-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CLLhMFhLQNSNQlXY99jK64cG367qlq+A9rSc3z9qbR8R511tvqRAW7hb8ItIGGq/ 5i9nzwrJmJ8uCTqmeYh0YA== 0000038777-02-000444.txt : 20021218 0000038777-02-000444.hdr.sgml : 20021218 20021218143708 ACCESSION NUMBER: 0000038777-02-000444 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN RESOURCES INC CENTRAL INDEX KEY: 0000038777 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 132670991 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09318 FILM NUMBER: 02861638 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY STREET 2: BUILDING 920 CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 650-312-2000 MAIL ADDRESS: STREET 1: FRANKLIN RESOURCES INC STREET 2: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403 10-K 1 form10k_2002.txt FOR THE FISCAL YEAR ENDED 9/30/02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 1-9318 FRANKLIN RESOURCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-2670991 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including Area Code: (650) 312-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, par value $.10 New York Stock Exchange per share Pacific Exchange London Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 at least the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [X] NO [ ] Aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of $36.99 on December 3, 2002 on the New York Stock Exchange was $5,354,696,667. Calculation of holdings by non-affiliates is based upon the assumption, for these purposes only, that executive officers, directors, nominees, Registrant's Profit Sharing Plan and persons holding 5% or more of Registrant's Common Stock are affiliates. Number of shares of the Registrant's common stock outstanding at December 3, 2002: 257,878,976 DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the Registrant's proxy statement for its Annual Meeting of Stockholders to be held on January 30, 2003, which will be filed under cover of Schedule 14A with the Securities and Exchange Commission (the "SEC") on or about December 23, 2002 (the "Proxy Statement"), are incorporated by reference into Part III of this report. - -------------------------------------------------------------------------------- INDEX TO ANNUAL REPORT ON FORM 10-K ----------------------------------- PAGE NUMBER FORM 10-K REFERENCE TO THIS REQUIRED INFORMATION 2002 ANNUAL REPORT - -------------------- ON FORM 10-K ------------------- PART I ITEM 1. BUSINESS..................................................4 General.................................................4 Company History and Acquisitions........................4 Lines of Business.......................................5 Types of Investment Management and Related Services...6 Banking/Finance Operations...........................19 Regulatory Considerations..............................19 Competition............................................21 Financial Information About Industry Segments..........22 Intellectual Property..................................22 Employees..............................................22 ITEM 2. PROPERTIES...............................................23 ITEM 3. LEGAL PROCEEDINGS........................................23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................24 Information About Our Common Stock...................24 ITEM 6. SELECTED FINANCIAL DATA..................................24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........25 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...................................70 2 - -------------------------------------------------------------------------------- PAGE NUMBER FORM 10-K REFERENCE TO THIS REQUIRED INFORMATION 2002 ANNUAL REPORT - -------------------- ON FORM 10-K ------------------- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................................70 Proxy: "Proposal 1: Election of Directors"* ITEM 11. EXECUTIVE COMPENSATION...................................72 Proxy: "Proposal 1: Election of Directors"* ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................72 Equity Compensation Plan Information Proxy: "Security Ownership of Principal Shareholders" and "Security Ownership of Management"* ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................72 Proxy: "Proposal 1: Election of Directors - Certain Relationships and Related Transactions" * ITEM 14. CONTROLS & PROCEDURES....................................73 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................73 Consolidated Financial Statements Reports on Form 8-K List of Exhibits SIGNATURES...........................................................74 CERTIFICATIONS ......................................................75 * Incorporated by reference to the Proxy Statement. Franklin Resources, Inc. files reports with the United States Securities and Exchange Commission (the "SEC"). Copies of any of these filings can be obtained from the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. We also file reports with the SEC electronically via the Internet. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov. Additional information about Franklin Resources, Inc. can also be obtained at our website at http://www.franklintempleton.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 3 - -------------------------------------------------------------------------------- PART I "FORWARD-LOOKING STATEMENTS." In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, including the risk factors explained in the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), that could cause our actual results to differ materially from those reflected in the forward-looking statements. When used in this report, words or phrases about the future such as "expected to," "could have," "will continue," "anticipates," "estimates," or similar expressions are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Statements in MD&A and elsewhere in this report that speculate about future events are "forward-looking statements." Forward-looking statements are our best prediction at the time that they are made, and you should not rely on them. If a circumstance occurs that causes any of our forward-looking statements to be inaccurate, we do not have an obligation to announce publicly the change to our expectations, or to make any revision to the forward-looking statements. ITEM 1. BUSINESS GENERAL Franklin Resources, Inc. ("FRI" or the "Company"), is a diversified financial services company, which is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and as a financial holding company under the Gramm-Leach-Bliley Act (the "GLB Act"). Through our wholly-owned direct and indirect subsidiary companies, we provide a broad range of investment advisory, investment management and related services to open-end investment companies, including our own family of retail mutual funds, institutional accounts, high net-worth families, individuals and separate accounts in the United States (the "U.S.") and internationally. Our 249 "sponsored investment products" include a broad range of domestic and global/international equity, hybrid, fixed-income, and money market mutual funds as well as other investment products, which are sold to the public under the Franklin, Templeton, Mutual Series, Bissett and Fiduciary Trust brand names. As of September 30, 2002, we had $247.8 billion in assets under our management with approximately 9.6 million shareholder accounts worldwide. In support of our primary business segment, investment management, we also provide certain related services, including transfer agency, fund administration, distribution, shareholder processing, custodial, trustee and other fiduciary services. In our secondary business segment, banking/finance, we provide clients with select retail, private banking, consumer loan and other credit services through our bank subsidiaries. The common stock of FRI is traded in the U.S. primarily on the New York Stock Exchange and the Pacific Exchange under the ticker symbol "BEN" and under the ticker symbol "FKR" on the London Stock Exchange. The term "Franklin(R) Templeton(R) Investments" as used in this document, refers to Franklin Resources, Inc. and its consolidated subsidiaries. COMPANY HISTORY AND ACQUISITIONS Franklin Templeton Investments and its predecessors have been engaged in the financial services business since 1947. Franklin Resources, Inc. was incorporated in Delaware in November 1969. We originated our mutual fund business with the Franklin family of funds, which is now known as the Franklin Funds(R). We expanded our business, in part, by acquiring companies engaged in the investment advisory and investment management business. In October 1992, we acquired substantially all of the assets and liabilities of the investment adviser to the Templeton, Galbraith & Hansberger Ltd. financial services business. This acquisition added the Templeton family of funds to our Company. The Templeton funds are known for their international and global investment objectives and value style of investing. In November 1996, we acquired certain assets and liabilities of Heine Securities Corporation, which provided investment management services to various accounts and investment companies, including Mutual Series Fund Inc., now known as Franklin Mutual Series Fund Inc. ("Mutual Series"). The Mutual Series funds are primarily value oriented equity funds. 4 - -------------------------------------------------------------------------------- We expanded our business in Korea in July 2000 when we purchased all of the remaining outstanding shares of a Korean asset management company, in which we previously held a partial interest. With over $2 billion in assets under management in Korea, we are now one of the larger foreign money managers in that country. We acquired all of the outstanding shares of Bissett & Associates Investment Management, Ltd. ("Bissett") in October 2000 for approximately $95 million. Bissett now operates as part of our Canadian subsidiary, Franklin Templeton Investments Corp. ("FTIC"). With the addition of Bissett, we added Bissett's family of mutual funds to our existing Canadian based funds and expanded our investment advisory services throughout Canada to a broad range of clients, including institutional clients such as pension plans, municipalities, universities, charitable foundations and private clients. In April 2001, we acquired Fiduciary Trust Company International, a bank organized under the New York State Banking Law ("Fiduciary"). Following the acquisition, Fiduciary became a wholly-owned subsidiary of Franklin Resources, Inc. The stock transaction was valued at approximately $776 million at closing. Fiduciary has a reputation as one of the leading providers of investment management and related trust and custody services to institutional clients and high net-worth families and individuals. With the acquisition of Fiduciary, we also added Fiduciary's U.S. and non-U.S. mutual funds to our product line. On July 26, 2002, our 75% owned subsidiary, Templeton Asset Management (India) Private Limited, acquired all of the outstanding shares of Pioneer ITI AMC Limited ("Pioneer") for approximately $55.4 million. Pioneer is an Indian investment management company with approximately $800 million in assets under management as of the purchase date. The acquisition makes us one of the largest private sector fund companies in India, with combined assets at the time of acquisition, of approximately $1.6 billion and more than 850,000 shareholder accounts. LINES OF BUSINESS I. INVESTMENT MANAGEMENT AND RELATED SERVICES We derive substantially all of our revenues from providing investment advisory and investment management, distribution and administrative services to our various family of funds, high net-worth clients, institutional accounts and separate accounts. Our revenues depend to a large extent on the amount of assets under management. Underwriting and distribution revenues, also a large source of revenue, consist of sales charges and commissions derived from sales of our sponsored investment products and distribution and service fees. When used in this report "Franklin Templeton mutual funds" or "funds" means all of the Franklin, Templeton, Mutual Series, Bissett, and Fiduciary mutual funds; "sponsored investment products" means all of the Franklin Templeton mutual funds together with closed-end investment companies, foreign-based investment products, and other U.S. and international private, institutional, high net-worth and separate accounts. A. ASSETS UNDER MANAGEMENT ("AUM") ------------------------------- Investment management fees, our most substantial source of revenue, are based upon the dollar value of assets under management, because we earn most of our revenues from fees linked to the amount of assets in the accounts that we advise. As of September 30, 2002, the type of assets under management by investment objective held by investors on a worldwide basis was: TYPE OF ASSETS VALUE IN BILLIONS % TOTAL OF AUM - -------------------------------------------------------------------------------------------------------------------- EQUITY $117.9 48% - ------ Growth potential, income potential or various combinations thereof. FIXED-INCOME $87.5 35% - ------------ Both long and short-term. HYBRID FUNDS $36.6 15% - ------------ Asset allocation, balanced, flexible and income-mixed funds. MONEY FUNDS $5.8 2% - ----------- Short term liquid assets
5 - -------------------------------------------------------------------------------- Broadly speaking, the change in the net assets of the sponsored investment products depends upon two factors: (1) the level of sales (inflows) as compared to the level of redemptions (outflows); and (2) the increase or decrease in the market value of the securities held in the portfolio of investments. In recent years, we have become subject to an increased risk of asset volatility, resulting from changes in the domestic and global financial and equity markets. In addition, because we generally derive higher revenues and income from our equity assets, a shift in assets from equity to fixed-income and hybrid funds reduces total revenue and thus, net income. Despite such volatility, we believe that we are more competitive as a result of the greater diversity of sponsored investment products available to our customer base. B. TYPES OF INVESTMENT MANAGEMENT AND RELATED SERVICES --------------------------------------------------- A majority of our revenues are derived from providing investment management, advisory, distribution, transfer agency and related services for the Franklin Templeton mutual funds. We advise, manage and implement the investment activities of and provide other administrative services necessary to operate our registered investment companies, the related U.S.-open-end and closed-end funds or series and our many non-U.S. based sponsored investment products. 1. ADVISORY SERVICES FOR OUR FUNDS We earn investment management fee revenues by providing investment advisory and management services pursuant to investment management agreements with each fund. This business is primarily conducted through our wholly-owned direct and indirect subsidiary companies, including, among others, the following: Fiduciary International, Inc. ("FII"), a registered investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"), provides investment advisory and portfolio management to certain mutual funds and separate accounts; Franklin Advisers, Inc. ("FAV"), a registered investment adviser under the Advisers Act, provides investment advisory, portfolio management and administrative services to various Franklin Templeton mutual funds and also provides sub-advisory services to non-affiliated entities; Franklin Advisory Services, LLC ("FAS"), a registered investment adviser under the Advisers Act, provides investment advisory and portfolio management services to certain of the Franklin Templeton mutual funds and also provides sub-advisory services to non-affiliated entities; Franklin Mutual Advisers, LLC ("FMA"), a registered investment adviser under the Advisers Act, provides investment and portfolio management services to the Mutual Series funds; Franklin Templeton Investment Management Limited ("FTIML"), a registered investment adviser in the United Kingdom and under the Advisers Act, provides and serves as an investment adviser to various of our investment companies registered in foreign jurisdictions, including Europe; Franklin Templeton Investments Corp. ("FTIC"), a registered investment advisor with many of the Canadian securities commissions, a mutual fund dealer with the Ontario Securities Commission and Alberta Securities Commission and an investment adviser under the Advisers Act, provides investment advisory, portfolio management, distribution and administrative services for Canadian registered retail funds; Franklin Templeton Investments (Asia) Limited ("FTIL"), a registered investment adviser in Hong Kong and under the Advisers Act, provides investment advisory and management services to our sponsored investment products with mandates in the emerging markets; Templeton Asset Management Ltd. ("TAML"), a registered investment adviser in Singapore, Hong Kong and under the Advisers Act, provides investment advisory and related services to certain Templeton developing funds and portfolios; 6 - -------------------------------------------------------------------------------- Templeton Global Advisors Limited ("TGAL"), a registered investment adviser under the Advisers Act, provides investment advisory, portfolio management, and administrative services to certain of the Templeton funds; Templeton Investment Counsel, LLC ("TICL"), a registered investment advisor under the Advisers Act, provides investment advisory, portfolio management and administrative services to certain of the Templeton funds and sub-advisory services to certain of the Franklin Funds; and Franklin Templeton Asset Strategies, LLC ("FTAS"), a registered investment adviser under the Advisers Act and a registered Commodity Pool Operator under the Commodity Exchange Act, provides investment advisory, portfolio management and administrative services to certain of our sponsored investment products with mandates in alternative investments. Our subsidiary companies conduct research and provide the investment advisory services and determine which securities the funds will purchase, hold or sell as directed by each fund's board of trustees, directors or administrative managers. In addition, the subsidiary companies take all steps necessary to implement such decisions, including selecting brokers and dealers, executing and settling trades in accordance with detailed criteria set forth in the management agreement for each fund, and applicable law and practice. In addition, certain of our subsidiary companies also provide similar investment management and administrative services to a number of non-U.S. open-end and closed-end investment companies, as well as other U.S. and international private and institutional accounts, including certain of our sponsored investment companies organized in Luxembourg and Ireland. Our investment advisory services include fundamental investment research and valuation analyses, including original economic, political, industry and company research, company visits and inspections, and the utilization of such sources as company public records and activities, management interviews, company prepared information, and other publicly available information, as well as analyses of suppliers, customers and competitors. In addition, research services provided by brokerage firms are used to support our findings. Investment management and related services are provided pursuant to agreements in effect with each of our U.S.-registered open-end and closed-end funds. Comparable agreements are in effect with foreign-registered funds and with private accounts. In general, the management agreements for our U.S.-registered open-end and closed-end funds must be renewed each year, and must be specifically approved at least annually by a vote of such funds' board of trustees or directors or by a vote of the holders of a majority of such funds' outstanding voting securities. Foreign-registered funds have various termination rights, review and renewal provisions that are not discussed in this report. Under the majority of investment management agreements, the funds pay us a fee payable monthly in arrears based upon a fund's average daily net assets. Annual fee rates under the various global investment management agreements generally range from 0.15% to a maximum of 2.25% and are often reduced as net assets exceed various threshold levels. The funds generally pay their own expenses such as legal, custody and audit fees, reporting costs, board and shareholder meeting costs, SEC and state registration fees and similar expenses. We use a "master/feeder" fund structure in limited situations. This structure allows an investment adviser to manage a single portfolio of securities at the "master fund" level and have multiple "feeder funds" invest all of their respective assets into the master fund. Individual and institutional shareholders invest in the "feeder funds" which can offer a variety of service and distribution options. An advisory fee is charged at the master fund level, and administrative and shareholder servicing fees are charged at the feeder fund level. Our investment management agreements permit us to serve as an adviser to more than one fund so long as our ability to render services to each of the funds is not impaired, and so long as purchases and sales for various advised funds are made on an equitable basis. Our management personnel and the fund directors or boards of trustees regularly review the fund advisory and other administrative fee structures in light of fund 7 - -------------------------------------------------------------------------------- performance, the level and range of services provided, industry conditions and other relevant factors. Advisory and other administrative fees are generally waived or voluntarily reduced when a new fund is established and then increased to contractual levels within an established timeline or as net asset values reach certain levels. Each U.S. investment management or advisory agreement between Franklin Templeton Investments and each fund automatically terminates in the event of its "assignment", as defined in the Investment Company Act of 1940 (the " '40 Act"). In addition, either party may terminate the agreement without penalty after written notice ranging from 30 to 60 days. If management agreements representing a significant portion of our assets under management were terminated, it would have a material adverse impact on our Company. To date, none of our management agreements with any of our retail Franklin Templeton mutual funds have been involuntarily terminated. 2. UNDERWRITING AND DISTRIBUTION A large portion of our revenues under the investment management operating segment is generated from providing underwriting and distribution services. Franklin/Templeton Distributors, Inc. ("FTDI"), a wholly-owned subsidiary of the Company, acts as the principal underwriter and distributor of shares of most of our U.S.-registered open-end mutual funds. Templeton/Franklin Investment Services, Inc. acts as principal underwriter and distributor of the shares of FTI Funds, a Fiduciary product distributed in the U.S. We earn underwriting and distribution fees primarily by distributing the funds pursuant to distribution agreements between FTDI and the funds. Under each distribution agreement, we offer and sell the fund's shares on a continuous basis and pay certain costs associated with underwriting and distributing the funds, including the costs of developing and producing sales literature and printing of prospectuses, which may be then either partially or fully reimbursed by the funds. Most of our U.S. and non-U.S.-registered retail funds are distributed with a multi-class share structure. We adopted this share structure to provide investors with greater sales charge alternatives for their investments. Class A shares represent a traditional fee structure whereby the investor pays a commission at the time of purchase unless minimum investment criteria are met. Class B shares, which are available in many of our funds globally, have no front-end sales charges but instead have a declining schedule of sales charges (called contingent deferred sales charges) if the investor redeems within a number of years from original purchase date. Class C shares have a pricing structure combining aspects of conventional front-end, back-end and level-load pricing. Class R shares with reduced sales charges are available for purchase by certain retirement plan accounts. Globally, we offer Advisor Class shares in many of our Franklin Templeton mutual funds and in the U.S. we offer Z Class shares in Mutual Series funds on a limited basis, both of which have no sales charges. FTI Funds, managed by our subsidiary FII, offers three series of funds with no sales charges. The Advisor and Z Class shares are sold to our officers, directors and current and former employees, and are also offered to institutions and investment advisory clients (both affiliated and unaffiliated), as well as individuals generally investing $5 million or more. We also sell money market funds to investors without a sales charge. Under the terms and conditions described in the prospectuses or the statements of additional information for some funds, certain investors can purchase shares at net asset value or at reduced sales charges. In addition, investors may generally exchange their shares of a fund at net asset value for shares within the same class of another Franklin Templeton mutual fund without having to pay additional sales charges. Our insurance product funds offered for sale in the U.S. generally have a two-class share structure, Class 1 and Class 2, which are offered at net asset value without a sales load directly to the insurance company separate accounts (the shareholder). The only difference between the two classes is that Class 2 shares are assessed a distribution and service fee ("12b-1 fee") (as described below) payable to those who sell and distribute Class 2 shares and provide services to shareholders and contract owners (e.g., FTDI), the insurance company or others. These 12b-1 fees are generally assessed quarterly at an annual rate of 0.25% of the average daily net assets of the class. 8 - -------------------------------------------------------------------------------- The following table summarizes the sales charges and distribution and service fee structure for various share classes of our U.S.-registered retail mutual funds. The fees below generally apply to our U.S.-registered retail mutual funds, however, there are exceptions to this fee schedule for some funds.
