material Adverse Effect;
(c) the execution, delivery and performance of this Agreement and the
other Program Documents to which it is a party have been duly authorized by all
necessary corporate action and this Agreement and the other Program Documents to
which it is a party have been duly executed and delivered and constitute its
legal, valid and binding obligations, enforceable against it in accordance with
their terms;
(d) neither the execution and delivery by it of this Agreement, the
other Program Documents to which it is a party, or any instrument or agreement
referred to herein or therein, or
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contemplated hereby or thereby, nor the consummation of the transactions herein
or therein contemplated, nor compliance with the terms, conditions and
provisions hereof or thereof by it, will (i) conflict with, or result in a
breach or violation of, or constitute a default under its, the Distributor's,
any Advisor's, any of their respective Subsidiaries or LMIC's certificate of
incorporation, or by-laws or other organizational documents, (ii) conflict with
or contravene any (A) Applicable Law, (B) contractual restriction binding on or
affecting it, the Distributor, any Advisor, any of their respective Subsidiaries
or LMIC or any of their respective assets or properties, (C) any order, writ,
judgment, award, injunction or decree binding on or affecting it, the
Distributor, any Advisor, any of their respective Subsidiaries or LMIC or any of
their respective assets or properties, (iii) result in a breach or violation of,
or constitute a default under, or permit the acceleration of any obligation or
liability in, or but for any requirement of the giving of notice or the passage
of time (or both) would constitute such a conflict with, breach or violation of,
or default under, or permit any such acceleration in, any contractual obligation
or any agreement or document to which it is a party or by which it, the
Distributor, any Advisor, any of their respective Subsidiaries, LMIC or any of
their respective properties is bound (or to which any such obligation, agreement
or document relates), (iv) result in any Adverse Claim upon any of the Assigned
Collateral, or (v) result in the termination of any Advisory Agreement,
Distribution Agreement or Distribution Plan;
(e) it has obtained all necessary Governmental Authorizations and
Private Authorizations and made all necessary Governmental Filings required to
be made or obtained by it for the execution, delivery and performance by it of
this Agreement and the other Program Documents to which it is a party and no
consents or waivers, which have not been obtained under any instrument to which
it is a party or by which it or any of its properties are bound, are required to
be obtained in connection with the execution, delivery or performance of this
Agreement or any other Program Document;
(f) there are no pending or, to the best of its knowledge, threatened
investigations, actions, suits or proceedings involving it which give rise to a
reasonable possibility of a Material Adverse Effect;
(g) it is not in default in any of its obligations under this
Agreement or any other Program Document to which it is a party;
(h) all information, notices, reports and statements provided by or
behalf of it or any of its Affiliates, to any Secured Party or any other Person
pursuant to or in connection with the terms of this Agreement or the any other
Facility
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Document is, and all such information, notices, reports and statements hereafter
provided to any Secured Party or any other Person will be, true, correct and
complete in all material respects on and as of the date such information is
stated or certified, and on and as of the date such information, notice, report
or statement is stated or certified such information, notice, report or
statement does not contain, and will not contain, any misrepresentation of a
material fact or any omission to state therein matters necessary to make the
statements made therein not misleading in any material respect;
(i) the Parent directly or indirectly owns all of the issued and
outstanding capital stock of NFM and SRH, the Parent directly owns all of the
issued and outstanding capital stock of CHG and LFSI, LFSI is the sole member of
the Borrower, the Borrower directly owns all of the issued and outstanding
capital stock of CMA and CMA owns all of the outstanding capital stock of the
Distributor;
(j) it acknowledges and confirms that it has reviewed and understands
the terms and conditions of each of the Facility Documents;
(k) it is in compliance in all material respects with Applicable Law,
including, without limitation, the Securities Act, the Exchange Act and the
Investment Company Act;
(l) on each Borrowing Date and immediately after the making of each
Advance, the Borrower is in full compliance with the Borrowing Base Test and the
other conditions specified in Article III of the Credit Agreement;
(m) it is taking all reasonable actions necessary to mitigate the
effect of the Year 2000 Problem on its computer systems;
(n) it has filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by it, if any, and has
paid all taxes due pursuant to such returns, if any, or pursuant to any
assessment received by it, except for any taxes or assessments which are being