SALES CHARGES AND DISTRIBUTION AND SERVICE FEES FOR MOST U.S.-REGISTERED RETAIL FUNDS - ------------------------------------------------------------------------------------- U.S. RETAIL FUNDS CLASS A SHARES CLASS B SHARES (c) CLASS C SHARES (d) CLASS R SHARES - --------------------------------------- ----------------- -------------------- --------------------- -------------------- Sales Charge at Time of Sale Equity 5.75% (a) None. 1.00% None. Fixed-income 4.25% (a) None. 1.00% None. - --------------------------------------- ----------------- -------------------- --------------------- -------------------- Contingent Deferred Sales Charge None. (b) 4% maximum 1% if shareholder 1% if shareholder declining to zero sells shares within sells shares within after 6-years of 18 months of 18 months of each investment. investment. investment. - --------------------------------------- ---------------- -------------------- --------------------- -------------------- Maximum Yearly 12b-1 Plan Fees Equity 0.35% 1.00% 1.00% 0.50% Fixed-income Taxable 0.25% 0.65% 0.65% 0.50% Tax-free 0.10% 0.65% 0.65% None. - --------------------------------------- ---------------- -------------------- --------------------- -------------------- Types of investors that may purchase this share class Any. Any. Any. Qualified plans with assets of less than $10 million, or investment only qualified plans with assets of less than $20 million. Investors with a rollover from a retirement plan that offered Franklin Templeton funds. - --------------------------------------- ----------------- -------------------- -------------------- --------------------
U.S. RETAIL FUNDS ADVISOR CLASS SHARES Z CLASS SHARES (e) - ------------------------------------- -------------------------------------- ------------------------------------------- Sales Charge At Time None. None. of Sale Equity Fixed-income - ------------------------------------- -------------------------------------- ------------------------------------------- Contingent Deferred Sales Charge None. None. - ------------------------------------- -------------------------------------- ------------------------------------------- Maximum Yearly 12b-1 Plan Fees None. None. - ------------------------------------- -------------------------------------- ------------------------------------------- Types of investors that may Officers, directors and current and Officers, directors and current and purchase this share class former employees of Franklin former employees of Franklin Templeton Templeton Investments; institutions, Investments; institutions, investment investment advisory clients, advisory clients, individuals investing individuals investing $5 million or $5 million or more in Mutual Series more in Franklin or Templeton funds. funds and shareholders that hold shares of the Mutual Series funds reclassified as Z shares. - ------------------------------------- -------------------------------------- -------------------------------------------
9 - -------------------------------------------------------------------------------- (a) Reductions in the maximum sales charges may be available depending upon the amount invested and the type of investor. In some cases noted in each fund's prospectus or statement of additional information, certain investors may invest in Class A shares at net asset value (with no load). In connection with certain of these no-load purchases, FTDI may make a payment out of its own resources to a broker/dealer involved with that sale. (b) For Net Asset Value ("NAV") purchases over $1 million, a contingent deferred sales charge ("CDSC") of 1.00% may apply to shares redeemed within one year of investment for purchases made prior to February 1, 2002. A CDSC of 1.00% may apply to shares redeemed within 18 months effective February 1, 2002. (c) Class B shares convert to Class A shares after eight (8) years of ownership. (d) FTDI pays a 2.00% dealer commission to brokers of record of Class C Shares, which consists of a 1.00% sales charge assessed to the investor at the time of sale, and 1.00% of which is paid by FTDI. FTDI recovers a portion of the amount it pays to brokers by retaining certain 12b-1 fees assessed during the first 12 months and from collecting contingent deferred sales charges on any redemptions made within 18 months of the time of sale. (e) When the Company entered into management contracts for the Mutual Series funds, the outstanding shares of Mutual Series funds were reclassified as Z Class shares on October 31, 1996. Current Shareholders who held shares of any Mutual Series funds on October 31, 1996 may continue to purchase Z Class shares of any Mutual Series fund. Shareholders of the Z Class shares may also exchange into Advisor Class shares of other Franklin Templeton mutual funds if otherwise meeting the Advisor Class shares' eligibility requirements. Alternatively, Z Class shareholders may exchange into Class A shares of other Franklin Templeton mutual funds at net asset value, which are subject to 12b-1 fees. FTDI may make a payment out of its own resources to a broker/dealer involved in selling Z Class shares. Our non-U.S.-registered funds, including the Tax Class shares offered in Canada, have various sales charges and fee structures that are not discussed in this report. The distribution agreements with the funds generally provide for FTDI to pay commission expenses for sales of fund shares to broker/dealers. These broker/dealers receive various sales commissions and other fees from FTDI, including fees from investors and the funds, for services in matching investors with funds whose investment objectives match such investors' goals and risk profiles. Broker/dealers may also receive fees for their assistance in explaining the operations of the funds, in servicing the investor's account, reporting and various other distribution services. Franklin Templeton mutual fund shares are sold primarily through a large network of independent intermediaries, including broker/dealers, banks and other similar investment advisers. We are heavily dependent upon these distribution channels and business relationships. There is increasing competition for access to these channels, which has caused our distribution costs to rise and could cause further increases in the future as competition continues and service expectations increase. As of September 30, 2002, over 4,000 local, regional and national securities brokerage firms offered shares of the U.S.-registered Franklin Templeton mutual funds for sale to the investing public. In the U.S., we have approximately 85 general wholesalers and 8 retirement plan wholesalers who interface with the broker/dealer community. Most of the U.S.-registered Franklin Templeton mutual funds, with the exception of certain Franklin Templeton money market funds, have adopted distribution plans (the "Plans") under Rule 12b-1 promulgated under the '40 Act ("Rule 12b-1"). The Plans are established for an initial term of one (1) year and, thereafter, must be approved annually by the particular fund's board of directors and by a majority of its disinterested fund directors/trustees. All such Plans are subject to termination at any time by a majority vote of the disinterested directors or by the particular fund shareholders. The Plans permit the funds to bear certain expenses relating to the distribution of their shares, such as expenses for marketing, advertising, printing and sales promotion. The implementation of the Plans provided for a lower fee on Class A shares acquired prior to the adoption of such Plans. Fees from the Plans are paid primarily to third-party dealers who provide service to the shareholder accounts, and engage in distribution activities. FTDI may also receive reimbursement from the funds for various expenses that FTDI incurs in distributing the funds, such as marketing, advertising, printing and sales promotion subject to the Plans' limitations on amounts. Each fund has a percentage limit for these type of expenses based on average daily net assets under management. Class B and C shares are generally more costly to us in the year of sale, but they allow us to be competitive by increasing our presence in various distribution channels. We have arranged to finance Class B and certain Class C share deferred commissions arising from our U.S., Canadian and European operations through Lightning Finance Company Limited, a company in which we have an ownership interest. The repayment of the financing advances is limited to the cash flows generated by the funds' 12b-1 Plans and by any contingent deferred sales charges collected in connection with early redemptions (within six years after purchase on Class B shares). 10 - -------------------------------------------------------------------------------- The sales commissions and payments below, payable to qualifying broker/dealers, generally apply to our U.S.-registered retail funds, however, there are exceptions to this schedule for some funds.
SALES COMMISSIONS AND OTHER PAYMENTS PAID TO QUALIFYING BROKER/DEALERS AND OTHER INTERMEDIARIES FOR MOST U.S.-REGISTERED RETAIL FUNDS U.S. RETAIL FUNDS CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R SHARES (g) - -------------------------------- --------------- ---------------- --------------- ------------------- Dealer Commission at Time of Sale Equity 5.00% 4.00% 2.00% 1.00% Fixed-income 4.00% 3.00% (b) 2.00% 1.00% - -------------------------------- --------------- ---------------- --------------- ------------------- Maximum Yearly 12b-1 Plan Fees Equity 0.25% (a) 1.00% (c) 1.00% (e) 0.35% Fixed-income 0.35% Taxable 0.25% (a) 0.65% (d) 0.65% (f) Tax-free 0.10% 0.65% (d) 0.65% (f) - -------------------------------- --------------- ---------------- --------------- -------------------
(a) The fees referenced above generally apply, however, there are certain individual funds that may apply a different fee structure, including the Rising Dividends Fund whose 12b-1 fee is 0.50%, certain equity funds whose 12b-1 fees are 0.35% and certain taxable fixed-income funds whose 12b-1 fees are 0.15%. (b) Certain fixed-income funds now pay 4.00%. (c) FTDI receives a fee equal to 0.75% and pays 0.25% to the broker/dealer on the daily average assets in the account. After 8 years from the date of the investment, Class B shares are converted into Class A shares. (d) FTDI receives a fee equal to 0.50% and pays 0.15% to the broker/dealer on the daily average assets in the account. After 8 years from the date of the investment, Class B shares are converted into Class A shares. (e) FTDI retains a fee equal to 0.75% and pays 0.25% to the dealer/broker on the average assets in the account for the first twelve (12) months following the sale, after which the full 12b-1 fee is paid to the broker/dealer. (f) FTDI retains a fee equal to 0.50% and pays 0.15% to the dealer/broker on the assets in the account for the first twelve (12) months following the sale, after which it is paid to the broker/dealer. (g) With respect to Class R Shares, dealers may be eligible to receive a 12b-1 fee of 0.35% starting in the 13th month. During the first 12 months, the full 12b-1 fee will be paid to FTDI to partially offset commission paid at the time of purchase. Starting in the 13th month, FTDI will receive 0.15%. Dealers may be eligible to receive the full 0.50% 12b-1 fee starting at the time of purchase if they forego the prepaid commission of 1%. Our various foreign subsidiaries provide underwriting and distribution services for our non-U.S.-registered open-end mutual funds, and pay various sales commissions and other payments to qualifying broker dealers and other intermediaries that are not discussed in this report. 3. SHAREHOLDER SERVICES Our subsidiary, Franklin Templeton Investor Services, LLC ("FTIS"), provides shareholder record keeping services and acts as transfer agent and dividend-paying agent for the U.S.-registered Franklin Templeton open-end funds. FTIS is registered with the SEC as a transfer agent under the Securities Exchange Act of 1934 (the " '34 Act"). FTIS is compensated under an agreement with each fund on the basis of an annual fee per account, which varies with the fund and the type of services being provided, and is reimbursed for out-of-pocket expenses. In addition, certain funds compensate FTIS based on assets under management. Other subsidiaries provide the same services to the open-end funds offered for sale in Canada, Europe and Asia under similar fee arrangements. 4. ADMINISTRATIVE SERVICES Generally, the funds themselves have no paid employees. Through our subsidiaries, including Franklin Templeton Services, LLC ("FTS"), we provide and pay the salaries of personnel who serve as officers of the Franklin Templeton mutual funds, including the President and other administrative personnel as necessary to conduct such funds' day-to-day business operations. These personnel provide information, ensure compliance with securities regulations, maintain accounting systems and controls, prepare annual reports and perform other administrative activities. FTS is compensated under an agreement with each fund on the basis of assets under management. 11 - -------------------------------------------------------------------------------- C. HIGH NET-WORTH INVESTMENT MANAGEMENT ------------------------------------ Through our subsidiary Fiduciary, and our Canadian high net-worth business unit, Bissett, we provide global investment management and market and sell our sponsored investment products to high net-worth individuals and families. These services focus on managing family wealth from generation to generation through a full service package including wealth management, estate planning, private funds, private banking, and custody services. Our high net-worth client business seeks to maintain relationships that span generations and help families plan the best method of intergenerational wealth transfer. Individual client assets are held in accounts separately managed by individual portfolio managers. These portfolio managers determine asset allocation and stock selection for client accounts, taking into consideration each client's specific long-term objectives while utilizing our macroeconomic and individual stock research. We offer clients personalized attention and estate planning expertise in an integrated package of services under the Family Resource Management(R) ("FRM") brand. Services under FRM provide clients with an integrated strategy to optimize wealth accumulation and maximize after-tax wealth transfer to the next generation. These services include advice concerning strategic planning and asset allocation, investment management, and custody and reporting. D. INSTITUTIONAL INVESTMENT MANAGEMENT ----------------------------------- We provide a broad array of investment management services to institutional clients, focusing on foundations, endowment funds and government and corporate pension funds. Our subsidiaries offer a wide range of both domestic and international equity, fixed-income and specialty products through a variety of investment vehicles, including separate and commingled accounts and open-ended domestic and offshore mutual funds. We operate our institutional business through FTI Institutional, LLC, a registered investment adviser under the Advisers Act. This entity distributes and markets our investment advisory capabilities to our institutional accounts under the Franklin, Templeton, Mutual Series, Bissett and Fiduciary brand names globally. We primarily attract new institutional business through our strong relationships with pension and management consultants and through additional mandates from our existing client relationships. During fiscal 2002, we created the Retirement Group, a division of our subsidiary FTDI, to service sponsors of defined contribution plans, including 401(k)s, bundled deferred contribution plans, variable annuity products and individual retirement accounts. This business unit will allow us to focus on expanding sales of our asset management capabilities to the retirement industry by offering a number of investment options, including sub-advised portfolios, mutual funds, education savings plans and variable insurance trusts. E. SEPARATELY MANAGED ACCOUNTS --------------------------- Through our subsidiaries, Franklin Private Client Group, Inc. ("FPCG"), a registered investment adviser, and Templeton Private Client Group ("TPCG"), a division of Templeton/Franklin Investment Services, Inc. ("TFIS"), we provide private portfolio management services and advisory services through third party broker/dealer wrap fee programs. Our subsidiary, TFIS, also serves as a direct marketing broker/dealer for institutional investors in the Franklin Templeton mutual funds. Through our various subsidiaries, we also market and distribute our sponsored investment products to individually managed and separate accounts. F. TRUST AND CUSTODY ----------------- Our subsidiary, Fiduciary, provides trust and custody business including global master custody and support services to high net-worth and institutional clients. Through various trust company subsidiaries, including Fiduciary, we offer a wide range of investment-related services, including, custody and administration, trust services, estate planning, tax planning, securities brokerage, trade clearance and private banking to high net-worth individuals, families and institutional clients in the U.S. and abroad. In addition to custody services, 12 - -------------------------------------------------------------------------------- we also offer clients with a series of other services, including foreign exchange, performance measurement, securities lending and brokerage services. We provide planned giving administration for non-profit organizations and related custody services, including pooled income funds, charitable remainder trusts, charitable lead trusts and gift annuities, for which we may or may not act as trustee. Our other subsidiaries involved in the trust business, either as trust companies or companies investing in trust companies, include Fiduciary Investment Corporation, an investment company incorporated under New York State Banking Law and an indirect holding company for many of the trust company subsidiaries; Fiduciary Trust International of the South, a Florida state-chartered limited purpose trust company; Fiduciary Trust International of California, a California state-chartered limited purpose trust company; Fiduciary Trust International of Delaware, a Delaware state-chartered limited purpose trust company; FTI-Banque Fiduciary Trust, a Swiss bank based in Geneva, Switzerland; FTCI (Cayman) Ltd., an offshore trust company licensed as a bank and trust company (with a type "B" license) in the Cayman Islands; and Franklin Templeton Bank & Trust, F.S.B. ("FTB&T"). All of the trust companies referenced above have full trust power. FTB&T, among other things, exercises full trust powers and serves primarily as custodian of Individual Retirement Accounts ("IRA") and business retirement plans. G. SUMMARY OF OUR SPONSORED INVESTMENT PRODUCTS -------------------------------------------- Our sponsored investment products are offered to retail, institutional, high net-worth and separate accounts, which include individual investors, qualified groups, trustees, tax-deferred (such as IRAs) or money purchase plans, employee benefit and profit sharing plans, trust companies, bank trust departments and institutional investors in over 128 countries. 1. INVESTMENT OBJECTIVES The sponsored investment products that we offer accommodate a variety of investment goals, including growth, growth at a reasonable price, value, capital appreciation, growth and income, income, tax-free income and preservation of capital. In seeking to achieve such objectives, each portfolio emphasizes different investment securities. Our equity investment products include some that are value-oriented, others that reflect a growth style of investing and some that use a combination of growth and value. Value investing focuses on identifying companies which our research analysts and portfolio managers believe are undervalued based on a number of factors. Portfolios that seek capital appreciation invest primarily in equity securities in a wide variety of international and U.S. markets; some seek broad national market exposure, while others focus on narrower sectors such as precious metals, health care, emerging technology, large-cap companies, small-cap companies, real estate securities and utilities. Growth investing relies on the review of macro-economic, industry and sector trends to identify companies that exhibit superior growth potential relative to industry peers and the broad market. Unlike other management styles that focus on short-term market trends, our growth portfolio investment management team invests in companies demonstrating long-term growth potential, based mainly on proprietary in-house analysis and research. Portfolios seeking income generally focus on taxable and tax-exempt money market instruments, tax-exempt municipal bonds, global fixed-income securities, fixed-income debt securities of corporations and of the U.S. government and its agencies and instrumentalities such as the Government National Mortgage Association, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation, and of the various states in the U.S. Still others focus on investments in particular countries and regions, such as emerging markets. Again, we also provide investment management and related services to a number of closed-end investment companies whose shares are traded on various major U.S. and some international stock exchanges. In addition, we provide investment management, marketing and distribution services to SICAV ("Societe d' Investissement a Capital Variable") funds and umbrella unit trusts organized in Luxembourg and Ireland, 13 - -------------------------------------------------------------------------------- respectively, which are distributed in international market places, as well as to locally organized funds in various countries outside the U.S. Our sponsored investment products also include portfolios managed for some of the world's largest corporations, endowments, charitable foundations, pension funds, wealthy individuals and other institutions. We use various investment techniques to focus on specific client objectives for these specialized portfolios. 2. TYPES OF SPONSORED INVESTMENT PRODUCTS As of September 30, 2002, our U.S.-registered open-end mutual funds accounted for $148.0 billion of our assets under management. As of this date, the net assets under management of our 5 largest funds were Franklin California Tax-Free Income Fund, Inc. ($14.7 billion), Templeton Growth Fund ($11.4 billion), Franklin U.S. Government Securities Fund ($9.3 billion), Templeton Foreign Fund ($8.7 billion), and Franklin Income Fund ($8.6 billion). These 5 mutual funds represented, in the aggregate, 21.3% of our assets under management. Franklin Templeton Variable Insurance Products Trust, our insurance products trust, offers 24 funds, with assets of $6.6 billion as of September 30, 2002. The insurance product funds are available as investment options through variable insurance contracts. Most of the funds have been fashioned after some of the more popular funds offered to the general public and are managed, in most cases, by the same investment adviser. Our U.S. closed-end and interval (floating rate) funds accounted for $4.3 billion of our assets under management. Our U.S. separately managed accounts, partnership and trust accounts made up $5.1 billion of our assets under management. On a Company-wide basis, institutional separate and high net-worth accounts accounted for $58.6 billion of assets under management. In addition, $25.2 billion of our assets under management were held in foreign-based funds and open-end and closed-end accounts whose investment objectives vary, but are primarily international and global equity-oriented. The following table shows the various types of our U.S.-registered open-end mutual funds and dedicated insurance product funds as of September 30, 2002, and is categorized using the Investment Company Institute ("ICI") definitions, which are more detailed than the broad investment objective definitions used in "MD&A" and in our Consolidated Financial Statements. 14 - --------------------------------------------------------------------------------
U.S.-REGISTERED OPEN-END MUTUAL FUNDS (a) ----------------------------------------- CATEGORY NO. OF (and approximate assets NO. OF INSURANCE under management, MUTUAL PRODUCT as of September 30, 2002) INVESTMENT OBJECTIVE FUNDS FUNDS IN BILLIONS - -------------------------------------------- ------------------------------ ------------ ------------- I. EQUITY FUNDS ($75.2) - -------------------------------------------- ------------------------------ ------------ ------------- A. Capital Appreciation Funds ($16.5) Seek capital appreciation; dividends are not a primary consideration. - -------------------------------------------- ------------------------------ ------------ ------------- 1. Aggressive Growth Funds Invest primarily in common stocks of small, growth companies. 4 2 - -------------------------------------------- ------------------------------ ------------ ------------- 2. Growth Funds Invest primarily in common stocks of well-established companies. 8 2 - -------------------------------------------- ------------------------------ ------------ ------------- 3. Sector Funds Invest primarily in common stocks of companies in related fields. 8 3 - -------------------------------------------- ------------------------------ ------------ ------------- B. World Equity Funds ($38.9) Invest primarily in stocks of foreign companies. - -------------------------------------------- ------------------------------ ------------ ------------- 1. Emerging Market Funds Invest primarily in companies based in developing regions of 2 1 the world. - -------------------------------------------- ------------------------------ ------------ ------------- 2. Global Equity Funds Invest primarily in equity securities traded worldwide, including those of U.S. companies. 12 2 - -------------------------------------------- ------------------------------ ------------ ------------- 3. International Equity Funds Must invest in equity securities of companies located outside the U.S. and cannot invest in U.S. company stocks. 3 2 - -------------------------------------------- ------------------------------ ------------ ------------- 4. Regional Equity Funds Invest in companies based in a specific part of the world. 4 2 - -------------------------------------------- ------------------------------ ------------ ------------- C. Total Return Funds ($19.8) Seek a combination of current income and capital appreciation. - -------------------------------------------- ------------------------------ ------------ ------------- 1. Growth and Income Funds Invest primarily in common stocks of established companies with the potential for growth and a consistent record of dividend payments. 7 4 - -------------------------------------------- ------------------------------ ------------ ------------- II. HYBRID FUNDS ($9.5) May invest in a mix of equity, fixed-income securities and derivative instruments. - -------------------------------------------- ------------------------------ ------------ ------------- A. Asset Allocation Funds ($0.5) Invest in various asset classes including, but not limited to, equities, fixed-income securities and money market instruments. They seek high total return by maintaining precise weightings 3 1 in asset classes. - -------------------------------------------- ------------------------------ ------------ ------------- B. Income-mixed Funds ($9.0) Invest in a variety of income- producing securities, including equities and fixed-income securities. These funds seek a high level of current income without regard to capital appreciation. 1 1 -------------------------------------------- ------------------------------ ------------ ------------- (a) This table excludes separately managed accounts, trust and partnership accounts and closed-end funds. A significant number of institutional assets are invested in U.S. Open-end mutual funds and are disclosed in the table.
15 - --------------------------------------------------------------------------------
CATEGORY NO. OF (and approximate assets NO. OF INSURANCE under management, MUTUAL PRODUCT as of September 30, 2002) INVESTMENT OBJECTIVE FUNDS FUNDS IN BILLIONS - -------------------------------------------- ------------------------------ ------------ ------------- III. TAXABLE BOND FUNDS ($14.5) - -------------------------------------------- ------------------------------ ------------ ------------- A. High Yield Funds ($2.2) Invest two-thirds or more of their portfolios in lower rated U.S. corporate bonds (Baa or lower by Moody's and BBB or lower by Standard and Poor's rating services). 1 1 - -------------------------------------------- ------------------------------ ------------ ------------- B. World Bond Funds ($0.5) Invest in debt securities offered by foreign companies and governments. They seek the highest level of current income available worldwide. - -------------------------------------------- ------------------------------ ------------ ------------- 1. Global Bonds Funds: Invest in worldwide debt General securities with no stated average maturity or an average maturity of five years or more. These funds may invest up to 25% of assets in companies located in the U.S. 1 2 - -------------------------------------------- ------------------------------ ------------ ------------- 2. Global Bond Funds: Invest in debt securities Short Term worldwide with an average maturity of one to five years. These funds may invest up to 25% of assets in companies located in the U.S. 1 0 - -------------------------------------------- ------------------------------ ------------ ------------- 3. Other World Bond Funds Invest in international bond and emerging market debt funds, foreign government and corporate debt instruments. 1 0 - -------------------------------------------- ------------------------------ ------------ ------------- C. Government Bond Funds ($11.0) Invest in U.S. Government bonds of varying maturities. They seek high current income. - -------------------------------------------- ------------------------------ ------------ ------------- 1. Government Bond Funds: Invest two-thirds or more of Intermediate Term their portfolios in U.S. Government securities with an average maturity of five to ten years. Securities utilized by investment managers may change with market conditions. 0 1 - -------------------------------------------- ------------------------------ ------------ ------------- 2. Government Bond Funds: Invest two-thirds or more of Short Term their portfolios in U.S. Government securities with an average maturity of one to five years. Securities utilized by investment managers may change with market conditions. 1 0 - -------------------------------------------- ------------------------------ ------------ ------------- 3. Mortgage-backed Funds Invest two-thirds or more of their portfolios in pooled mortgage-backed securities. 3 0 - -------------------------------------------- ------------------------------ ------------ ------------- D. Strategic Income Funds ($0.7) Invest in a combination of U.S. fixed-income securities to provide a high level of current income. 2 2 - -------------------------------------------- ------------------------------ ------------ ------------- E. Corporate Bond Funds ($0.1) Short Term 1 0 - -------------------------------------------- ------------------------------ ------------ -------------
16 - --------------------------------------------------------------------------------
CATEGORY NO. OF (and approximate assets NO. OF INSURANCE under management, MUTUAL PRODUCT as of September 30, 2002) INVESTMENT OBJECTIVE FUNDS FUNDS IN BILLIONS - -------------------------------------------- ------------------------------ ------------ ------------- IV. TAX-FREE BOND FUNDS ($51.0) - -------------------------------------------- ------------------------------ ------------ ------------- A. State Municipal Bond Funds ($36.0) Invest primarily in municipal bonds issued by a particular state. These funds seek high after-tax income for residents of individual states. - -------------------------------------------- ------------------------------ ------------ ------------- 1. State Municipal Bond Funds: Invest primarily in the single- General state municipal bonds with an average maturity of greater than five years or no specific stated maturity. The income from these funds is largely exempt from federal as well as state income tax for residents of the state. 30 0 - -------------------------------------------- ------------------------------ ------------ ------------- B. National Municipal Bond Funds ($15.0) Invest primarily in the bonds of various municipal issuers in the U.S. These funds seek high current income free from federal tax. - -------------------------------------------- ------------------------------ ------------ ------------- 1. National Municipal Bond Funds: Invest primarily in municipal General bonds with an average maturity of more than five years or no specific stated maturity. 4 0 - -------------------------------------------- ------------------------------ ------------ ------------- V. MONEY MARKET FUNDS ($4.3) - -------------------------------------------- ------------------------------ ------------ ------------- A. Taxable Money Market Funds ($3.4) Invest in short-term, high-grade money market securities and must have average maturity of 90 days or less. These funds seek the highest level of income consistent with preservation of capital (i.e. maintaining a stable share price). - -------------------------------------------- ------------------------------ ------------ ------------- 1. Taxable Money Market Funds: Invest primarily in U.S. Treasury Government obligations and other financial instruments issued or guaranteed by the U.S. Government, its agencies or its instrumentalities. 2 0 - -------------------------------------------- ------------------------------ ------------ ------------- 2. Taxable Money Market Funds: Invest in a variety of money Non-government market instruments, including certificates of deposit from large banks, commercial paper and bankers' acceptances. 5 1 - -------------------------------------------- ------------------------------ ------------ ------------- B. Tax-Exempt Money Market Funds ($0.9) Invest in short-term municipal securities and must have average maturities of 90 days or less. These funds seek the highest level of income - free from federal and, in some cases, state and local taxes - consistent with preservation of capital. - -------------------------------------------- ------------------------------ ------------ ------------- 1. National Tax-Exempt Money Market Invest primarily in short-term Funds securities of various U.S. municipal issuers. 1 0 - -------------------------------------------- ------------------------------ ------------ ------------- 2. State Tax-Exempt Money Market Invest primarily in short-term Funds securities of municipal issuers in a single state to achieve the highest level of tax-free income for residents of that state. 2 0 - -------------------------------------------- ------------------------------ ------------ ------------- 17 - -------------------------------------------------------------------------------------------------------
The following table sets forth the types of our non-U.S. open-end mutual funds as of September 30, 2002 and is categorized by investment objectives and sales region.
NON-U.S. OPEN-END MUTUAL FUNDS (a) ---------------------------------- CATEGORY (and approximate assets NO. OF under management, MUTUAL FUNDS as of September 30, 2002) INVESTMENT OBJECTIVE BY SALES REGION IN BILLIONS - ------------------------------------------ ---------------------------- ------------------ ------- I. EQUITY FUNDS ($14.5) - ------------------------------------------ ---------------------------- ------------------ ------- A. Global/International Equity ($13.6) Invest in equity Asia Pacific: 37 securities of companies Canada: 18 traded worldwide, UK/Europe: 32 including foreign and U.S. companies. - ------------------------------------------ ---------------------------- ------------------ ------- B. Domestic (U.S.) Equity ($0.9) Invest in equity securities Canada: 4 of U.S.companies. UK/Europe: 12 - ------------------------------------------ ---------------------------- ------------------ ------- II. FIXED-INCOME FUNDS ($5.2) - ------------------------------------------ ---------------------------- ------------------ ------- A. Global/International Invest worldwide in debt Asia Pacific: 28 Fixed-Income ($1.9) securities offered by Canada: 5 foreign companies and UK/Europe: 7 governments. These funds may invest assets in debt securities offered by companies located in the U.S. - ------------------------------------------ ---------------------------- ------------------ ------- B. Domestic Fixed-Income ($3.3) Invest in debt securities Asia Pacific: 1 offered by U.S. companies UK/Europe: 3 and the U.S. government and/or municipalities located in the U.S. - ------------------------------------------ ---------------------------- ------------------ ------- III. HYBRID FUNDS ($0.7) May invest in a mix of Asia Pacific: 17 global equity, Canada: 7 fixed-income securities UK/Europe: 4 and derivative instruments. - ------------------------------------------ ---------------------------- ------------------ ------- IV. TAXABLE MONEY FUNDS ($1.5) Invest in short term high Asia Pacific: 7 grade money market Canada: 3 securities issued or UK/Europe: 2 guaranteed by domestic or global governments or agencies. - ------------------------------------------ ---------------------------- ------------------ -------
(a) Does not include the Franklin Templeton Global Fund, the Fiduciary Emerging Markets Bond Fund, nor fund-of-funds mutual funds. For purposes of this table, we consider the sales region to be where a fund is based and primarily sold and not necessarily the region where a particular fund is invested. Many funds are also distributed across different sales regions (e.g. SICAV funds are based, primarily sold in and therefore considered to be within the U.K./Europe sales region, although also distributed in the Asia Pacific sales region), but are only designated a single sales region in the table. 3. FUND INTRODUCTIONS, MERGERS AND LIQUIDATIONS From time to time, as market conditions or investor demand warrants, we introduce new funds, merge existing funds or liquidate existing funds. During the fiscal year ended September 30, 2002, we added and introduced a number of funds both within the U.S. and internationally. In the U.S., we expanded our product line by launching new funds and share classes, including those targeted to our institutional clients. We introduced a new R share class for our retirement business in the U.S. We also added two donor-advised fund alternatives for our clients, including one for Franklin Templeton retail clients and the other for high net-worth clients of our subsidiary, Fiduciary. Internationally, through our indirect wholly-owned investment management and advisory subsidiaries and joint ventures, we continued to expand our business in and launched new funds and investment products to target country specific markets. Through our acquisition of Pioneer, we not only added new funds and investment products in India, but also became that country's largest non-Indian mutual fund manager. In Canada, we added new wrap investment portfolios and launched a series of funds known as the Quotential Program, which consists of fund-of-fund mutual funds. In other parts of Asia, including Korea, Japan and 18 - -------------------------------------------------------------------------------- Singapore, we launched a variety of fixed-income and hybrid funds. In Europe, we introduced funds in, among other regions, Ireland, the United Kingdom, Germany, Sweden, Switzerland and France. We also added an additional share class for our Luxembourg-domiciled SICAV funds and a Euro-denominated share class of the Mutual European Fund. During the fiscal year ended September 30, 2002, the following fund mergers and liquidations took place: 3 variable annuity funds merged into other variable annuity funds; 4 FTI Funds were merged into 3 Franklin Funds and 1 Templeton Fund; 2 Dublin-domiciled FTI Funds were liquidated; 2 closed-end funds were merged into 1 open-end fund and 1 closed-end fund was merged into another closed-end fund. II. BANKING/FINANCE OPERATIONS -------------------------- Our secondary business segment is banking/finance, which offers select retail, consumer, private banking and credit related services. Our subsidiary, Fiduciary, is a New York state chartered bank and provides private banking services primarily to high net-worth clients who maintain trust, custody and or investment management accounts with Fiduciary. Fiduciary's private banking and credit products include, among others, loans secured by marketable securities, foreign exchange services, deposit accounts and other credit services. As discussed in Investment Management and Related Services, Fiduciary also offers investment management, trust and estate, custody and related services to institutional accounts and high net-worth individuals and families. Franklin Capital Corporation ("FCC") is a subsidiary of FRI, which was formed to expand our lending activities related primarily to the purchase, securitization and servicing of retail installment sales contracts ("automobile contracts") originated by independent automobile dealerships. FCC, headquartered in Utah, conducts its business primarily in the Western region of the U.S. and is a finance company organized and licensed under the laws of Utah. As of September 30, 2002, FCC's total assets included $103 million of outstanding automobile contracts. During fiscal 2002, FCC securitized approximately $544.8 million of automobile contract receivables for which it maintains servicing rights. FCC continues to service $530.9 million of receivables that have been securitized to date. See Note 6 in the Notes to the Financial Statements. Our securitized consumer receivables business is subject to marketplace fluctuation and competes with businesses with significantly larger portfolios. Auto loan and credit card portfolio losses can be influenced significantly by trends in the economy and credit markets which reduce borrowers' ability to repay loans. A more detailed analysis of loan losses and delinquency rates in our consumer lending and dealer auto loan business is contained in Note 5 in the Notes to the Financial Statements. Our subsidiary Franklin Templeton Bank & Trust, F.S.B. ("FTB&T"), with total assets of $192.3 million, as of September 30, 2002, provides FDIC insured deposit accounts and general consumer loan products such as credit card loans, fund-secured loans and auto loans. FTB&T (formerly known as Franklin Bank) became chartered as a federal savings bank on May 1, 2000 when the Office of Thrift Supervision approved FTB&T's application to convert from a California state banking charter to a Federal thrift charter. Immediately following the conversion of FTB&T's state charter to a federal thrift charter, Franklin Templeton Trust Company, a California chartered trust company, was merged into FTB&T and continues to perform its prior activities as a division of FTB&T. Our other banking subsidiaries include, FTI-Banque Fiduciary Trust, a Swiss bank based in Geneva, Switzerland, which provides an array of private banking trust and investment services to clients outside of the U.S., and FTCI (Cayman) Ltd., a licensed bank and trust company in the Cayman Islands. REGULATORY CONSIDERATIONS Virtually all aspects of our business, including those conducted through our various subsidiaries, are subject to various federal, state, and foreign regulation, and supervision. Domestically, we are subject to regulation and supervision by, among others, the SEC, the National Association of Securities Dealers ("NASD"), the 19 - -------------------------------------------------------------------------------- Federal Reserve Board (the "FRB"), the Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift Supervision and the New York State Banking Department. Globally, we are subject to regulation and supervision by, among others, the Ontario and Alberta Securities Commissions in Canada, the Monetary Authority of Singapore, the Financial Services Authority in the United Kingdom, the Central Bank of Ireland, the Securities and Futures Commission of Hong Kong, the Korean Ministry of Finance and Economy and the Financial Supervisory Commission in Korea, and the Securities Exchange Board of India. The Advisers Act imposes numerous obligations on our subsidiaries, which are registered as investment advisers, including record keeping, operating and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The '40 Act imposes similar obligations on the investment companies that are advised by our subsidiaries. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act and the '40 Act, ranging from fines and censure to termination of an investment adviser's registration. FRI and many of the investment companies advised by our various subsidiaries are also subject to the recently enacted Sarbanes-Oxley Act of 2002. Since 1993, the NASD Conduct Rules have limited the amount of aggregate sales charges which may be paid in connection with the purchase and holding of investment company shares sold through brokers. The effect of the rule might be to limit the amount of fees that could be paid pursuant to a fund's 12b-1 Plan to FTDI, our principal underwriting and distribution subsidiary, which earns underwriting commissions on the distribution of fund shares in the U.S. Such limitations would apply in a situation where a fund has no, or limited, new sales for a prolonged period of time. None of the Franklin Templeton mutual funds are in, or close to, that situation at the present time. Following the acquisition of Fiduciary, in fiscal 2001, the Company became a bank holding company under the BHC Act and is subject to supervision and regulation by the FRB. Pursuant to the GLB Act, as a qualifying bank holding company, we also became a financial holding company, which enables us to affiliate with a far broader range of financial companies than had previously been permitted for bank holding companies. Permitted affiliates include securities brokers, underwriters and dealers, investment managers, mutual fund distributors, insurance companies and companies engaged in other activities that are "financial in nature or incidental thereto" or "complementary" to a financial activity. The FRB has issued interim rules specifying that organizing, sponsoring, and managing a mutual fund are activities that are permissible for financial holding companies under certain guidelines. A bank holding company may elect to become a financial holding company if, as in our case, each of its subsidiary banks and other depository institution subsidiaries is well capitalized, is well managed and has at least a "satisfactory" rating under the Community Reinvestment Act (the "CRA"). The FRB may impose limitations, restrictions, or prohibitions on the activities or acquisitions of a financial holding company if the FRB believes that the Company does not have the appropriate financial and managerial resources to commence or conduct an activity, make an acquisition, or retain ownership of a company. The GLB Act establishes the FRB as the umbrella supervisor for financial holding companies and adopts an administrative approach to regulation that requires the FRB to defer to the actions and requirements of the U.S. "functional" regulators of subsidiary broker/dealers, investment advisers, investment companies, insurance companies, and other regulated non-depository institutions. FRB policy provides that, as a matter of prudent banking, a bank holding company generally should not pay dividends unless its net income is sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be consistent with the capital needs, asset quality and overall financial condition of the holding company and its bank and thrift institution subsidiaries. As we are a bank holding company, this policy may be applied to us even though we are also a financial holding company. Almost every aspect of the operations and financial condition of our banking and thrift subsidiaries are subject to extensive regulation and supervision and to various requirements and restrictions under Federal and state law, including requirements governing capital adequacy, management practices, liquidity, branching, earnings, loans, dividends, investments, reserves against deposits, and the provision of services. Under Federal law, a depository institution is prohibited from paying a dividend if the depository institution 20 - -------------------------------------------------------------------------------- would thereafter be "undercapitalized" as determined by the Federal bank regulatory agencies. The relevant Federal banking regulatory agencies, and the state banking regulatory agencies, also have authority to prohibit a bank or a bank holding company from engaging in what, in the opinion of the regulatory body, constitutes an unsafe or unsound practice. Each of our banking subsidiaries is subject to restrictions under Federal law that limit transactions with FRI and its non-bank subsidiaries, including loans and other extensions of credit, investments or asset purchases. These and various other transactions, including any payment of money to FRI and its non-bank subsidiaries, must be on terms and conditions that are, or in good faith would be, offered to companies that are not affiliated with these companies. Federal banking agencies are required to take prompt supervisory and regulatory actions with respect to institutions that do not meet minimum capital standards. There are five defined capital tiers, the highest of which is "well capitalized." A depository institution is generally prohibited from making capital distributions, including paying dividends, or paying management fees to a holding company if the institution would thereafter be undercapitalized. Undercapitalized institutions may not accept, renew or roll over brokered deposits. To remain a financial holding company, each company's banking subsidiaries must be well capitalized and well managed. As of September 30, 2002, our bank and thrift subsidiaries continued to be considered "well capitalized" and "well managed". See "MD&A". The FRB has adopted various capital guidelines for bank