contested in good faith by appropriate proceedings and with respect thereto
adequate reserves have been established in accordance with GAAP and which could
otherwise not give rise to a reasonable possibility of a Material Adverse
Effect; and the charges, accruals and reserves on the books in respect of taxes
or other governmental charges, if any, are, in its opinion, adequate;
(o) it and its respective Subsidiaries have fulfilled their
obligations, if any, under the minimum funding standards of ERISA and the Code
with respect to any Plan or Multi Employer Plan and is in compliance in all
material respects with the
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presently applicable provisions of ERISA and the Code, and has not incurred any
liability to the Pension Benefit Guaranty Corporation, a Multi Employer Plan or
a Plan under Title IV of ERISA other than a liability to the Pension Benefit
Guaranty Corporation for premiums under Section 407 of ERISA;
(p) its obligations under this Agreement to make payments to the
Secured Parties rank at least equally with indebtedness of such Liberty Entity
which is not contractually subordinated;
(q) the statement of assets and liabilities of the Parent and its
consolidated subsidiaries as at December 31, 1998, certified by Ernst & Young,
LLP, certified public accountants, fairly present in conformity with GAAP the
financial position of the Parent and its consolidated subsidiaries at such date
and since such date there has been no material adverse change in the business,
financial position or results of operations of the Parent and its consolidated
subsidiaries;
(r) each Advisor has complied in all material respects with both the
Fundamental Investment Objectives and Policies relating to each Fund for which
it serves as investment advisor and the terms of each Advisory Agreement to
which it is a party, and each Advisory Agreement is in full force and effect;
(s) each Fund (and in respect of each Fund which constitutes a
Portfolio, each Company related to such Fund in respect of such Fund) and the
Advisory Agreements, the Prospectuses, the Distribution Agreements and the
Distribution Plans relating to each Fund, are in compliance in all material
respects with Applicable Law, including without limitation, Rule 12b-1 under the
Investment Company Act and the Conduct Rules; and
(t) the representations and warranties of the Borrower and the
Distributor set forth in the Facility Documents are true and correct.
ARTICLE IV
COVENANTS
SECTION 4.01. COVENANTS.
Each of the Liberty Entities hereby agrees as follows:
(a) Each Liberty Entity shall (i) duly observe and conform, in all
material respects, to all requirements of Applicable Law relative to the conduct
of its business or to its properties or assets, (ii) preserve and keep in full
force and effect its corporate existence, rights, privileges and
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franchises, and (iii) observe, conform, preserve, obtain, maintain and keep in
full force and effect all Governmental Authorizations and Private Authorizations
which are necessary or appropriate to properly carry out the transactions
contemplated to be performed by it under this Agreement and the other Program
Documents.
(b) Each Liberty Entity shall duly fulfill all obligations on its
part to be performed under or in connection with this Agreement and the other
Program Documents and will use its best efforts to cause the Borrower and the
Distributor to duly fulfill and perform their respective obligations under the
Program Documents.
(c) Each Liberty Entity shall promptly deliver to the Agent copies of
any amendments or modifications to its certificate of incorporation or by-laws,
certified by an authorized officer of such Liberty Entity.
(d) Each Liberty Entity shall promptly notify the Agent of any
material adverse change with respect to its, the Distributor's or the Borrower's
business, properties, conditions (financial or otherwise) or results of
operations, since December 31, 1998.
(e) No Liberty Entity shall fail to maintain its operations if such
failure gives rise to a reasonable possibility of a Material Adverse Effect.
(f) Each Liberty Entity shall promptly give written notice to the
Agent of (i) the occurrence of any Default or Event of Default, (ii) the failure
of any conditions precedent set forth in Article III of the Credit Agreement to
be fully satisfied, or (iii) the failure of any Fund to constitute an Eligible
Fund.
(g) Each Liberty Entity shall keep proper books of record and
accounts in accordance with its normal business practice and GAAP in which full
and appropriate entries shall be made of all dealings or transactions in
relation to its business and activities.
(h) Each Liberty Entity shall cause to be computed, paid and
discharged when due all taxes, assessments and other governmental charges or
levies imposed upon it, or upon any income or assets of such Liberty Entity,
prior to the day on which penalties are attached thereto, unless and to the
extent that the same shall be contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been established on its books
in accordance with GAAP and which could not otherwise subject such Liberty
Entity or its assets to any risk of foreclosure, distraint, sale or other
similar proceedings
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or to a reasonable possibility of a Material Adverse Effect.
(i) Each Liberty Entity shall, to the extent obtained or received by
it, furnish or cause to be furnished to the Agent a copy of each Governmental
Authorization obtained or required to be obtained by it in connection with the
transactions contemplated by this Agreement or any other Program Document and a
copy of all Private Authorizations to be obtained by the Distributor in
connection with the transactions contemplated by the Facility Documents.
(j) After the Agent's delivery of a Remittance Notice, each Liberty
Entity shall immediately upon its receipt of any Collections relating to any
Fund (or in respect of any Fund which constitutes a Portfolio, from the related
Company in respect of such Fund), remit such amount to the Agent's Account and
ensure that such amounts are not commingled with any other funds.
(k) The Parent shall (1) cause Ernst & Young, LLP or another
nationally recognized accounting firm reasonably acceptable to the Agent to
enter its premises and examine and audit its books, records and accounts and its
performance under the Program Documents (which may be coordinated as part of its
regular annual audit), (2) permit such accounting firm to discuss its affairs,
finances, accounts and performance under the Program Documents with its
officers, partners, employees and accountants, (3) cause such accounting firm to
provide the Agent with a certified report in respect of the foregoing, which
shall be in form and scope reasonably satisfactory to the Agent, and
(4) authorize such accounting firm to discuss such affairs, finances, records
and accounts with representatives of the Secured Parties; PROVIDED, HOWEVER,
that so long as no Default or Event of Default has occurred, such audits shall
be limited to one (1) per twelve (12) month period.
(l) Each Liberty Entity shall permit the Secured Parties to, upon
reasonable advance notice, during normal business hours and with reasonable
frequency, visit and inspect its books, records and accounts, its finances and
its performance under the Program Documents and to discuss the foregoing with
its officers, employees and accountants, all as often as the Agent may
reasonably request.
(m) Without the prior written consent of the Agent (which shall not
be unreasonably withheld), no Liberty Entity shall merge with or into or
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to, or acquire all
or substantially all of the assets or capital stock or other ownership interest
of, or enter into any joint venture or partnership agreement with, any Person.
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(n) Each Liberty Entity shall do all things reasonably necessary to
ensure that the effect of the Year 2000 Problem on its computer systems will not
have a Material Adverse Effect.
(o) Each Liberty Entity shall from time to time, at its expense,
promptly execute and deliver all further instruments and documents, and to take
all further actions, that may be necessary or desirable, or that the Agent may
reasonably request to enable the Secured Parties to exercise and enforce their
respective rights and remedies under this Agreement and the other Facility
Documents.
(p) The Parent shall (i) continue to own directly or indirectly all
of the outstanding capital stock of each Advisor and LFSI, (ii) cause LFSI to
continue to be the sole member of the Borrower, (iii) cause the Borrower to
continue to own all of the outstanding capital stock of CMA, and (iv) cause CMA
to continue to own all of the outstanding capital stock of the Distributor,
except as otherwise consented to in writing by the Agent (which consent shall
not be unreasonably withheld or delayed).
(q) Each Liberty Entity shall comply and cause its Subsidiaries to
comply, in all material respects, with the provisions of ERISA and the Code and
with all minimum funding requirements applicable to them with respect to any
Plan or Multiemployer Plan pursuant to Section 302 of ERISA or Section 412 of
the Code. At no time shall the Accumulated Benefit Obligations under any
Benefits Arrangement exceed the fair market value of the assets of such Plan
allocable to such benefits by more than $1,000,000. The Liberty Entities and
their Subsidiaries will not withdraw, and will cause all other person which is a
member of any ERISA Group 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 or Multiemployer Plan, calculated in a manner consistent
with Statement No. 106 of the Financial Accounting Standards Board, exceed
$1,000,000.
SECTION 4.02. ADDITIONAL COVENANTS OF THE ADVISORS.
In addition to the covenants of the Advisors contained in Section
4.01, each Advisor hereby agrees as follows:
(a) Such Advisor shall manage the Funds in accordance with and comply
in all material respects with the Fundamental Investment Objectives and Policies
of the Funds (or in respect of any Fund which constitutes a Portfolio, the
related Company in respect of such Fund).