holding companies. The GLB Act authorizes the FRB to establish consolidated capital requirements for financial holding companies. The GLB Act prohibits the FRB from imposing capital requirements on functionally regulated non-bank subsidiaries of a financial holding company, such as broker/dealers and investment advisers. The FRB has not published consolidated capital requirements specific to financial holding companies, but may do so in the future. The Federal banking agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements could subject FRI, our thrift and banking subsidiaries, as well as officers, directors and other so-called "institution-affiliated parties" of these organizations, to administrative sanctions and potentially substantial civil money penalties. In addition, the appropriate Federal banking agency may appoint the FDIC as conservator or receiver for a banking institution, or the FDIC may appoint itself if any one or more of a number of circumstances exist. COMPETITION The financial services industry is highly competitive and has increasingly become a global industry. There are approximately 8,300 open-end investment companies of varying sizes, investment policies and objectives whose shares are being offered to the public in the U.S. Due to our international presence and varied product mix, it is difficult to assess our market position relative to other investment managers on a worldwide basis, but we believe that we are one of the more widely diversified investment managers in the U.S. We believe that our equity and fixed-income asset mix coupled with our global presence will serve our competitive needs well over the long term. We continue to focus on service to customers, performance of investment products and extensive marketing activities with our strong broker/dealer and other financial institution distribution network as well as high net-worth customers. We face strong competition from numerous investment management, stock brokerage and investment banking firms, insurance companies, banks, savings and loan associations and other financial institutions, which offer a wide range of financial and investment management services to the same institutional accounts, separate accounts and high net-worth customers that we are seeking to attract. In recent years, there has been a trend of consolidation in the financial services industry, resulting in stronger competitors with greater financial resources than us. We rely largely on intermediaries to sell and distribute Franklin Templeton mutual fund shares. In addition to offering our products, many of these intermediaries also have mutual funds under their own names that compete directly with our products. These intermediaries could decide to limit or restrict the sale of our 21 - -------------------------------------------------------------------------------- fund shares, which could lower our future sales and cause our revenues to decline. We have and continue to pursue sales relationships with all types of intermediaries to broaden our distribution network. We have experienced increased costs related to maintaining our distribution channels and we anticipate that this trend will continue. We have implemented an award winning Internet platform to compete with the rapidly developing and evolving capabilities being offered with this technology. Together with several large financial services companies, we made a capital investment in the development of an industry-wide Internet portal, known as Advisorcentral.com, which provides our broker, dealer and investment advisor customers with the ability to view their clients' holdings using one log-in ID. As investor interest in the mutual fund industry has increased, competitive pressures have increased on sales charges of broker/dealer distributed funds. We believe that, although this trend will continue, a significant portion of the investing public still relies on the services of the broker/dealer or financial adviser community, particularly during weaker market conditions. We believe that we are well positioned to deal with changes in marketing trends as a result of our already extensive advertising activities and broad based marketplace recognition. We conduct significant advertising and promotional campaigns through various media sources to promote brand recognition. We advertise in major national financial publications, as well as on radio and television to promote brand name recognition and to assist our distribution network. Such activities included purchasing network and cable programming, sponsorship of sporting events, and extensive newspaper and magazine advertising. Diverse and strong competition affects the banking/finance segment of our business as well, and limits the fees that can be charged for our services. For example, in the banking segment we compete with many types of institutions for consumer loans, including the finance subsidiaries of large automobile manufacturers, which have offered special incentives to stimulate automobile sales, including no-interest loans. These product offerings by our competitors limit the interest rates that we can charge on consumer loans. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Information on our operations in various geographic areas of the world and a breakout of business segment information is contained in Note 9 in the Notes to the Consolidated Financial Statements. INTELLECTUAL PROPERTY We have used, registered, and/or applied to register certain trademarks and service marks to distinguish our sponsored investment products and services from those of our competitors in the U.S. and in foreign countries and jurisdictions, including Franklin(R), Templeton(R), Bissett(R), Mutual Series(R), and FiduciaryTM. We enforce our trademark, service mark and trade name rights in the U.S. and abroad. EMPLOYEES As of September 30, 2002, we employed approximately 6,700 employees in our offices located in 28 countries. We consider our relations with our employees to be satisfactory. 22 - -------------------------------------------------------------------------------- ITEM 2. PROPERTIES We conduct our worldwide operations using a combination of leased and owned facilities. While we believe we have sufficient facilities to conduct business during fiscal 2003, we will continue to lease, acquire and dispose of facilities throughout the world as necessary. We lease space domestically in California, Delaware, Florida, New Jersey, New York, Utah and the District of Columbia, and internationally in Abu Dhabi, Australia, Belgium, Brazil, Canada, England, France, Germany, Holland, Hong Kong, India, Italy, Japan, Korea, Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, and Turkey. As of September 30, 2002, we leased and occupied approximately 1.68 million square feet of space. We also subleased to third parties a total of 0.4 million square feet of space. In addition, we own 6 buildings near Sacramento, California, as well as 5 buildings in St. Petersburg, Florida, 2 buildings in Nassau, Bahamas, as well as space in office buildings in Argentina, China and Singapore. The buildings we own consist of approximately 1.06 million square feet. Since we operate on a unified basis, corporate activities, fund related activities, accounting operations, sales, real estate and banking operations, auto loans and credit cards, management information system activities, publishing and printing operations, shareholder service operations and other business activities and operations take place in a variety of such locations. In fiscal 2002 we sold two of our buildings, one located in St. Petersburg, Florida for $7 million and one located in Rancho Cordova, California for $10 million. We lease our corporate headquarters in San Mateo, California from a lessor trust under an operating lease that expires in fiscal 2005. In connection with this lease, we are contingently liable for approximately $145 million in residual guarantees, representing approximately 85% of the total construction costs of $170 million. The lease includes renewal options that can be exercised at the end of the initial lease period, and purchase options that can be exercised prior to the expiration of the lease term. We are monitoring the project of the Financial Accounting Standards Board to address accounting for special purpose entities to determine the effect, if any, it may have on our treatment of the owner-lessor trust described above. ITEM 3. LEGAL PROCEEDINGS There have been no material developments in the litigation previously reported in our Form 10-Q for the period ended June 30, 2002 as filed with the SEC on August 12, 2002. We are involved from time to time in litigation relating to claims arising in the normal course of business. Management is of the opinion that the ultimate resolution of such claims will not materially affect our business or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders. 23 - -------------------------------------------------------------------------------- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS INFORMATION ABOUT OUR COMMON STOCK Our common stock is traded on the New York Stock Exchange ("NYSE") and the Pacific Exchange under the ticker symbol "BEN", and the London Stock Exchange under the ticker symbol "FKR." On September 30, 2002, the closing price of FRI's common stock on the NYSE was $31.10 per share. At December 3, 2002, there were approximately 5,100 shareholders of record. Based on nominee solicitation, we believe that there are approximately 23,000 beneficial shareholders whose shares are held in street name. The following table sets forth the high and low sales prices for our common stock on the NYSE.
2002 FISCAL YEAR 2001 FISCAL YEAR ---------------- ---------------- QUARTER HIGH LOW HIGH LOW - ------------------------------ --------------- ---------------- ------------------ ---------------- October-December $37.85 $30.85 $45.50 $34.00 January-March $44.15 $34.52 $48.30 $34.20 April-June $44.48 $39.45 $47.40 $36.05 July-September $43.15 $29.52 $46.07 $31.65
We declared dividends of $0.28 per share in fiscal 2002 and $0.26 per share in fiscal 2001. We expect to continue paying dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors. ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS (in millions, except assets under management, per share amounts and employee headcount) AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Operating Revenues $2,518.5 $2,354.8 $2,340.1 $2,262.5 $2,577.3 Net Income 432.7 484.7 562.1 426.7 500.5 FINANCIAL DATA Total Assets 6,422.7 6,265.7 4,042.4 3,666.8 3,480.0 Long-Term Debt 595.1 566.0 294.1 294.3 494.5 Stockholders' Equity 4,266.9 3,977.9 2,965.5 2,657.0 2,280.8 Operating Cash Flow 736.8 553.2 701.7 584.5 693.7 ASSETS UNDER MANAGEMENT (in billions) Period Ending 247.8 246.4 229.9 218.1 208.6 Simple Monthly Average 263.2 243.4 227.7 219.8 226.9 PER COMMON SHARE Earnings Basic 1.66 1.92 2.28 1.69 1.98 Diluted 1.65 1.91 2.28 1.69 1.98 Cash Dividends 0.28 0.26 0.24 0.22 0.20 Book Value 16.50 15.25 12.17 10.59 9.06 EMPLOYEE HEADCOUNT 6,711 6,868 6,489 6,650 8,678 - -------------------------------------------------------------------------------------------------
24 - -------------------------------------------------------------------------------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS In this section, we discuss our results of operations and our financial condition. We also make some statements relating to the future which are called "forward-looking statements." Although we do our best to make clear and accurate forward-looking statements, the actual results and outcomes could differ significantly from those that we discuss in this document. For this reason, you should not rely too heavily on these forward-looking statements and should review the "Risk Factors" section, where we discuss these statements in more detail. GENERAL We derive the majority of our operating revenues, operating expenses and net income from providing investment advisory and related services to retail mutual funds, institutional, high net-worth and private accounts, and other investment products. This is our main business activity and operating segment. The mutual funds and other products that we advise, collectively called our sponsored investment products, are distributed to the public globally via five distinct names: * Franklin * Templeton * Mutual Series * Fiduciary Trust * Bissett Our sponsored investment products include a broad range of domestic and global/international equity, hybrid, fixed-income and money market mutual funds, as well as other investment products that meet a wide variety of specific investment needs of individuals and institutions. The level of our revenues depends largely on the level and relative mix of assets under management. To a lesser degree, our revenues also depend on the level of mutual fund sales and the number of mutual fund shareholder accounts. The fees charged for our services are based on contracts with our sponsored investment products or our clients. These arrangements could change in the future. Our secondary business and operating segment is banking/finance. Our banking/finance group offers selected retail-banking services to high net-worth individuals, foundations and institutions and consumer lending. At September 30, 2002, we employed approximately 6,700 people in 28 countries serving customers on six different continents. RESULTS OF OPERATIONS The table below presents the highlights of our operations for the last three fiscal years. 2002 2001 (in millions except per share amounts) 2002 2001 2000 vs 2001 vs 2000 - ------------------------------------------------------------------------------------------------- NET INCOME $432.7 $484.7 $562.1 (11)% (14)% EARNINGS PER COMMON SHARE Basic $1.66 $1.92 $2.28 (14)% (16)% Diluted $1.65 $1.91 $2.28 (14)% (16)% OPERATING MARGIN 23% 22% 28% -- -- EBITDA MARGIN /1/ 30% 33% 36% -- -- - -------------------------------------------------------------------------------------------------
/1/ EBITDA margin is earnings before interest, taxes on income, depreciation and the amortization of intangibles divided by total revenues. The effect of the September 2002 $60.1 million other-than-temporary decline in investments value is excluded from EBITDA. Our September 2002 EBITDA margin, including other-than-temporary decline in investments value, is 28%. Net income decreased by 11% and diluted earnings per share decreased by 14% in fiscal 2002 mainly due to lower investment and other income related to an other-than-temporary decline in the value of certain investments and increased operating expenses, partially offset by higher revenues. Net income decreased by 25 - -------------------------------------------------------------------------------- 14% and diluted earnings per share decreased by 16% in fiscal 2001, mainly due to increased operating expenses offset by slightly higher revenue and investment income.
ASSETS UNDER MANAGEMENT (in billions) 2002 2001 AS OF SEPTEMBER 30, 2002 2001 2000 vs 2001 vs 2000 - ------------------------------------------------------------------------------------------------- EQUITY Global/international $76.5 $80.2 $97.6 (5)% (18)% Domestic (U.S.) 41.4 44.5 53.9 (7)% (17)% - --------------------------------------------------------------------------------------------------------------- TOTAL EQUITY 117.9 124.7 151.5 (5)% (18)% HYBRID 36.6 36.1 9.3 1% 288% FIXED-INCOME Tax-free 52.8 48.4 44.0 9% 10% Taxable Domestic (U.S.) 26.1 24.4 15.6 7% 56% Global/international 8.6 7.2 4.2 19% 71% - --------------------------------------------------------------------------------------------------------------- TOTAL FIXED-INCOME 87.5 80.0 63.8 9% 25% MONEY 5.8 5.6 5.3 4% 6% - --------------------------------------------------------------------------------------------------------------- TOTAL $247.8 $246.4 $229.9 1% 7% - ------------------------------------------------------------------------------------------------- Simple monthly average for the year /2/ $263.2 $243.4 $227.7 8% 7% - -------------------------------------------------------------------------------------------------
/2/ Investment management fees from approximately 50% of our assets under management at September 30, 2002 are calculated using daily average assets under management. Our assets under management at September 30, 2002 were $247.8 billion, 1% higher than a year ago. The simple monthly average value of these assets during fiscal 2002 was $263.2 billion as compared to $243.4 billion in fiscal 2001, an 8% increase. The year over year change in simple monthly average assets under management generally is more indicative of investment management fee revenue trends than the year over year change in year-end assets. The mix of assets under management is shown below, followed by industry data showing average effective investment management fees using data from Lipper(R) Inc. Our actual effective fee rates may vary from these rates.
AS OF SEPTEMBER 30, 2002 2001 2000 - -------------------------------------------------------------------------------------------------- PERCENTAGE OF TOTAL ASSETS UNDER MANAGEMENT Equity 48% 51% 66% Fixed-income 35% 32% 28% Hybrid 15% 15% 4% Money 2% 2% 2% - -------------------------------------------------------------------------------------------------- Total 100% 100% 100% - --------------------------------------------------------------------------------------------------
26 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------- EQUITY HYBRID FIXED-INCOME MONEY ----------------------- ------ ----------------------------------- ----- TAXABLE- TAXABLE - GLOBAL/ DOMESTIC TAX DOMESTIC GLOBAL/ INTERNATIONAL (U.S.) -FREE (U.S.) INTERNATIONAL - -------------------------------------------------------------------------------------------------------- Industry effective investment management fee rates as of September 30, 2002 /3/ 0.71% 0.55% 0.45% 0.43% 0.43% 0.59% 0.27% - ---------------------------------------------------------------------------------------------------------
/3/ Calculated by Franklin Templeton Investments based on asset-weighted averages of management fee rates provided by Lipper(R) Inc. Industry effective investment management fee rates are calculated using all U.S.-based, open-ended funds that reported expense data to Lipper(R) Inc. as of the funds' most recent annual report date, and for which management fee rates were greater or equal to zero. Industry effective fee rates reflect the investment management expenses of retail and institutional funds drawn from all distribution channels, without exception. The averages reflect combined retail and institutional funds data and include all share classes, and all distribution channels, without exception. Variable annuities are not included. The change in the mix of assets under management was largely due to the inclusion of the assets under management of Fiduciary Trust Company International ("Fiduciary") beginning in fiscal 2001 and the market depreciation in equity assets in 2002 and 2001. Approximately 64% of Fiduciary's assets under management were classified as hybrid assets at the time of acquisition in April 2001. This change in mix lowered our overall effective fee rate on assets managed, as a greater percentage of assets under management are in the fixed-income and hybrid categories which generally carry a lower management fee than equity assets. The effective investment management fee rate (investment management fees divided by simple monthly average assets under management) declined to 0.56% for the 2002 fiscal year compared to 0.58% in fiscal 2001 and 0.61% in fiscal 2000. At September 30, 2002 assets under management by shareholder location were as follows: UNITED ASIA/PACIFIC (in billions) STATES CANADA EUROPE AND OTHER TOTAL - --------------------------------------------------------------------------------------------------- Assets Under Management $209.4 $17.3 $9.6 $11.5 $247.8 - ---------------------------------------------------------------------------------------------------
Investors in the United States own approximately 85% of our assets under management and approximately 73% of our revenues originate in the United States. Investment advisory and administrative services related to these assets may be provided in jurisdictions outside the United States in accordance with contractual arrangements with our sponsored investment products. The components of the change in our assets under management were as follows:
(in billions) 2002 2001 YEAR ENDED SEPTEMBER 30, 2002 2001 2000 vs 2001 vs 2000 - ------------------------------------------------------------------------------------------------- Beginning assets under management $246.4 $229.9 $218.1 7% 5% Sales 72.4 58.5 51.7 24% 13% Reinvested dividends 4.8 9.0 8.7 (47)% 3% Redemptions (57.5) (58.6) (62.8) (2)% (7)% Acquisitions 0.8 49.5 1.5 (98)% 3,200% (Depreciation) appreciation (19.1) (41.9) 12.7 (54)% N/A - ------------------------------------------------------------------------------------------------- Ending assets under management $247.8 $246.4 $229.9 1% 7% - -------------------------------------------------------------------------------------------------
During fiscal 2002 and 2001, our sponsored investment products experienced overall net cash inflows, including reinvested dividends, in contrast to the net cash outflows experienced in fiscal 2000. Gross product sales increased 24% while redemptions decreased 2% in 2002. Our acquisition of Pioneer ITI AMC Limited ("Pioneer"), an Indian investment management company, in July 2002 increased our assets under management by $0.8 billion as of the date of this acquisition. In 2001, the acquisition of Bissett in 27 - -------------------------------------------------------------------------------- October 2000 increased our assets under management by $3.7 billion, and the Fiduciary acquisition in April 2001 increased our assets under management by $45.8 billion, as of the dates of those acquisitions. Despite an overall decline in domestic and global equity markets in the latter half of 2002, our assets under management increased from fiscal 2001 primarily as a result of strong net sales during the year and less depreciation than in 2001. In fiscal 2001, assets under management increased mainly due to the Fiduciary and Bissett acquisitions and net inflows, partially offset by depreciation. OPERATING REVENUES The table below presents the percentage change in each revenue category between fiscal 2002 and fiscal 2001 and between fiscal 2001 and fiscal 2000.
2002 2001 AS A PERCENTAGE OF TOTAL REVENUES vs 2001 vs 2000 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------- Investment management fees 4% 1% 58% 60% 60% Underwriting and distribution fees 12% -- 31% 30% 30% Shareholder servicing fees (4)% (6)% 8% 8% 9% Other, net 86% 90% 3% 2% 1% - ------------------------------------------------------------------------------------------------------------- TOTAL OPERATING REVENUES 7% 1% 100% 100% 100% - -------------------------------------------------------------------------------------------------------------
SUMMARY In fiscal 2002, total operating revenues increased 7% over the prior year. Investment management and underwriting and distribution fees increased due to both higher net sales and higher average assets under management. We also benefited from the inclusion of Fiduciary revenues for a full fiscal year in 2002, as well as higher net gains related to auto loan securitizations included in Other, net revenue. In fiscal 2001, total operating revenues increased 1%. The acquisition of Fiduciary in April 2001 provided higher investment management fees from higher average assets under management. We also experienced higher banking revenues included in other, net offset by reduced shareholder servicing fees. INVESTMENT MANAGEMENT FEES Investment management fees, accounting for 58% of our operating revenues in fiscal 2002, include both investment advisory and administration fees. These fees are generally calculated under contractual arrangements with our sponsored investment products as a percentage of the market value of assets under management. Annual rates vary by investment objective and type of services provided. In return for these fees, we provide a combination of investment advisory, administrative and other management services. Investment management fees increased 4% in fiscal 2002 mainly due to increased net sales, which increased assets under management, and the impact of including Fiduciary for a full fiscal year. This increase was partially offset by a shift in our asset mix toward fixed-income investment products, which led to a decrease in our effective investment management fee rate. Investment management fees increased 1% in fiscal 2001 from the prior year. This increase was primarily due to the Fiduciary acquisition, which increased the simple monthly average assets under management in the latter half of the year, partially offset by a shift in our asset mix toward fixed-income and hybrid investment products, which carry lower effective fee rates. UNDERWRITING AND DISTRIBUTION FEES We earn underwriting fees from the sale of some classes of sponsored investment products on which investors pay a sales commission at the time of purchase. Sales at reduced or zero commissions are offered on some classes of shares and for sales to shareholders or intermediaries that exceed specified minimum 28 - -------------------------------------------------------------------------------- amounts. Therefore, underwriting fees will change with the overall level of gross sales and the relative mix of sales between different share classes. Our sponsored investment products pay distribution fees in return for sales, marketing and distribution efforts on their behalf. While other contractual arrangements exist in international jurisdictions, in the United States, distribution fees include 12b-1 fees. These fees are subject to maximum payout levels based on a percentage of the assets in each fund. We pay a significant portion of underwriting and distribution fees to the financial advisors and other intermediaries who sell our sponsored investment products to the public on our behalf. See the description of underwriting and distribution expenses below. Overall, underwriting and distribution fees increased 12% in fiscal 2002. Underwriting fees increased 24% consistent with a 24% increase in gross product sales and distribution fees increased 5% consistent with an 8% increase in simple monthly average assets under management. Underwriting and distribution fees remained constant in fiscal 2001 as an overall increase in product sales was offset by a greater percentage of overall sales being made at no or lower commission levels. Distribution fees also remained constant as the increase in average assets under management was related to the Fiduciary acquisition. The Fiduciary assets under management are not subject to distribution fees; therefore, these assets did not affect distribution fee income as would be expected with a year over year increase in average assets under management. SHAREHOLDER SERVICING FEES Shareholder servicing fees are generally fixed charges per shareholder account that vary with the particular type of fund and the service being rendered. In some instances, sponsored investment products are charged these fees based on the level of assets under management. We receive fees as compensation for providing transfer agency services, which include providing customer statements, transaction processing, customer service and tax reporting. In the United States, transfer agency service agreements provide that accounts closed in a calendar year remain billable through the second quarter of the following calendar year at a reduced rate. In Canada, such agreements provide that accounts closed in the previous calendar year remain billable for four months after the end of the calendar year. Accordingly, the level of fees will vary with the growth in new accounts and the level of closed accounts that remain billable. Shareholder servicing fees decreased 4% in fiscal 2002 and 6% in fiscal 2001 consistent with a decrease in the quarterly average number of billable accounts. Our acquisition of Pioneer added approximately 0.7 million shareholder accounts. OTHER, NET Other, net consists mainly of revenues from the banking/finance operating segment and Fiduciary's custody services. Revenues from the banking/finance operating segment include interest income on loans, servicing income, and investment income on banking/finance investment securities, which are offset by interest expense and the provision for anticipated loan losses. Other, net increased 86% in fiscal 2002. This increase was mainly due to the inclusion of Fiduciary's banking and custody activities for a full fiscal year in 2002 and increased gains recognized on auto loan portfolio sales. Other, net increased 90% in fiscal 2001. This increase was primarily due to the addition of the Fiduciary banking and custody activities from the date of acquisition of Fiduciary to those of Franklin Bank and Trust, F.S.B., and Franklin Capital Corporation. 29 - --------------------------------------------------------------------------------
OPERATING EXPENSES 2002 2001 AS A PERCENTAGE OF TOTAL EXPENSES vs 2001 vs 2000 2002 2001 2000 - ------------------------------------------------------------------------------------------------- Underwriting and distribution 12% 2% 37% 35% 37% Compensation and benefits 5% 15% 33% 33% 32% Information systems, technology and occupancy 12% 23% 15% 14% 13% Advertising and promotion 1% 5% 6% 6% 6% Amortization of deferred sales commissions (2)% (18)% 3% 4% 5% Amortization of intangible assets (70)% 52% 1% 3% 2% Other (2)% 7% 5% 5% 5% September 11, 2001 expense, net (100)% 100% 0% 0% N/A - ------------------------------------------------------------------------------------------------- Total operating expenses 5% 10% 100% 100% 100% - ------------------------------------------------------------------------------------------------
SUMMARY Operating expenses increased 5% during fiscal 2002. This increase was mainly due to increased underwriting and distribution fees consistent with higher underwriting and distribution revenue, and higher compensation and benefits and technology and occupancy costs primarily due to the inclusion of Fiduciary's activity for a full fiscal year in 2002. The increase in these expense categories was offset in part by a decline in amortization of intangible assets on discontinuation of the amortization of goodwill and indefinite-lived intangible assets. In fiscal 2001, operating expenses increased 10% mainly caused by increased compensation and benefits, information systems, technology and occupancy costs, the addition of the operating costs of Fiduciary, increased underwriting and distribution expenses and increased amortization of intangible assets. UNDERWRITING AND DISTRIBUTION Underwriting and distribution includes expenses paid to financial advisers and other third parties for selling, distributing and providing ongoing services to investors in our sponsored investment products. Underwriting and distribution expenses increased 12% in fiscal 2002 and 2% in fiscal 2001 consistent with similar trends in underwriting and distribution revenues. COMPENSATION AND BENEFITS Compensation and benefits increased 5% during fiscal 2002 due mainly to the inclusion of Fiduciary's activity for a full fiscal year, including retention bonuses committed to the Fiduciary staff. This increase was partially offset by an overall decline in employees as well as the decision made by management during the quarter ended December 2001 to reduce employee salaries by 5% or 10%, depending on specific salary categories. In May 2002, we reinstated salaries for employees whose salaries were reduced by 5% and, in July 2002, we reinstated employee salaries in the 10% reduction category. We employed approximately 6,700 people at September 30, 2002 compared to approximately 6,900 at the same time last year. Our acquisition of Pioneer added approximately 180 employees. In order to hire and retain our key employees, we are committed to keeping our salaries and benefit packages competitive, which means that the level of compensation and benefits may increase more quickly or decrease more slowly than our revenues. Compensation and benefits increased 15% during fiscal 2001. This increase was mainly due to the addition of approximately 790 Fiduciary employees from the date of acquisition, retention bonuses for Fiduciary employees, annual salary increases, and an increase in employee benefit and recruiting costs. 30 - -------------------------------------------------------------------------------- INFORMATION SYSTEMS, TECHNOLOGY AND OCCUPANCY Information systems, technology and occupancy costs increased 12% in fiscal 2002. This increase was mainly due to the inclusion of costs related to the outsourcing of the management of our data center and distributed server operations and added technology and occupancy costs of the Fiduciary acquisition for a full fiscal year in 2002. Information systems, technology and occupancy costs increased 23% in fiscal 2001. This increase was primarily due to continued expenditure on new technology initiatives, an investment in the technology infrastructure of the company, the charges and costs in connection with the outsourcing of the management of our data center and distributed server operations, and the added technology and occupancy costs of the Fiduciary acquisition. We also experienced an increase in occupancy costs related to our expansion in Asia, Canada, and Europe as well as costs related to the relocation to our new worldwide headquarters in San Mateo, California.
Details of capitalized information systems and technology costs were as follows: (in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------------------------- Net carrying amount at beginning of period $162,857 $156,895 $138,566 Additions during period, net of disposals and other adjustments 35,570 69,794 71,884 Net assets purchased through acquisitions 206 11,266 -- Amortization during period (77,147) (75,098) (53,555) - -------------------------------------------------------------------------------------------------- Net carrying amount at end of period $121,486 $162,857 $156,895 - --------------------------------------------------------------------------------------------------
Information systems and technology costs capitalized in fiscal 2002 were less than amounts capitalized in fiscal 2001 as we slowed down a number of initiatives, realized synergies from previous investments in technology and delayed the start of other technology projects given the current economic slowdown and our focus on cost control and management. ADVERTISING AND PROMOTION Advertising and promotion increased 1% during fiscal 2002 and 5% in fiscal 2001. Increases in both years resulted mainly from increased promotion and advertising activity to educate the sales channels and the investing public about the strong relative investment performance of our sponsored investment products. AMORTIZATION OF DEFERRED SALES COMMISSIONS Certain fund share classes, including class B, are sold without a front-end sales charge to shareholders, while at the same time, our distribution subsidiaries pay a commission on the sale. In the United States, class A shares are sold without a front-end sales charge to shareholders when minimum investment criteria are met while our U.S. distribution subsidiary pays a commission on such sales. Class C shares are sold with a front-end sales charge that is lower than the commission paid by the U.S. distributor. We defer and amortize all up-front commissions paid by our distribution subsidiaries. We have arranged to finance certain of these deferred commission assets ("DCA") arising from our U.S., Canadian and European operations through Lightning Finance Company Limited ("LFL"), a company in which we have an ownership interest. In the United States, LFL has entered into a financing agreement with our U.S. distribution subsidiary and we maintain a continuing interest in the assets until resold by LFL. As a result, we retain DCA sold to LFL under the U.S. agreement in our financial statements and amortize them over an 8-year period until resold by LFL in a securitization, which generally occurs at least once annually. LFL sold approximately $61.5 million U.S. DCA in fiscal 2002 and approximately $20.3 million U.S. DCA in fiscal 2001 in securitization transactions. In contrast to the U.S. arrangement, LFL has entered into direct agreements with the Canadian and European sponsored investment products, and, as a result, we do not record DCA from these sources in our financial statements. 31 - -------------------------------------------------------------------------------- Amortization of deferred sales commissions decreased 2% in fiscal 2002 and 18% in fiscal 2001. These changes were mainly a result of changes in sales mix and our current financing arrangements. As the balance of DCA on our balance sheet changes, so does the amortization expense. AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets decreased 70% in fiscal 2002. This decrease was due to the adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), on October 1, 2001. Under the new accounting standard, we ceased to amortize goodwill and indefinite-lived intangible assets. This resulted in a reduction in amortization expense of approximately $50 million in fiscal 2002 as compared to the prior year. We completed our impairment testing as specified in SFAS 142 in March 2002 and we determined that there was no impairment to the goodwill and indefinite-lived assets recorded in our financial statements as of October 1, 2001. Amortization of intangible assets increased 52% in fiscal 2001, due to the amortization of goodwill and other intangible assets related to the purchase of Bissett and Fiduciary. OTHER INCOME (EXPENSE) Other income (expense) includes investment and other income and interest expense. Investment and other income is comprised primarily of the following: * dividends from investments * interest income from investments in bonds and government securities * realized gains and losses on investments * foreign currency exchange gains and losses * miscellaneous income, including gain or loss on disposal of property. Other income (expense) was a net expense in fiscal 2002 mainly due to a $60.1 million other-than-temporary decline in value of some of our investments recognized in the fourth quarter of fiscal 2002. In contrast, in fiscal 2001, we recognized net realized gains of approximately $34.2 million on the sale of certain sponsored investment products held for investment purposes and other realized gains of $24.6 million related to the sale of our former headquarters building in San Mateo. Other income (expense) increased 65% in fiscal 2001 from the prior year, primarily due to net realized gains related to our sponsored investment products and the sale of our former headquarters building in San Mateo. TAXES ON INCOME Our effective income tax rate for fiscal 2002 increased to 25% compared to 24% in fiscal 2001 and 2000. As a multi-national corporation, we provide investment management services to a wide range of international investment products, often managed from locations outside the United States. Some of these jurisdictions have lower tax rates than the United States. The mix of income (primarily investment management fees) subject to these lower rates, when aggregated with income originating in the United States, produces a lower overall effective tax rate than existing U.S. Federal and state tax rates. The effective tax rate will continue to be reflective of the relative contributions of foreign earnings that are subject to reduced tax rates and that are not currently included in U.S. taxable income. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002, we had $980.6 million in cash and cash equivalents, as compared to $596.2 million at September 30, 2001. Cash and cash equivalents include cash, U.S. Treasury bills and other debt instruments with original maturities of three month or less and other highly liquid investments that are readily convertible into cash, including money market funds. The mix of short-term instruments and, in particular, the maturity schedules of some debt instruments, affect the level reported in cash and cash equivalents and in investments, available-for-sale in any given year. Liquid assets, which consist of cash and 32 - -------------------------------------------------------------------------------- cash equivalents, investments available-for-sale and current receivables increased to $2,826.0 million at September 30, 2002 from $2,273.1 million at September 30, 2001. At September 30, 2002, approximately $850 million was available to us under unused commercial paper and medium-term note programs. In addition, in fiscal 2001 we filed a shelf registration statement with the Securities and Exchange Commission permitting the issuance of debt and equity securities of up to $300 million. Our committed revolving credit facilities at September 30, 2002 totaled $420 million, of which, $210 million was under a 364-day facility. The remaining $210 million facility is under a five-year facility and will expire in June 2007. In addition, our Fiduciary subsidiary has $350 million available in uncommitted bank lines under the Federal Reserve Funds system. Our ability to access the capital markets in a timely manner depends on a number of factors including our credit rating, the condition of the global economy, investors' willingness to purchase our securities, interest rates, credit spreads and the equity market valuation levels. In extreme circumstances, we might not be able to access this liquidity readily. Outstanding debt increased to $603.0 million at September 30, 2002 compared to $574.4 million at September 30, 2001. As of September 30, 2002 outstanding debt consists of $514.2 million in principal and accrued interest related to outstanding convertible notes that we issued in May 2001 and $88.8 million of other long-term debt. As of September 30, 2001, outstanding debt included $504.7 million related to the convertible notes and $69.7 million of other long-term debt. Each of the $1,000 (principal amount at maturity) convertible notes is convertible into 9.3604 shares of our common stock. We may redeem the convertible notes for cash on or after May 11, 2006 at their accreted value. We may have to repurchase the convertible notes at their accreted value, at the option of the holders, on May 11 of 2003, 2004, 2006, 2011, 2016, 2021 and 2026. In this event, we may choose to pay the purchase price in cash or shares of our common stock. The amount of convertible notes that will be redeemed depends on, among other factors, the performance of our common stock. Other long-term debt consists primarily of deferred commission liability recognized in relation to the U.S. DCA financed by LFL that has not yet been sold by LFL in a securitization transaction. The increase in outstanding debt in fiscal 2002 is due to additional financing activity of our mutual fund Class B shares sales and the accretion of the convertible notes to maturity, partially offset by an increase in DCA sold by LFL. We have arranged with LFL for non-recourse financing of sales commissions advanced on sales of our B and C shares globally. The sales commissions that we have financed through LFL during fiscal 2002 were approximately $135.3 million compared to $84.7 million in fiscal 2001. Since September 1998, our banking/finance operating segment has entered into a number of auto loan securitization transactions with qualified special purpose entities, which then issue asset-backed securities to private investors. The outstanding loan balances held by these special purpose entities were $530.9 million as of September 30, 2002 and $210.8 million as of September 30, 2001. Our ability to access the securitization market will directly affect our plans to finance the auto loan portfolio in the future. We expect that the main uses of cash will be to: * expand our core business * make strategic acquisitions * acquire shares of our common stock * fund property and equipment purchases * pay operating expenses of the business * enhance our technology infrastructure * improve our business processes * pay shareholder dividends * repay and service debt. 33 - -------------------------------------------------------------------------------- We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through the following: * our existing liquid assets * the continuing cash flow from operations * our borrowing capacity under current credit facilities * our ability to issue debt or equity securities * our mutual fund sales commission financing arrangement. In particular, we expect to finance future investment in our banking/finance activities through operating cash flows, debt, increased deposit base, or through the securitization of a portion of the receivables from consumer lending activities. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS As described in Note 11 to the financial statements, our largest commitment at September 30, 2002 relates to our convertible debt outstanding. In addition, at September 30, 2002, the banking/finance operating segment had commitments to extend credit aggregating $281.5 million, mainly under its credit card lines. Standby letters of credit issued to Fiduciary clients totaled $7.4 million and expire through December 2003. The standby letters of credit are secured by marketable securities.