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(b) Such Advisor shall, immediately upon its becoming aware, provide
prompt written notice to the Agent of any action by its Board of Directors or,
to the best of its knowledge, information and belief, the board of directors or
trustees of any Fund (and in respect of any Fund which constitutes a Portfolio,
the board of directors or trustees of the Company related to such Fund) to make
any modification, amendment or supplement to, or any waiver of any provisions
of, or any termination of any Distribution Plan, any Advisory Agreement,
Conversion Feature, any CDSC arrangement or any Distribution Agreement or any
interpretation of any thereof, each as in effect on the Closing Date (or in
respect of any Fund for which the Distributor did not act as principal
distributor on the Closing Date, the date the Distributor first began acting as
distributor for such Fund), or any modification in the amounts payable or
actually being paid thereunder, or if a new investment advisory agreement or
contingent deferred sales charge arrangement is proposed to be approved and
entered into with respect to any Fund, it shall provide the Agent with copies of
any such proposed modification, as adopted, and a newly adopted contingent
deferred sales charges arrangement, conversion feature or investment advisory
agreement, promptly after such proposal, modification or adoption has been made;
in addition, it shall specifically provide notice to the Agent in writing of any
aspect of any of the foregoing which could have a Material Adverse Effect and
shall provide the Agent with a copy of any of the foregoing in the form finally
adopted; PROVIDED, HOWEVER, that such Advisor shall not be required to provide
the Agent with written notices of any amendment, modification, supplement or
waiver (i) to any Advisory Agreement under this Section, unless such amendments
or supplements provide for the replacement of such Advisor or otherwise give
rise to a reasonable possibility of a Material Adverse Effect, or (ii) to the
interpretation of any Distribution Plan, Distribution Agreement, Advisory
Agreement, CDSC arrangement or Conversion Feature unless such modification or
waiver could give rise to a reasonable possibility of a Material Adverse Effect.
(c) Such Advisor shall, subject to its fiduciary obligations, if any,
use its best efforts to obtain the approval of a majority of the board of
directors or trustees of each Fund (or in respect of each Fund which constitutes
a Portfolio, the board of directors or trustees of each Company in respect of
each related Fund), including a majority of the board of directors or trustees
of each Fund (or in respect of each Fund which constitutes a Portfolio, the
board of directors or trustees of each Company in respect of each related Fund),
who are not "Interested Persons" (as defined in Section 2(a)(19) of the
Investment Company Act), to: (a) annually reapprove the Distribution Plan, the
Distribution Agreement and the Advisory Agreement relating to each class of
Shares of such Fund (if necessary in order to continue payments in respect of
the Receivables relating to Shares of each such Fund) and its interpretation
thereof by each Fund (or in respect of each Fund
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which constitutes a Portfolio, by each Company in respect of each related Fund)
as of the date of this Agreement, and (b) in the event any of the foregoing
shall be terminated, to approve a new distribution plan, distribution agreement
and advisory agreement with respect to such Fund (and in respect of each Fund
which constitutes a Portfolio, the Company related to each such Fund) so as to
permit the continued payments of the Receivables relating to Shares of such Fund
as though no such termination had occurred. In the event such Advisor is unable
to use its best efforts as a consequence of such obligations, it shall, prior to
taking any action inconsistent with such best efforts, or failing to take any
action it could otherwise take: (i) notify the Agent in writing of the nature
of such failure to use its best efforts, and (ii) provide certification by a
responsible officer of such Advisor that such failure to use its best efforts is
required in order to comply with such obligations.
(d) Such Advisor shall use its best efforts to preserve its present
relationship with each Company and each Fund; PROVIDED, HOWEVER, that in using
its best efforts, such Advisor shall not be required to resign or violate
Applicable Law.
(e) Such Advisor shall not cancel, terminate, amend, modify, supplement or
waive any term or condition of any Distribution Agreement, any Distribution
Plan, any Irrevocable Payment Instruction or the CDSC obligations of any holder
of Shares of any Fund (subject to Permitted Free Redemptions and Permitted Free
Exchanges), each as in effect on the Closing Date or take any action to permit
any Company or any Fund to do so, unless a responsible officer of such Advisor
has certified to the Agent that immediately after giving effect to all such
cancellations, terminations, amendments, modifications and waivers, (i) the
Borrower will be in full compliance with the Borrowing Base Test, and (ii) no
Default or Event of Default will be continuing or will result therefrom, or
change or modify any interpretation of any term or condition of any Distribution
Agreement, Distribution Plan, Irrevocable Payment Instruction or any such CDSC
obligation to the extent that such change or modification could give rise to a
reasonable possibility of a Material Adverse Effect.
(f) If any Default or Event of Default shall have occurred and be
continuing, such Advisor shall not permit any Free Redemption by any Fund or
otherwise waive its right to any CDSC relating to a Receivable relating to such
Fund, other than in connection with a Permitted Free Redemption or a Permitted
Free Exchange.
(g) Such Advisor shall not permit any Fund to change the Transfer Agent
for such Fund, unless such successor Transfer Agent, the Fund and the
Distributor have each executed a new Irrevocable Payment Instruction.
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(h) Such Advisor shall not assign its rights under any Advisory Agreement
or transfer, convey or permit to exist any Lien upon any of its assets or
properties, including without limitation, the management or advisory fees
payable to such Advisor under any Advisory Agreement, other than Permitted
Liens.
(i) Such Advisor shall not create, assume or suffer to exist any Debt or
any Guarantee, except for Debt arising in the ordinary course of its business in
connection with Persons providing services to such Advisor and Permitted Debt.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. NO WAIVER; MODIFICATIONS IN WRITING.
No failure or delay on the part of any Secured Party exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Secured Parties, at law or in
equity. Without limiting the generality of the foregoing, the Parent and each
Advisor acknowledge and agree that it will be impossible to measure in money the
damage to the Secured Parties in the event of a breach of any of the terms and
provisions of this Agreement or any other Program Document, and that, in the
event of any such breach, the Secured Parties may not have an adequate remedy at
Law, and no Liberty Entity shall argue, and each Liberty Entity hereby waives
any defense, that there is an adequate remedy available at Law. No amendment,
modification, supplement, termination or waiver of this Agreement shall be
effective unless the same shall be in writing and signed by the Agent. Any
waiver of any provision of this Agreement, and any consent to any departure by
any Secured Party from the terms of any provision of this Agreement, shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on any Liberty Entity in any case shall entitle
any Liberty Entity to any other or further notice or demand in similar or other
circumstances.
SECTION 5.02. NOTICES, ETC.
Except where telephonic instructions are authorized herein to be
given, all notices, demands, instructions and other communications required or
permitted to be given to or made upon any party hereto shall be in writing and
shall be personally delivered or sent by registered, certified or express mail,
postage prepaid, or by prepaid telegram (with messenger delivery specified in
the case of a telegram), or by facsimile
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transmission, or by prepaid courier service, and shall be deemed to be given for
purposes of this Agreement on the day that such writing is received by the
intended recipient thereof in accordance with the provisions of this
Section 5.02. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section 5.02, notices, demands,
instructions and other communications in writing shall be given to or made upon
the respective parties hereto at their respective addresses (or to their
respective facsimile numbers) indicated below, and, in the case of telephonic
instructions or notices, by calling the telephone number or numbers indicated
for such party below:
If to the Agent: Citicorp North America, Inc.
U.S. Securitization
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: U.S. Securitization
Telephone No: (914) 899-7122
Facsimile No: (914) 899-7890
If to the Parent: Liberty Financial Companies, Inc.
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
Attention: Robert A. Licht
Telephone No.: (617) 371-2265
Facsimile No.: (617) 742-7338
If to CMA: Colonial Management Associates, Inc.
One Financial Center
Boston, Massachusetts 02111
Attention: Ms. Nancy L. Conlin
Telephone No.: (617) 772-3053
Facsimile No.: (617) 345-0919
With a copy to the Parent
If to NFM: Newport Fund Management, Inc.
c/o Colonial Management Associates
One Financial Center
Boston, Massachusetts 02111
Attention: Ms. Nancy L. Conlin
Telephone No.: (617) 772-3053
Facsimile No.: (617) 345-0919
With a copy to the Parent
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If to CHG: Crabbe Huson Group, Inc.
c/o Colonial Management Associates
One Financial Center
Boston, Massachusetts 02111
Attention: Ms. Nancy L. Conlin
Telephone No.: (617) 772-3053
Facsimile No.: (617) 345-0919
With a copy to the Parent
If to SRF: Stein Roe & Farnham Incorporated
c/o Colonial Management Associates
One Financial Center
Boston, Massachusetts 02111
Attention: Ms. Nancy L. Conlin
Telephone No.: (617) 772-3053
Facsimile No.: (617) 345-0919
With a copy to the Parent
SECTION 5.03. INDEMNIFICATION.