BANKING/FINANCE GROUP EARNING ASSETS --------------------------------------------------------------------- 2002 2001 ------------------------------- ------------------------------------ Average Average Average Average (in thousands) balance Interest rate balance Interest rate - ----------------------------- ---------- ---------- ---------- ----------- --------- -------------- Federal funds sold and securities purchased under agreements to resell $91,496 $1,438 1.57% $42,109 $861 2.04% Investment securities, available-for-sale 368,693 18,366 4.98% 202,540 10,569 5.22% Loans receivable /4/ 490,729 33,523 6.83% 337,662 34,296 10.16% - ----------------------------- ---------- ---------- ---------- ----------- --------- -------------- Total earning assets $950,918 53,327 5.61% $582,311 45,726 7.85% Interest-bearing deposits $814,159 9,812 1.21% $319,042 10,768 3.38% Inter-segment debt 150,566 5,415 3.60% 187,006 9,778 5.23% Federal funds purchased and securities sold under agreements to repurchase 19,233 392 2.04% 24,621 1,003 4.07% - ----------------------------- ---------- ---------- ---------- ----------- --------- -------------- Total interest bearing liabilities $983,958 15,619 1.59% $530,669 21,549 4.06% - ----------------------------- ---------- ---------- ---------- ----------- --------- -------------- Net interest income and margin $37,708 3.97% $24,177 4.15% - ----------------------------- ---------- ---------- ---------- ----------- --------- --------------
/4/ Non-accrual loans are included in the average loans receivable balance. CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that impact our financial position and results of operations. These estimates and assumptions are affected by our application of accounting policies. Below we describe certain critical accounting policies that we believe are important to understanding our results of operations and financial position. 34 - -------------------------------------------------------------------------------- In addition, please refer to Note 1 to the financial statements for further discussion of our accounting policies. Estimates, by their nature, are based on judgment and available information. Differences between actual results and these estimates could have a material impact on our financial statements. INTANGIBLE ASSETS At September 30, 2002 our assets included intangible assets as follows: (in thousands) NET CARRYING AMOUNT - -------------------------------------------------------------------------------- Goodwill $1,321,939 Intangible assets - definite-lived 221,942 Intangible assets - indefinite-lived 475,304 - -------------------------------------------------------------------------------- Total $2,019,185 - -------------------------------------------------------------------------------- Under Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", we are required to test the fair value of goodwill and indefinite-lived intangibles for impairment at least once a year. As of March 31, 2002, we completed the impairment testing of goodwill and indefinite-lived intangible assets and we determined that there was no impairment to the goodwill and indefinite-lived assets recorded in our books and records as of October 1, 2001. While we believe that our testing was appropriate, it involved the use of estimates and assumptions. Using different assumptions may have resulted in recognizing some impairment of goodwill and indefinite-lived intangible assets in our financial statements. We are also required to consider if any impairment has occurred to definite-lived intangible assets. Based on our review and evaluation, we do not believe any impairment has occurred. INCOME TAXES As a multinational corporation, we operate in various locations outside the United States. We have made no provision for U.S. taxes on $1,894 million of cumulative undistributed earnings of foreign subsidiaries as those earnings are intended to be reinvested for an indefinite period of time. Changes to our policy of reinvesting foreign earnings may have a significant effect on our financial condition and results of operation. VALUATION OF INVESTMENTS We record substantially all investments in our financial statements at fair value or amounts that approximate fair value. Where available, we use prices from independent sources such as listed market prices or broker or dealer price quotations. For investments in illiquid and privately held securities that do not have readily determinable fair values, we estimate the value of the securities based upon available information. However, even where the value of a security is derived from an independent market price or broker or dealer quote, some assumptions may be required to determine the fair value. For example, we generally assume that the size of positions in securities that we hold would not be large enough to affect the quoted price of the securities when sold, and that any such sale would happen in an orderly manner. However, these assumptions may be incorrect and the actual value realized on sale could differ from the current carrying value. We evaluate our investments for other-than-temporary decline in value. This may exist when the fair value of an investment security has been below the current value for an extended period of time. As most of our investments are carried at fair value, if an other-than-temporary decline in value is determined to exist, the unrealized investment loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income, in the period in which the other -than-temporary decline in value is determined. During fiscal 2002, we recognized $60.1 million for an other-than-temporary decline in the value of certain investments. While we believe that we have accurately estimated the amount of other-than-temporary decline in value in our portfolio, different assumptions could result in changes to the recorded amounts in our financial statements. 35 - -------------------------------------------------------------------------------- LOSS CONTINGENCIES We are involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, we consult with our legal counsel and evaluate the merits of the claim based on the facts available at that time. In management's opinion, an adequate accrual has been made as of September 30, 2002 to provide for any losses that may arise from these matters. SPECIAL PURPOSE ENTITIES Special purpose entities ("SPEs") consist of corporations, trusts, partnerships and other entities that are established for a limited purpose. In the United States, the Financial Accounting Standards Board (FASB) has currently undertaken a project to address accounting for SPEs. We will continue to monitor the FASB's project to determine the effect, if any, it will have on our treatment of any of the SPEs described below. LIGHTNING FINANCE COMPANY LIMITED. We finance certain DCA arising from our U.S., Canadian and European operations through LFL, a company in which we have an ownership interest. In the United States, LFL has entered into a financing agreement with our U.S. distribution subsidiary and we maintain a continuing interest in the assets until resold by LFL. As a result, we retain DCA sold under the U.S. agreement in our financial statements and amortize them over an 8-year period, until resold by LFL in a securitization. In contrast to the U.S. arrangement, LFL has entered into direct agreements with the Canadian and European sponsored investment products, and we do not record DCA from these sources in our financial statements. AUTO LOAN SECURITIZATION TRUSTS. We have entered into auto loan securitization transactions with a number of qualified SPEs and have recorded these transactions as sales. In addition, we retained interest-only strips receivable, representing our contractual right to receive interest and other cash flows from the pool of securitized loans after payment of required amounts to the holders of the securities and certain costs associated with the securitization. Interest-only strips are valued based on the present value of estimated future cash flows. LESSOR TRUST. We lease our corporate headquarters in San Mateo, California from a lessor trust under an operating lease that expires in fiscal 2005, with additional renewal options for a further period of up to 10 years. In connection with this lease, we are contingently liable for approximately $145 million in residual guarantees, representing approximately 85% of the total construction costs of $170 million. The lease agreement is not expected to impact our cash flows or financial condition materially during the initial five-year lease period. The lease is treated as an operating lease, as none of the capitalization criteria under Statement of Financial Accounting Standards No.13, "Accounting for Leases", were met at the inception of the lease. COLLATERALIZED DEBT OBLIGATIONS. We provide investment management services to, and have made investments in, a number of Collateralized Debt Obligation ("CDO") SPEs. These CDOs were established as a vehicle for our clients and invest mainly in debt instruments. Our ownership interest in the CDOs is not sufficient to meet consolidation requirements and they are reported at fair value as further described in Note 1 to the financial statements. 36 - -------------------------------------------------------------------------------- QUARTERLY INFORMATION (UNAUDITED) (in thousands except per share data) QUARTER FIRST SECOND THIRD FOURTH - -------------------------------------------------------------------------------- 2002 Revenues $618,207 $625,968 $666,050 $608,307 Operating income $142,865 $148,019 $153,852 $140,766 Net income $118,519 $119,996 $125,690 $68,518 Earnings per share: Basic $0.45 $0.46 $0.48 $0.26 Diluted $0.45 $0.46 $0.48 $0.26 Dividend per share $0.070 $0.070 $0.070 $0.070 Common stock price per share: High $37.85 $44.15 $44.48 $43.15 Low $30.85 $34.52 $39.45 $29.52 - -------------------------------------------------------------------------------- 2001 Revenues $564,074 $577,413 $609,473 $603,883 Operating income $148,978 $144,473 $124,696 $93,848 Net income $149,465 $131,684 $119,703 $83,869 Earnings per share: Basic $0.61 $0.54 $0.46 $0.32 Diluted $0.61 $0.54 $0.46 $0.32 Dividend per share $0.065 $0.065 $0.065 $0.065 Common stock price per share: High $45.50 $48.30 $47.40 $46.07 Low $34.00 $34.20 $36.05 $31.65 - -------------------------------------------------------------------------------- 2000 Revenues $565,667 $612,526 $568,897 $593,050 Operating income $167,635 $172,077 $168,832 $154,899 Net income $137,522 $143,374 $140,370 $140,823 Earnings per share: Basic $0.55 $0.58 $0.58 $0.58 Diluted $0.55 $0.58 $0.58 $0.58 Dividend per share $0.06 $0.06 $0.06 $0.06 Common stock price per share: High $35.00 $39.19 $36.25 $45.63 Low $27.44 $24.63 $28.19 $30.00 ------------------------------------------------------------------------------ Our common stock is traded on the New York Stock Exchange ("NYSE") and the Pacific Exchange, Inc. under the ticker symbol BEN and the London Stock Exchange under the ticker symbol FKR. On September 30, 2002, the closing price of our common stock on the NYSE was $31.10 per share. At December 3, 2002, there were approximately 5,100 shareholders of record. 37 - -------------------------------------------------------------------------------- RISK FACTORS "FORWARD-LOOKING STATEMENTS". When used in this Annual Report, words or phrases about the future such as "expected to," "will continue," "anticipates," "estimates," or similar expressions are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Statements about our future cash needs, our anticipated uses of cash, the expected sources of future cash inflows, and the anticipated costs related to the September 11, 2001 tragedy, are also "forward-looking statements." These types of statements are subject to certain risks and uncertainties, such as the factors described in the risk factors outlined below. These risks and uncertainties could cause our actual results to differ materially from those reflected in forward-looking statements. Forward-looking statements are our best prediction at the time that they are made, and you should not rely on them. Rather, you should read the forward-looking statements in conjunction with the risk disclosures in this Annual Report. If a circumstance occurs that causes any of our forward-looking statements to be inaccurate, we have no obligation to announce publicly the change in our expectations, or to revise the forward-looking statements. WE FACE STRONG COMPETITION FROM NUMEROUS AND SOMETIMES LARGER COMPANIES. We compete with numerous investment management companies, stock brokerage and investment banking firms, insurance companies, banks, savings and loan associations and other financial institutions. Continuing consolidation in the financial services industry has created stronger competitors with greater financial resources and broader distribution channels than our own. Additionally, competing securities dealers whom we rely upon to distribute our mutual funds also sell their own proprietary funds and investment products, which could limit the distribution of our investment products. To the extent that existing or potential customers, including securities dealers, decide to invest in or distribute the products of our competitors, the sales of our products as well as our market share, revenues and net income could decline. CHANGES IN THE DISTRIBUTION CHANNELS ON WHICH WE DEPEND COULD REDUCE OUR REVENUES AND HINDER OUR GROWTH. We derive nearly all of our fund sales through broker/dealers and other similar investment advisors. Increasing competition for these distribution channels has caused our distribution costs to rise and could cause further increases in the future. Higher distribution costs lower our net revenues and earnings. Additionally, if one of the major financial advisors who distribute our products were to cease their operations, it could have a significant adverse impact on our revenues and earnings. Moreover, our failure to maintain strong business relationships with these advisors would impair our ability to distribute and sell our products, which would have a negative effect on our level of assets under management, related revenues and overall business and financial condition. WE HAVE BECOME SUBJECT TO AN INCREASED RISK OF ASSET VOLATILITY FROM CHANGES IN THE GLOBAL EQUITY MARKETS. We have become subject to an increased risk of asset volatility from changes in the domestic and global financial and equity markets due to the continuing threat of terrorism and the recent reports of accounting irregularities at certain public companies. Declines in these markets have caused in the past, and would cause in the future, a decline in our revenue and income. THE LEVELS OF OUR ASSETS UNDER MANAGEMENT, WHICH IN TURN IMPACT REVENUES, ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Global economic conditions, changes in the equity market place, interest rates, inflation rates, the yield curve and other factors that are difficult to predict affect the mix, market values and levels of our assets under management. Changing market conditions may cause a shift in our asset mix towards fixed-income products and a related decline in our revenue and income, since we generally derive higher fee revenues and income from equity assets than from fixed-income products we manage. Similarly, our securitized consumer receivables business is subject to marketplace fluctuation. WE FACE RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN NUMEROUS FOREIGN COUNTRIES. We sell mutual funds and offer investment advisory and related services in many different regulatory jurisdictions around the world, and intend to continue to expand our operations internationally. Regulators in these jurisdictions could change their policies or laws in a manner that might restrict or otherwise impede our ability to distribute or register investment products in their respective markets. 38 - -------------------------------------------------------------------------------- OUR ABILITY TO SUCCESSFULLY INTEGRATE THE WIDELY VARIED SEGMENTS OF OUR BUSINESS CAN BE IMPEDED BY SYSTEMS AND OTHER TECHNOLOGICAL LIMITATIONS. Our continued success in effectively managing and growing our business globally depends on our ability to integrate the varied accounting, financial and operational systems of our international business with that of our domestic business. OUR INABILITY TO MEET CASH NEEDS COULD HAVE A NEGATIVE EFFECT ON OUR FINANCIAL CONDITION AND BUSINESS OPERATIONS. Our ability to meet anticipated cash needs depends upon factors including our asset value, our creditworthiness as perceived by lenders and the market value of our stock. Similarly, our ability to securitize and hedge future loan portfolios and credit card receivables, and to obtain continued financing for Class B and C shares, is also subject to the market's perception of those assets, finance rates offered by competitors, and the general market for private debt. If we are unable to obtain these funds and financing, we may be forced to incur unanticipated costs or revise our business plans. WE FACE COMPETITION IN HIRING AND RETAINING QUALIFIED EMPLOYEES. Our continued success will depend upon our ability to attract and retain qualified personnel. If we are not able to attract and retain qualified employees, our overall business condition and revenues could suffer. OUR EMERGING MARKET PORTFOLIOS AND RELATED REVENUES ARE VULNERABLE TO MARKET-SPECIFIC POLITICAL AND ECONOMIC RISKS. Our emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from political and diplomatic developments, currency fluctuations, social instability, changes in governmental polices, expropriation, nationalization, asset confiscation and changes in legislation related to foreign ownership. Foreign trading markets, particularly in some emerging market countries are often smaller, less liquid, less regulated and significantly more volatile than the U.S. and other established markets. DIVERSE AND STRONG COMPETITION LIMITS THE INTEREST RATES THAT WE CAN CHARGE ON CONSUMER LOANS. We compete with many types of institutions for consumer loans, which can provide loans at significantly below-market interest rates in connection with automobile sales. Our inability to compete effectively against these companies or to maintain our relationships with the various automobile dealers through whom we offer consumer loans could limit the growth of our consumer loan business. Economic and credit market downturns could reduce the ability of our customers to repay loans, which could cause our consumer loan portfolio losses to increase. THE SEPTEMBER 11, 2001 WORLD TRADE CENTER TRAGEDY MAY ADVERSELY AFFECT OUR ABILITY TO ACHIEVE THE BENEFITS WE EXPECT FROM THE ACQUISITION OF FIDUCIARY. The September 11, 2001 tragedy at the World Trade Center resulted in the destruction of our Fiduciary headquarters, loss of 87 of our employees, additional operating expenses to re-establish and relocate our operations, and asset write-offs, all of which could adversely affect or delay our ability to achieve the anticipated benefits from the acquisition. Our insurance coverage may not cover all losses on claims for property, damage, extra expenses and business interruptions arising out of the destruction of the World Trade Center. For the next several years, insurance costs are likely to increase materially and we may not be able to obtain the same types or amounts of coverage. THE FIDUCIARY ACQUISITION COULD ADVERSELY AFFECT OUR COMBINED FINANCIAL RESULTS OR THE MARKET PRICE OF OUR COMMON STOCK. If the benefits of the acquisition over time do not exceed the costs associated with the acquisition, including any dilution to our shareholders resulting from the issuance of shares in connection with the acquisition, our financial results, including earnings per share, could be adversely affected. Revenue and cost synergies from the acquisition of Fiduciary may not be fully realized and may take longer to realize than originally anticipated. WE ARE SUBJECT TO FEDERAL RESERVE BOARD REGULATION. Upon completion of our acquisition of Fiduciary, we became a bank holding company and a financial holding company subject to the supervision and regulation of the Federal Reserve Board. We are subject to the restrictions, limitations, or prohibitions of the Bank Holding Company Act of 1956 and the Gramm-Leach Bliley Act. The Federal Reserve Board may impose additional limitations or restrictions on our activities, including if the Federal Reserve Board believes that we do not have the appropriate financial and managerial resources to commence or conduct an activity or 39 - -------------------------------------------------------------------------------- make an acquisition. The Federal Reserve Board may also take actions as appropriate to enforce applicable federal law. TECHNOLOGY AND OPERATING RISK COULD CONSTRAIN OUR OPERATIONS. We are highly dependent on the integrity of our technology, operating systems and premises. Although we have in place certain disaster recovery plans, we may experience system delays and interruptions as a result of natural disasters, power failures, acts of war, and third party failures, which could negatively impact our operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, our financial position is subject to market risk: the potential loss due to changes in the value of investments resulting from adverse changes in interest rates, foreign exchange and/or equity prices. Management is responsible for managing this risk. Our Risk Management Committee is responsible for providing a framework to assist management to identify, assess and manage market and other risks. We are exposed to changes in interest rates mainly through our debt transactions and portfolio debt holdings available-for-sale, which are carried at fair value in our financial statements. As of September 30, 2002, a significant percentage of our outstanding debt is at fixed interest rates. In our banking/finance operating segment, we monitor the net interest rate margin and the average maturity of interest earning assets, as well as funding sources. In addition, we have considered the potential impact of the effect on the banking/finance operating segment, our outstanding debt and portfolio debt holdings, individually and collectively, of a 100 basis point (1%) movement in market interest rates. We do not expect this change would have a material impact on our operating revenues or results of operations in either scenario. We are also exposed to equity price fluctuations through securities we hold that are carried at fair value. To mitigate this risk, we maintain a diversified investment portfolio. We operate mainly in the United States, but also provide services and earn revenues in Canada, the Bahamas, Europe, Asia, South America, Africa and Australia. A significant portion of these revenues and associated expenses, however, are denominated in U.S. dollars. Therefore, our exposure to foreign currency fluctuations in our revenues and expenses is not material at this time. This situation may change in the future as our business continues to grow outside the United States. 40 - -------------------------------------------------------------------------------- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index of Consolidated Financial Statements for the years ended September 30, 2002, 2001 and 2000. CONTENTS PAGE Consolidated Financial Statements of Franklin Resources, Inc.: Consolidated Statements of Income for the years ended September 30, 2002, 2001, and 2000 42 Consolidated Balance Sheets as of September 30, 2002 and 2001 43 Consolidated Statements of Stockholders' Equity and Comprehensive Income as of and for the years ended September 30, 2002, 2001, and 2000 45 Consolidated Statements of Cash Flows for the years ended September 30, 2002, 2001, and 2000 47 Notes to Consolidated Financial Statements 48 Report of Independent Accountants 69 All schedules have been omitted as the information is provided in the financial statements or in related notes thereto or is not required to be filed as the information is not applicable. 41 - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) FOR THE YEARS ENDED SEPTEMBER 30, 2002 2001 2000 - ------------------------------------------------------------------------------------------------- OPERATING REVENUES Investment management fees $1,462,655 $1,407,202 $1,399,121 Underwriting and distribution fees 792,697 709,476 709,285 Shareholder servicing fees 191,302 199,525 211,416 Other, net 71,878 38,640 20,318 - ------------------------------------------------------------------------------------------------- Total operating revenues 2,518,532 2,354,843 2,340,140 OPERATING EXPENSES Underwriting and distribution 716,234 636,868 623,144 Compensation and benefits 645,104 615,281 535,710 Information systems, technology and occupancy 294,161 263,297 213,670 Advertising and promotion 106,877 106,261 101,196 Amortization of deferred sales commissions 67,608 68,977 83,627 Amortization of intangible assets 17,107 56,590 37,163 Other 85,939 87,925 82,187 September 11, 2001 expense, net -- 7,649 -- - ------------------------------------------------------------------------------------------------- Total operating expenses 1,933,030 1,842,848 1,676,697 Operating income 585,502 511,995 663,443 OTHER INCOME (EXPENSE) Investment and other income 5,075 136,351 90,108 Interest expense (12,302) (10,556) (13,960) - -------------------------------------------------------------------------------------------------- Other income, net (7,227) 125,795 76,148 Income before taxes on income 578,275 637,790 739,591 Taxes on income 145,552 153,069 177,502 - ------------------------------------------------------------------------------------------------- NET INCOME $432,723 $484,721 $562,089 - ------------------------------------------------------------------------------------------------- Earnings per Share Basic $1.66 $1.92 $2.28 Diluted $1.65 $1.91 $2.28