The Parent agrees to indemnify and hold harmless each Secured Party,
their successors, assigns, transferees and participants and each of their
Affiliates and the respective officers, directors, employees, agents, managers
of, and any Person controlling any of, the foregoing (each, an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities,
obligations, expenses, penalties, actions, suits, judgments and disbursements of
any kind or nature whatsoever, (including, without limitation, the reasonable
fees and disbursements of counsel) (collectively the "Liabilities") that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of the execution, delivery,
enforcement, performance, administration of or otherwise arising out of or
incurred in connection with this Agreement or any other Program Document or any
transaction contemplated hereby or thereby (and regardless of whether or not any
such transactions are consummated), including, without limitation any such
Liability that is incurred or arises out of or in connection with, or by reason
of any one or more of the following: (i) preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with this Agreement or any other Program Document or any of the
transactions contemplated hereby or thereby; (ii) any breach or alleged breach
of any covenant or agreement by any Liberty Entity in any Program Document;
(iii) any representation or warranty made or deemed made by any
15
<PAGE>
Liberty Entity contained in any Program Document or in any certificate,
statement or report delivered in connection therewith is, or is alleged to be,
false or misleading; (iv) any failure by any Liberty Entity to comply with any
Applicable Law or contractual obligation binding upon it; (v) any action or
omission, not expressly authorized by the Program Documents, by any Liberty
Entity, which has the effect of reducing or impairing the Assigned Collateral or
the rights of the Agent or the Secured Parties with respect thereto; or (vi) any
Default or Event of Default; except to the extent any such Liability is found in
a final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
The Secured Parties agree to use reasonable efforts to utilize the same legal
counsel in connection with any matter for which the Secured Parties are entitled
to indemnification under this Section 5.03; PROVIDED, that nothing herein shall
be deemed to limit any Secured Party's right to employ separate counsel if such
Secured Party determines that there may be legal defenses or claims available to
it which are not available to the other Secured Parties or which are different
from or additional to those of the other Secured Parties.
SECTION 5.04. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Agreement.
SECTION 5.05. ASSIGNABILITY.
(a) This Agreement and the Lender's and the Secondary Lender's rights
hereunder shall be assignable by the Lender, the Secondary Lenders and their
respective permitted successors and assigns.
(b) This Agreement and the rights and obligations of the Agent herein
shall be assignable by the Agent and its successors and assigns.
(c) No Liberty Entity may assign its rights or obligations hereunder
or any interest herein without the prior written consent of the Agent (which
consent shall not be unreasonably withheld or delayed).
SECTION 5.06. GOVERNING LAW.
THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF
16
<PAGE>
SAID STATE.
SECTION 5.07. SEVERABILITY OF PROVISIONS.
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
SECTION 5.08. CONFIDENTIALITY.
Each of the Liberty Entities agrees that it shall and shall cause each
of its Affiliates (i) to keep this Agreement and the other Facility Documents,
the proposal relating to the structure of the facility contemplated by this
Agreement and the other Facility Documents (the "Facility"), any analyses,
computer models, information or document prepared by the Agent, Citibank or any
of their respective Affiliates in connection with the Facility, the Agent's or
its Affiliate's written reports to the Borrower, the Distributor, the Advisors,
the Parent, any Fund or any of their respective Affiliates and any related
written information (collectively, the "Product Information") confidential, and
to disclose Product Information only to those of its officers, employees,
agents, accountants, legal counsel and other representatives (collectively, the
"Liberty Entity Representatives") who have a need to know such Product
Information for the purpose of assisting in the negotiation, completion and
administration of the Facility; (ii) to use the Product Information only in
connection with the Facility and not for any other purpose; and (iii) to cause
the Liberty Entity Representatives to comply with the provisions of this Section
5.08 and to be responsible for any failure of any Liberty Entity Representative
to so comply.
The provisions of this Section 5.08 shall not apply to any Product
Information that is a matter of general public knowledge or that has heretofore
been made available to the public by any Person other than the Borrower, the
Distributor, the Liberty Entities, any Fund, any of their respective Affiliates
or any Liberty Entity Representative or that is required to be disclosed by
Applicable Law or is requested by any Authority with jurisdiction over any
Liberty Entity or any of their respective Affiliates.
SECTION 5.09. MERGER.