See accompanying notes to the consolidated financial statements. 42 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (in thousands) AS OF SEPTEMBER 30, 2002 2001 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $829,237 $497,241 Receivables 292,325 296,165 Investment securities, available-for-sale 1,103,463 923,693 Prepaid expenses and other 97,783 108,895 - -------------------------------------------------------------------------------- Total current assets 2,322,808 1,825,994 BANKING/FINANCE ASSETS Cash and cash equivalents 151,367 98,966 Loans receivable, net 444,338 555,314 Investment securities, available-for-sale 449,629 457,050 Other 45,889 117,914 - -------------------------------------------------------------------------------- Total banking/finance assets 1,091,223 1,229,244 NON-CURRENT ASSETS Investments, other 263,927 243,110 Deferred sales commissions 130,617 104,082 Property and equipment, net 394,172 449,626 Intangible assets, net 697,246 702,198 Goodwill 1,321,939 1,286,622 Receivable from banking/finance group 100,705 307,214 Other 100,101 117,560 - -------------------------------------------------------------------------------- Total non-current assets 3,008,707 3,210,412 - -------------------------------------------------------------------------------- TOTAL ASSETS $6,422,738 $6,265,650 - -------------------------------------------------------------------------------- See accompanying notes to the consolidated financial statements. 43 - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) AS OF SEPTEMBER 30, 2002 2001 - ------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Compensation and benefits $228,093 $221,672 Current maturities of long-term debt 7,830 8,361 Accounts payable and accrued expenses 117,246 127,918 Commissions 81,033 83,518 Income taxes 12,510 11,925 Other 8,307 4,039 - ------------------------------------------------------------------------------------------------- Total current liabilities 455,019 457,433 BANKING/FINANCE LIABILITIES Deposits 733,571 723,608 Payable to Parent 100,705 307,214 Other 49,660 39,839 - ------------------------------------------------------------------------------------------------- Total banking/finance liabilities 883,936 1,070,661 NON-CURRENT LIABILITIES Long-term debt 595,148 566,013 Deferred taxes 175,176 152,487 Other 46,513 41,160 - ------------------------------------------------------------------------------------------------- Total non-current liabilities 816,837 759,660 - ------------------------------------------------------------------------------------------------- Total liabilities 2,155,792 2,287,754 - ------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTE 14) STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued -- -- Common stock, $0.10 par value, 500,000,000 shares authorized; 258,555,285 and 260,797,545 shares issued and outstanding for 2002 and 2001 25,856 26,080 Capital in excess of par value 598,196 657,878 Retained earnings 3,702,636 3,342,979 Accumulated other comprehensive loss (59,742) (49,041) - -------------------------------------------------------------------------------------------------- Total stockholders' equity 4,266,946 3,977,896 - ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,422,738 $6,265,650 - -------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. 44 - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (in thousands) SHARES CAPITAL IN AS OF AND FOR THE YEARS ENDED COMMON COMMON EXCESS OF SEPTEMBER 30, 2002, 2001 AND 2000 STOCK STOCK PAR VALUE - ----------------------------------------------------------------------------------------------------------------------- BALANCE, OCTOBER 1, 1999 251,007 $25,101 $69,631 Net Income Other Comprehensive Income: Net unrealized gains on investments Currency translation adjustments Total comprehensive income Purchase of stock (8,442) (844) (112,046) Cash dividends on common stock Issuance of restricted shares, net 989 99 30,081 Employee stock plan (ESIP) shares 349 34 11,030 Exercise of options and other (173) (17) 1,304 BALANCE, SEPTEMBER 30, 2000 243,730 24,373 -- - ----------------------------------------------------------------------------------------------------------------------- Net Income Other Comprehensive Income: Net unrealized loss on investments Currency translation adjustments Total comprehensive income Purchase of stock (4,200) (420) (163,438) Cash dividends on common stock Issuance of restricted shares, net 716 71 32,313 Employee stock plan (ESIP) shares 359 36 13,077 Stock issued to acquire Fiduciary 20,187 2,019 773,768 Exercise of options and other 6 1 2,158 BALANCE, SEPTEMBER 30, 2001 260,798 26,080 657,878 - ----------------------------------------------------------------------------------------------------------------------- Net Income Other Comprehensive Income: Net unrealized loss on investments Currency translation adjustments Minimum pension liability adjustment Total comprehensive income Purchase of stock (3,929) (393) (124,538) Cash dividends on common stock Issuance of restricted shares, net 842 84 27,469 Employee stock plan (ESIP) shares 436 44 14,323 Proceeds from issuance of put options 6,954 Exercise of options and other 408 41 16,110 - ----------------------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 2002 258,555 $25,856 $598,196 - ----------------------------------------------------------------------------------------------------------------------- [Table continued on next page]
See accompanying notes to the consolidated financial statements. 45 - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME [Table continued from previous page] (in thousands) ACCUMULATED OTHER TOTAL TOTAL AS OF AND FOR THE YEARS ENDED RETAINED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE SEPTEMBER 30, 2002, 2001 AND 2000 EARNINGS OTHER INCOME EQUITY INCOME - ---------------------------------------------------------------------------------------------------------------------- BALANCE, OCTOBER 1, 1999 $2,566,048 $(3,532) $(254) $2,656,994 Net Income 562,089 562,089 $562,089 Other Comprehensive Income: Net unrealized gains on investments 22,511 22,511 22,511 Currency translation adjustments (9,881) (9,881) (9,881) Total comprehensive income $574,719 Purchase of stock (137,152) (250,042) Cash dividends on common stock (58,819) (58,819) Issuance of restricted shares, net 110 30,290 Employee stock plan (ESIP) shares 11,064 Exercise of options and other 1,287 BALANCE, SEPTEMBER 30, 2000 2,932,166 (3,422) 12,376 2,965,493 - ---------------------------------------------------------------------------------------------------------------------- Net Income 484,721 484,721 $484,721 Other Comprehensive Income: Net unrealized loss on investments (58,170) (58,170) (58,170) Currency translation adjustments (3,247) (3,247) (3,247) Total comprehensive income $423,304 Purchase of stock (8,255) (172,113) Cash dividends on common stock (65,653) (65,653) Issuance of restricted shares, net 3,422 35,806 Employee stock plan (ESIP) shares 13,113 Stock issued to acquire Fiduciary 775,787 Exercise of options and other 2,159 BALANCE, SEPTEMBER 30, 2001 3,342,979 -- (49,041) 3,977,896 - ---------------------------------------------------------------------------------------------------------------------- Net Income 432,723 432,723 $432,723 Other Comprehensive Income: Net unrealized loss on investments (4,084) (4,084) (4,084) Currency translation adjustments (837) (837) (837) Minimum pension liability adjustment (5,780) (5,780) (5,780) Total comprehensive income $422,022 Purchase of stock (124,931) Cash dividends on common stock (73,066) (73,066) Issuance of restricted shares, net 27,553 Employee stock plan (ESIP) shares 14,367 Proceeds from issuance of put options 6,954 Exercise of options and other 16,151 - ---------------------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 2002 $3,702,636 $-- $(59,742) $4,266,946 - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. 46 - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) FOR THE YEARS ENDED SEPTEMBER 30, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $432,723 $484,721 $562,089 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Decrease (increase) in receivables, prepaid expense and other 66,266 (88,360) (63,098) Net advances of deferred sales commissions (102,092) (86,305) (67,091) Increase in other current liabilities 66,736 14,218 33,229 Increase (decrease) in income taxes payable 584 (29,739) (2,079) (Decrease) increase in commissions payable (2,485) 6,552 14,996 Increase in accrued compensation and benefits 26,655 54,056 44,999 Depreciation and amortization 183,121 223,846 199,639 Decrease in restructuring liabilities -- -- (2,564) Losses (gains) on disposition of assets 5,224 (45,687) (18,407) Other-than-temporary decline in investments value 60,068 -- -- September 11, 2001 asset write-offs -- 19,885 -- - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 736,800 553,187 701,713 Purchase of investments (1,708,998) (947,615) (628,206) Liquidation of investments 1,425,848 463,276 374,102 Purchase of banking/finance investments (66,921) (103,872) (32,788) Liquidation of banking/finance investments 68,387 187,082 26,449 Net proceeds from securitization of loans receivable 558,082 139,295 123,048 Net originations of loans receivable (426,386) (294,557) (194,100) Net addition of property and equipment (53,062) (107,326) (108,432) Proceeds from sale of property 9,569 10,392 4,088 Acquisitions of subsidiaries, net of cash acquired (51,779) (99,058) -- September 11, 2001 insurance proceeds 28,562 -- -- - ---------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (216,698) (752,383) (435,839) Increase (decrease) in bank deposits 9,963 67,297 (3,372) Exercise of common stock options 17,045 2,158 1,142 Proceeds from issuance of put options 6,059 -- -- Dividends paid on common stock (71,778) (63,471) (57,953) Purchase of stock (124,929) (172,113) (250,042) Issuance of debt 103,794 711,847 497,118 Payments on debt (75,859) (496,320) (526,006) - ---------------------------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (135,705) 49,398 (339,113) Increase (decrease) in cash and cash equivalents 384,397 (149,798) (73,239) Cash and cash equivalents, beginning of year 596,207 746,005 819,244 - ---------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $980,604 $596,207 $746,005 - ---------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest, including banking/finance group interest $16,746 $17,746 $26,370 Income taxes 125,083 148,268 180,098 SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION Value of common stock issued, mainly restricted stock $28,009 $28,640 $30,181 Value of common stock issued to acquire Fiduciary -- 775,786 -- Fair value of Fiduciary assets acquired -- 1,538,084 -- Fair value of Fiduciary liabilities acquired -- 757,722 --
See accompanying notes to the consolidated financial statements. 47 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES We derive the majority of our revenues and net income from providing investment management, administration, distribution and related services to the Franklin, Templeton, Mutual Series, Fiduciary Trust and Bissett funds, institutional, high net-worth and other investment products (our "Sponsored Investment Products"). Services to our Sponsored Investment Products are provided under contracts that set forth the level and nature of the fees to be charged for these services. The majority of our revenues relate to mutual fund products which are subject to contracts that are periodically reviewed and approved by each mutual fund's Board of Directors/Trustees and/or its shareholders. Currently, no single Sponsored Investment Product's revenues represent more than 10% of total revenues. BASIS OF PRESENTATION. The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, which require us to estimate some amounts. Actual amounts may differ from these estimates. Certain comparative amounts for prior years have been reclassified to conform to the fiscal 2002 financial statement presentation. The consolidated financial statements include the accounts of Franklin Resources, Inc. and its majority-owned subsidiaries ("Franklin Templeton Investments"). All material intercompany accounts and transactions have been eliminated except that we have not eliminated the Receivable from banking/finance group and Payable to parent from our Consolidated Balance Sheets which represent balances outstanding related to the funding of banking activities, including auto and credit card loan financing. In addition, the related intercompany interest expense is included in Other, net revenue and the intercompany interest income is included in Investment and other income in our Consolidated Statements of Income, see Note 9. This treatment provides additional information on funding sources available to the banking/finance group and on its operations. CASH AND CASH EQUIVALENTS include cash on hand, demand deposits with banks, debt instruments with original maturities of three months or less and other highly liquid investments, including money market funds, which are readily convertible into cash. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE are carried at fair value. Fair values for investments in our Sponsored Investment Products are based on the last reported net asset value. Fair values for other investments are based on the last reported price on the exchange on which they are traded. Realized gains and losses are included in investment income currently based on specific identification. Unrealized gains and losses are recorded net of tax as part of accumulated other comprehensive income until realized. When the cost of an investment exceeds its fair value, we review the investment for an other-than-temporary decline in value. In making the determination of whether the decline is other-than-temporary, we use a systematic methodology that includes consideration of the duration and extent to which the fair value is less than cost, the financial condition of the investee, including industry and sector performance, and our intent and ability to hold the investment. When a decline in fair value of an available-for-sale security is determined to be other-than-temporary, the unrealized loss recorded net of tax in Accumulated other comprehensive income is realized as a charge to Net income. DERIVATIVES. We do not hold or issue derivative financial instruments for trading purposes. Periodically, we enter into interest-rate swap agreements to reduce variable interest-rate exposure with respect to our commercial paper, designated as cash flow hedges, and to hedge exposures or modify the interest rate characteristics of fixed-rate borrowings with maturities in excess of one year, designated as fair value hedges. As of September 30, 2002, we held interest rate swaps with a total notional amount of $43 million and these were reported at their fair value of $2.7 million. We periodically enter into spot and forward currency contracts as principal to facilitate client transactions and, on limited occasions, hold currency options for our own account. It is our policy that substantially all forward contracts be covered no later than the close of business each day. Gains or losses on these contracts 48 - -------------------------------------------------------------------------------- are reflected in the Consolidated Statements of Income. The gross fair market value of all contracts outstanding that had a positive fair market value totaled $2.7 million at September 30, 2002. This represents a credit exposure to the extent that counterparties fail to settle their contractual obligations. This risk is mitigated by the use of master netting agreements, careful valuation of counterparty credit standings, diversification and limits. We occasionally sell put options over our common stock. During fiscal 2002, we sold put options giving the purchaser the right to sell up to 3.5 million shares of our common stock to us at specified prices upon exercise of the options if certain conditions are met. We received premiums of approximately $7.0 million that were recorded in stockholders' equity as Capital in excess of par value. At September 30, 2002, 3 million common stock put options were outstanding, with designated expiration dates in January, March, June and July of 2003. LOANS RECEIVABLE. Our banking/finance group offers retail-banking and consumer lending services. We accrue interest on loans using the simple interest method. The majority of retail-banking loans are at variable rates, which are adjusted periodically. ALLOWANCE FOR LOAN LOSSES. An allowance for loan losses on our consumer loan portfolio is maintained at a level sufficient to absorb probable losses inherent in the loan portfolio. Probable losses are estimated for the consumer loan portfolio based on contractual delinquency status and historical loss experience. The allowance on our consumer portfolio is based on aggregated portfolio segment evaluations, generally by loan type, and reflects our judgment of portfolio risk factors such as economic conditions, bankruptcy trends, product mix, geographic concentrations and other similar items. A loan is charged to the allowance for loan losses when it is deemed to be uncollectible, taking into consideration the value of the collateral, the financial condition of the borrower and other factors. Recoveries on loans previously charged-off as uncollectible are credited to the allowance for loan losses. The allowance for loan losses on our auto loan portfolio includes a portion of acquisition discounts from our purchase of automobile installment loan contracts, commonly referred to as dealer holdbacks. This allocation represents our estimate of the losses expected over the life of the loan. We have not recorded allowance for possible loan losses on our retail-banking loans and advances as these loans are generally payable on demand and are fully secured by assets under our custody. Advances on customers' accounts are generally secured or subject to rights of offset and, consistent with past experience, no loan losses are anticipated. Past due loans 90 days or more in both our consumer lending and retail-banking portfolios are reviewed individually to determine whether they are collectible. If warranted, after considering collateral level and other factors, loans 90 days past due are placed on non-accrual status. INVESTMENTS, OTHER include investments that we intend to hold for a period in excess of one year. Investments are accounted for using the equity method of accounting if we are able to exercise significant influence, but not control, over the investee. Significant influence is generally considered to exist when an ownership interest in the voting stock of the investee is between 20% and 50%, although other factors, such as representation on the investee's Board of Directors and the impact of commercial arrangements are also considered in determining whether the equity method of accounting is appropriate. Lower thresholds are used for our investments in limited partnerships in determining whether we are able to exercise significant influence. Companies in which we hold in excess of 50% ownership interest are consolidated in our financial statements. Investments are accounted for under the cost method if we are not able to exercise significant influence over the investee. In addition, investments, other include debt instruments carried at fair value in accordance with our treatment of investment securities, available-for-sale. These include collateralized debt obligations ("CDOs") which are valued based on cash flow projections. 49 - -------------------------------------------------------------------------------- Investments, other are adjusted for other-than-temporary declines in value. When a decline in fair value of an investment carried at fair value is determined to be other-than-temporary, the unrealized loss recorded net of tax in Accumulated other comprehensive income is realized as charge to net income. When a decline in fair value of an investment carried at cost is determined to be other-than-temporary, the investment is written down to fair value and the loss in value is included in earnings. DEFERRED SALES COMMISSIONS. Sales commissions paid to brokers and other investment advisors in connection with the sale of shares of our mutual funds sold without a front-end sales charge are capitalized and amortized over periods not exceeding eight years - the periods in which we estimate that they will be recovered from distribution plan payments and from contingent deferred sales charges. PROPERTY AND EQUIPMENT are recorded at cost and are depreciated on the straight-line basis over their estimated useful lives. Expenditures for repairs and maintenance are charged to expense when incurred. We amortize leasehold improvements on the straight-line basis over their estimated useful lives or the lease term, whichever is shorter. SOFTWARE DEVELOPED FOR INTERNAL USE. Some internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized. These capitalized costs are included in Property and equipment, net on our Consolidated Balance Sheets and are amortized beginning when the software project is complete and the application is put into production, over the estimated useful life of the software. INTANGIBLE ASSETS AND GOODWILL. Intangible assets consist mainly of the estimated value of mutual fund management contracts and customer base resulting from our acquisition of the assets and liabilities of Templeton, Galbraith & Hansberger Ltd. in October 1992 and Heine Securities Corporation in November 1996, as well as the purchase of the following companies: * Bissett and Associates Investment Management Ltd. ("Bissett") in October 2000; * Fiduciary Trust Company International ("Fiduciary") in April 2001; and * Pioneer ITI AMC Limited in July 2002. We amortize intangible assets over their estimated useful lives, ranging from 5 to 15 years, using the straight-line method, unless the asset is determined to have an indefinite useful life. Amounts assigned to indefinite-lived intangible assets mainly represent the value of contracts to manage mutual fund assets, for which there is no foreseeable limit on the contract period. Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), indefinite-lived intangible assets and goodwill are not amortized. We review intangible assets and goodwill at least annually to determine whether the value of the assets is impaired and the amortization periods are appropriate. If an asset is impaired, the difference between the carrying amount of the asset reflected on the financial statements and its current fair value is recognized as an expense in the period in which the impairment occurs. Intangible assets subject to amortization are reviewed for impairment at each reporting period on the basis of the expected future undiscounted operating cash flows without interest charges to be derived from these assets. For intangible assets with indefinite lives, fair value is determined based on anticipated discounted cash flows. Goodwill is impaired when the carrying amount of the reporting unit exceeds the implied fair value of the reporting unit. In estimating the fair value of the reporting unit, we use valuation techniques based on discounted cash flows similar to models employed in analyzing the purchase price of an acquisition target. Goodwill has been assigned to our investment management operating segment. See Note 8 for additional information regarding intangible assets and goodwill. 50 - -------------------------------------------------------------------------------- DEMAND AND INTEREST BEARING DEPOSITS. The fair value of demand deposits are, by definition, equal to their carrying amounts. The interest-bearing deposits are variable rate and short-term and, therefore, the carrying amounts approximate their fair values. REVENUES. We recognize investment management fees, shareholder servicing fees, investment income and distribution fees as earned, over the period in which services are rendered. Investment management fees are determined based on a percentage of assets under management. Shareholder servicing fees are calculated based on the number of accounts serviced. We record underwriting commissions related to the sale of shares of our Sponsored Investment Products on the trade date. ADVERTISING AND PROMOTION. We expense costs of advertising and promotion as incurred. FOREIGN CURRENCY TRANSLATION. Assets and liabilities of foreign subsidiaries are translated at current exchange rates as of the end of the accounting period, and related revenues and expenses are translated at average exchange rates in effect during the period. Net exchange gains and losses resulting from translation are excluded from income and are recorded as part of Accumulated other comprehensive income. Foreign currency transaction gains and losses are reflected in income currently. DIVIDENDS. For the years ended September 30, 2002, 2001 and 2000, we declared dividends to common stockholders of $0.28, $0.26 and $0.24 per share. STOCK-BASED COMPENSATION. As allowed under the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we have elected to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for our stock-based plans. Accordingly, no compensation costs are recognized with respect to stock options granted, or with respect to shares issued under the Employee Stock Investment Plan. We recognize compensation expense for the matching contribution that we may elect to make in connection with the Employee Stock Investment Plan over the 18-month holding period and for the full cost of restricted stock grants in the year that they are earned. ACCUMULATED OTHER COMPREHENSIVE INCOME is reported in our consolidated statements of stockholders' equity and includes net income, minimum pension liability adjustment, unrealized gains (losses) on investment securities available-for-sale, net of income taxes and currency translation adjustments. The changes in net unrealized gains (losses) on investment securities include reclassification adjustments relating to the net realized gains on the sale of investment securities of $5.7 million, $34.2 million and $9.9 million during fiscal 2002, 2001 and 2000. The tax effect of the change in unrealized gains (losses) on investment securities was $(1.7) million, $(18.4) million and $7.1 million during fiscal 2002, 2001 and 2000. EARNINGS PER SHARE. Earnings per share were computed as follows: (in thousands except per share amounts) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------- Net income $432,723 $484,721 $562,089 - --------------------------------------------------------------------------------------------------------------- Weighted-average shares outstanding - basic 261,239 252,628 246,116 Incremental shares from assumed conversions 815 1,035 508 - --------------------------------------------------------------------------------------------------------------- Weighted-average shares outstanding - diluted 262,054 253,663 246,624 - --------------------------------------------------------------------------------------------------------------- Earnings per share: Basic $1.66 $1.92 $2.28 Diluted $1.65 $1.91 $2.28