The Facility Documents taken as a whole incorporate the entire
agreement between the parties thereto concerning the subject matter thereof.
The Facility Documents supersede any prior agreements among the parties relating
to the subject matter thereof.
17
<PAGE>
SECTION 5.10. NO PROCEEDINGS.
Each of the Liberty Entities hereby agrees that it will not institute
against CRC any proceeding of the type referred to in Section 6.01(e) of the
Credit Agreement so long as any commercial paper or other senior indebtedness
issued by CRC shall be outstanding or there shall not have elapsed one year plus
one day since the last day on which any such commercial paper or other senior
indebtedness shall have been outstanding.
SECTION 5.11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The rights and remedies with respect to any breach of any
representation and warranty made by the Liberty Entities pursuant to any
Facility Document and the certificates and statements in connection therewith,
the indemnification provisions of Section 5.03 and the Liberty Entities'
obligations under Sections 5.08 and 5.10 shall be continuing and shall survive
any termination of this Agreement and the other Program Documents.
SECTION 5.12. SUBMISSION TO JURISDICTION; WAIVERS.
Each Liberty Entity hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement or the other Program Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and the appellate courts of any of them;
(b) consents that any such action or proceeding may be brought in any
of such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such Liberty Entity
at its address set forth in Section 5.02 or at such other address as may be
permitted thereunder;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction or court; and
18
<PAGE>
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.
SECTION 5.13. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER FACILITY DOCUMENT OR FOR ANY COUNTERCLAIM THEREIN OR
RELATING THERETO.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.
LIBERTY FINANCIAL COMPANIES, INC.
By:____________________________
Name:
Title:
COLONIAL MANAGEMENT ASSOCIATES, INC.
By:____________________________
Name:
Title:
NEWPORT FUND MANAGEMENT, INC.
By:____________________________
Name:
Title:
CRABBE HUSON GROUP, INC.
20
<PAGE>
By:____________________________
Name:
Title:
STEIN ROE & FARNHAM INCORPORATED
By:____________________________
Name:
Title:
21
<PAGE>
CITICORP NORTH AMERICA, INC.,
as Agent
By:____________________________
Name:
Title:
13620.110 #70013
22
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
EXHIBIT 12 - STATEMENT RE COMPUTATION OF RATIOS
($ in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Earnings:
Pretax income $44.0 $45.4
Add fixed charges:
Interest on indebtedness 8.8 5.2
Portion of rent representing the interest factor 1.2 1.0
Accretion to face value of redeemable
convertible preferred stock 0.2 0.2
-------------- -------------
Sub-total of income as adjusted 54.2 51.8
Interest on fixed annuities and financial products 134.8 142.1
-------------- -------------
Total income as adjusted $189.0 $193.9
-------------- -------------
-------------- -------------
Fixed charges:
Interest on indebtedness $ 8.8 $ 5.2
Portion of rent representing the interest factor 1.2 1.0
Accretion to face value of redeemable
convertible preferred stock 0.2 0.2
-------------- -------------
Sub-total of fixed charges 10.2 6.4
Interest on fixed annuities and financial products 134.8 142.1
-------------- -------------
Sub-total of fixed charges 145.0 148.5
Preferred stock dividends 0.3 0.3
-------------- -------------
Total fixed charges $145.3 $148.8
-------------- -------------
-------------- -------------
Ratio of earnings to fixed charges:
Excluding interest on fixed annuities and financial
products 5.31 x 8.09 x
-------------- -------------
-------------- -------------
Including interest on fixed annuities and financial products 1.30 x 1.31 x
-------------- -------------
-------------- -------------
Ratio of earnings to combined fixed charges and preferred stock dividends:
Excluding interest on fixed annuities and financial products 5.16 x 7.73 x
-------------- -------------
-------------- -------------
Including interest on fixed annuities and financial products 1.30 x 1.30 x
-------------- -------------
-------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 11,476
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 23
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,817
<CASH> 1,268
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 373
<TOTAL-ASSETS> 17,684
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,414
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 907
0
16
<COMMON> 1
<OTHER-SE> 1,289
<TOTAL-LIABILITY-AND-EQUITY> 17,684
0
<INVESTMENT-INCOME> 206
<INVESTMENT-GAINS> (3)
<OTHER-INCOME> 109
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 22
<UNDERWRITING-OTHER> 89
<INCOME-PRETAX> 44
<INCOME-TAX> 17
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