NOTE 2 - ACQUISITIONS On July 26, 2002, our 75% owned subsidiary, Templeton Asset Management (India) Private Limited, acquired all of the issued and outstanding shares of Pioneer ITI AMC Limited ("Pioneer"), an Indian 51 - -------------------------------------------------------------------------------- investment management company with approximately $0.8 billion in assets under management as of the purchase date. This all-cash transaction was valued at approximately $55.4 million. Our consolidated financial statements include the operating results of Pioneer from July 26, 2002. We recognized goodwill of $38.7 million and indefinite-lived management contracts of $13.1 million from this acquisition. On April 10, 2001, we acquired Fiduciary. Each share of Fiduciary's common stock was exchanged for 2.7744 shares of our common stock, resulting in the issuance in the aggregate of approximately 20,187,000 shares of our common stock. The value of the shares issued in exchange for Fiduciary was approximately $775.8 million. We accounted for this transaction using the purchase method of accounting. The excess of the purchase price, including our acquisition costs, over the fair value of the net assets acquired resulted in goodwill of $559.5 million. Net assets acquired included $235.5 million of other intangible assets. As of September 30, 2001, we wrote off the net intangible asset related to Fiduciary's headquarters lease of $8.2 million as a result of the September 11, 2001 terrorist attack. See Note 20. The estimated life of the other intangible assets is 15 years. On October 2, 2000, we acquired all of the issued and outstanding shares of Bissett, a Canadian asset management company. The all-cash transaction was valued at approximately $95 million. Intangible assets of approximately $89 million with lives ranging from 15 to 40 years were recorded as a result of the acquisition. We accounted for this transaction using the purchase method. Our consolidated financial statements include the operating results of Bissett from October 2, 2000. We have not presented proforma combined results of operations for these acquisitions, because the results of operations as reported in the accompanying consolidated statements of income would not have been materially different. NOTE 3 - CASH AND CASH EQUIVALENTS Cash and cash equivalents at September 30, 2002 and 2001, consisted of the following: (in thousands) 2002 2001 - --------------------------------------------------------- ----------------------- --------------------- Cash and due from banks $224,214 $204,907 Federal funds sold and securities purchased under agreements to resell 82,150 25,020 Other 674,240 366,280 - --------------------------------------------------------- ----------------------- --------------------- TOTAL $980,604 $596,207 - --------------------------------------------------------- ----------------------- ---------------------
Federal Reserve Board regulations require reserve balances on deposits to be maintained with the Federal Reserve Banks by banking subsidiaries. The average required reserve balance was $5.3 million at September 30, 2002 and $3.1 million at September 30, 2001. 52 - -------------------------------------------------------------------------------- NOTE 4 - INVESTMENT SECURITIES AND OTHER INVESTMENTS Investment securities at September 30, 2002 and 2001, consisted of the following:
AMORTIZED GROSS UNREALIZED FAIR (in thousands) COST GAINS LOSSES VALUE - ---------------------------------------------------------------------------------------------------- 2002 INVESTMENT SECURITIES, AVAILABLE-FOR-SALE Sponsored Investment Products $421,612 $7,309 $(66,888) $362,033 Debt (mainly U.S. Government) 1,159,126 18,058 -- 1,177,184 Securities of U.S. states and political subdivisions 10,758 597 -- 11,355 Equities 1,264 1,269 (13) 2,520 - ---------------------------------------------------------------------------------------------------- TOTAL $1,592,760 $27,233 $(66,901) $1,553,092 - ---------------------------------------------------------------------------------------------------- INVESTMENTS, OTHER Investment in equity-method investees $65,347 $-- $-- $65,347 Equities and other 189,008 18,702 (9,130) 198,580 - ---------------------------------------------------------------------------------------------------- TOTAL $254,355 $18,702 $(9,130) $263,927 - ---------------------------------------------------------------------------------------------------- 2001 INVESTMENT SECURITIES, AVAILABLE-FOR-SALE Sponsored Investment Products $225,150 $2,191 $(48,388) $178,953 Debt (mainly U.S. Government) 1,151,818 11,990 -- 1,163,808 Securities of U.S. states and political subdivisions 13,156 252 -- 13,408 Equities 18,560 6,024 (10) 24,574 - ---------------------------------------------------------------------------------------------------- TOTAL $1,408,684 $20,457 $(48,398) $1,380,743 --------------------------------------------------------------------------------------------------- INVESTMENTS, OTHER Investments in equity-method investees $59,261 $-- $-- $59,261 Equities and other 176,385 16,867 (9,403) 183,849 - ---------------------------------------------------------------------------------------------------- TOTAL $235,646 $16,867 $(9,403) $243,110 - ----------------------------------------------------------------------------------------------------
Investments, other included investments that we intend to hold for a period in excess of one year. Investments in equity method investees include investment partnerships where we have significant influence. Equities and other investments include debt, including CDOs, and other securities with a determinable fair value as well as investments carried at cost. Gross unrealized losses on Investment securities, available-for-sale and Investments, other at September 30, 2002 were deemed to be temporary in nature. See Note 1 for a description of our investments valuation methodology. 53 - -------------------------------------------------------------------------------- At September 30, 2002, maturities of securities of the U.S. Treasury and federal agencies and the U.S. states and political subdivisions were as follows: (in thousands) AMORTIZED COST FAIR VALUE - -------------------------------------------------------------------------------- SECURITIES OF U.S. TREASURY AND FEDERAL AGENCIES Due in one year or less $769,590 $770,138 Due after one year through five years 305,086 321,096 Due after five years through ten years 84,450 85,950 - -------------------------------------------------------------------------------- TOTAL $1,159,126 $1,177,184 - -------------------------------------------------------------------------------- SECURITIES OF U.S. STATES AND POLITICAL SUBDIVISIONS Due in one year or less $2,151 $2,187 Due after one year through five years 7,161 7,566 Due after five years through ten years 1,446 1,602 - -------------------------------------------------------------------------------- TOTAL $10,758 $11,355 - -------------------------------------------------------------------------------- NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loans receivable by major category is shown below. Included in installment loans to individuals are auto and credit card receivables. Other loans include secured loans made to Fiduciary clients. No loan loss allowance is recognized on Fiduciary's retail-banking loans and advances as described in Note 1. (in thousands) 2002 2001 - -------------------------------------------------------------------------------- Commercial $67,772 $72,298 Real estate (secured) 99,935 7,196 Installment loans to individuals 158,159 354,588 Other 127,506 130,800 - -------------------------------------------------------------------------------- Loans receivable 453,372 564,882 Less: allowance for loan losses (9,034) (9,568) - -------------------------------------------------------------------------------- LOANS RECEIVABLE, NET $444,338 $555,314 - -------------------------------------------------------------------------------- Maturities of loans at September 30, 2002 were as follows:
AFTER 1 ONE YEAR OR THROUGH 5 (in thousands) LESS YEARS AFTER 5 YEARS TOTAL - ------------------------------------------------------------------------------------- Commercial $67,772 $-- $-- $67,772 Real estate (secured) 17,721 44,590 37,624 99,935 Installment loans to individuals 58,399 86,639 13,121 158,159 Other 124,506 3,000 -- 127,506 - ------------------------------------------------------------------------------------- TOTAL $268,398 $134,229 $50,745 $453,372 - -------------------------------------------------------------------------------------
The following table summarizes contractual maturities of loans due after one year by repricing characteristic at September 30, 2002: (in thousands) CARRYING AMOUNT - -------------------------------------------------------------------------------- Loans at predetermined interest rates $101,019 Loans at floating or adjustable rates 83,955 - -------------------------------------------------------------------------------- TOTAL $184,974 - -------------------------------------------------------------------------------- 54 - -------------------------------------------------------------------------------- At September 30, 2002, the banking/finance operating segment had commitments to extend credit aggregating $281.5 million, mainly under its credit card lines. Standby letters of credit issued to Fiduciary clients totaled $7.4 million and expire through December 2003. The standby letters of credit are secured by marketable securities. Changes in the allowance for loan losses during 2002 and 2001 were as follows: (in thousands) 2002 2001 - -------------------------------------------------------------------------------------------------- Balance, beginning of year $9,568 $4,971 Provision for loan losses 13,890 9,585 Charge-offs (8,639) (6,710) Recoveries 1,845 1,367 Loans securitized (10,903) (2,880) Dealer holdback and other 3,273 3,235 - -------------------------------------------------------------------------------------------------- BALANCE, END OF YEAR $9,034 $9,568 - -------------------------------------------------------------------------------------------------- Total net loan charge-offs as a percentage of average total loans 1.38% 1.58% Allowance as a percentage of total loans 1.99% 1.69%
The following is a summary of delinquency information for fiscal 2002, 2001 and 2000: (in thousands) 2002 2001 2000 - ----------------------------------------------------- -------------- --------------- ------------- Commercial loans, 90 days or more delinquent $300 $300 $-- Installment loans, 90 days or more delinquent $750 $292 $683 Non-accrual loans $439 $306 $470 - ----------------------------------------------------- -------------- --------------- -------------
NOTE 6 - SECURITIZATION OF LOANS RECEIVABLE The following table shows details of auto loan securitization transactions: (in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------------------------- Gross sale proceeds $565,154 $145,385 $123,951 Net carrying amount of loans sold $544,831 $142,541 $124,883 Pre-tax gain (loss) $20,323 $2,844 $(932) - --------------------------------------------------------------------------------------------------
When we sell auto loans in a securitization transaction, we record an interest-only strip receivable, representing our contractual right to receive interest and other cash flows from the pool of securitized loans after payment of required amounts to the holders of the securities and certain costs associated with the securitization. The gross sales proceeds include the fair value of the interest-only strips. We generally estimate fair value based on the present value of future expected cash flows. The key assumptions used in the present value calculations of our securitization transactions at the date of securitization were as follows: 2002 2001 2000 - --------------------------------------------------------------------------------------------------- Excess cash flow discount rate (annual rate) 12% 12% 12% Cumulative life loss rate 3.30% 3.53% 3.00% Pre-payment speed assumption (average monthly rate) 1.75% 1.50% 1.50% - ---------------------------------------------------------------------------------------------------
We determined these assumptions using data from comparable transactions, historical information and management's estimate. Interest-only strip receivables are generally restricted assets and subject to limited recourse provisions. The carrying value of the interest-only strips included in other banking/finance assets as of September 30, 2002 was $29.1 million and as of September 30, 2001 was $10.8 million. 55 - -------------------------------------------------------------------------------- We generally estimate the fair value of the interest-only strips at each period-end based on the present value of future expected cash flows, consistent with the methodology used at the date of securitization. The following shows the sensitivity of the interest-only strip receivables at September 30, 2002 and 2001 to adverse changes in the key economic assumptions used to measure fair value, which are hypothetical: (in thousands) 2002 2001 - -------------------------------------------------------------------------------------------------- CARRYING AMOUNT/ FAIR VALUE OF INTEREST-ONLY STRIPs $29,088 $10,785 EXCESS CASH FLOW DISCOUNT RATE (ANNUAL RATE) 12% 12% Impact on fair value of 10% adverse change $(400) $(137) Impact on fair value of 20% adverse change $(789) $(270) CUMULATIVE LIFE LOSS RATE 3.63% 3.08% Impact on fair value of 10% adverse change $(1,787) $(665) Impact on fair value of 20% adverse change $(3,579) $(1,328) PRE-PAYMENT SPEED ASSUMPTION (AVERAGE MONTHLY RATE) 1.73% 1.70% Impact on fair value of 10% adverse change $(2,632) $(846) Impact on fair value of 20% adverse change $(5,155) $(1,630) - --------------------------------------------------------------------------------------------------
This sensitivity analysis shows the hypothetical effect of a change in the assumptions used to determine the fair value of the interest-only strip receivable. Actual future market conditions may differ materially and accordingly, these forward-looking statements should not be considered our projections of future events or losses. With respect to retained servicing responsibilities relating to the securitization trusts, we receive annual servicing fees ranging from 1.0% to 2.0% of the loans securitized. We also receive the rights to future cash flows, if any, arising after the investors in the securitization trust have received their contracted return. The following is a summary of cash flows received from and paid to securitization trusts during fiscal 2002, 2001 and 2000: (in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Servicing fees received $7,921 $4,538 $3,846 Other cash flows received 15,375 7,401 5,161 Purchase of loans from trusts (8,659) (521) (286) - -------------------------------------------------------------------------------- Amounts payable to the trustee for servicing income collected on behalf of the trusts of $24.9 million as of September 30, 2002 and $10.9 million as of September 30, 2001 are included in other banking/finance liabilities. The securitized loan portfolio that we manage and the related delinquencies as of September 30, 2002 and September 30, 2001 were as follows: (in thousands) 2002 2001 - -------------------------------------------------------------------------------- Securitized loans held by securitization trusts $530,896 $210,763 Delinquencies 9,317 3,769 Net charges-offs during the period on securitized loans 6,494 3,484 - -------------------------------------------------------------------------------- 56 - -------------------------------------------------------------------------------- NOTE 7 - PROPERTY AND EQUIPMENT The following is a summary of property and equipment at September 30, 2002 and 2001: USEFUL LIVES (in thousands) IN YEARS 2002 2001 - ------------------------------------------------------------------------------- Furniture, software and equipment 3-5 $526,256 $505,246 Premises and leasehold improvements 5-35 195,024 207,484 Land -- 66,923 68,446 - -------------------------------------------------------------------------------- 788,203 781,176 Less: Accumulated depreciation and amortization (394,031) (331,550) - -------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, NET $394,172 $449,626 - -------------------------------------------------------------------------------- NOTE 8 - INTANGIBLE ASSETS AND GOODWILL Intangible assets at September 30, 2002 and September 30, 2001 were as follows: GROSS CARRYING ACCUMULATED NET CARRYING (in thousands) AMOUNT AMORTIZATION AMOUNT - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2002 Amortized intangible assets: Customer base $231,935 $(23,358) $208,577 Other 31,546 (18,181) 13,365 - -------------------------------------------------------------------------------- 263,481 (41,539) 221,942 Non-amortized intangible assets: Management contracts 475,304 -- 475,304 - -------------------------------------------------------------------------------- TOTAL $738,785 $(41,539) $697,246 - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2001 Amortized intangible assets: Customer base $232,190 $(7,913) $224,277 Other 31,546 (16,552) 14,994 - -------------------------------------------------------------------------------- 263,736 (24,465) 239,271 Non-amortized intangible assets: Management contracts 462,927 - 462,927 - -------------------------------------------------------------------------------- TOTAL $726,663 $(24,465) 702,198 - -------------------------------------------------------------------------------- The change in the carrying amount of goodwill during the year ended September 30, 2002 was as follows: (in thousands) - -------------------------------------------------------------------------------- Goodwill, October 1, 2001 $1,286,622 Pioneer acquisition (see Note 2) 38,652 Foreign currency movements (3,335) - -------------------------------------------------------------------------------- GOODWILL, SEPTEMBER 30, 2002 $1,321,939 - -------------------------------------------------------------------------------- We adopted SFAS 142 on October 1, 2001. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside a business combination and the recognition and measurement of goodwill and other intangible assets after acquisition. Under the new standard, all goodwill and indefinite-lived intangible assets, including those acquired before initial application of the standard, will not be amortized 57 - -------------------------------------------------------------------------------- but will be tested for impairment at least annually. Accordingly, on October 1, 2001, we ceased amortization on goodwill and indefinite-lived assets. This resulted in the following amortization expense reduction: YEAR ENDED (in thousands except per share amounts) SEPTEMBER 30, 2002 - -------------------------------------------------------------------------------- Amortization expense reduction $50,197 Amortization expense reduction - net of tax $37,562 Increase in basic and diluted earnings per share $0.14 - -------------------------------------------------------------------------------- All of our goodwill and intangible assets, including those arising from the purchase of Fiduciary in April 2001, relate to our investment management operating segment. Indefinite-lived intangible assets represent the value of management contracts with our Sponsored Investment Products. The following table reflects our results as though we had adopted SFAS 142 on October 1, 2000. (in thousands except per share amounts) YEAR ENDED SEPTEMBER 30, 2002 2001 2000 - -------------------------------------------------------------------------------- Net income as reported $432,723 $484,721 $562,089 Goodwill amortization -- 29,443 20,865 Indefinite-lived intangibles amortization -- 13,152 12,762 Tax effect at effective tax rate -- (10,223) (8,071) - -------------------------------------------------------------------------------- NET INCOME AS ADJUSTED $432,723 $517,093 $587,645 - -------------------------------------------------------------------------------- Basic earnings per share as reported $1.66 $1.92 $2.28 Diluted earnings per share as reported $1.65 $1.91 $2.28 Basic earnings per share as adjusted $1.66 $2.05 $2.39 Diluted earnings per share as adjusted $1.65 $2.04 $2.38 Estimated amortization expense for each of the next 5 fiscal years is as follows: FOR THE YEARS ENDING (in thousands) SEPTEMBER 30, - -------------------------------------------------------------------------------- 2003 $16,934 2004 16,934 2005 16,934 2006 16,934 2007 16,934 - -------------------------------------------------------------------------------- As of March 31, 2002, we completed the impairment testing of goodwill and indefinite-lived intangible assets under the guidance set out in SFAS 142 and we determined that there was no impairment in the value of goodwill and indefinite-lived assets recorded in our books and records as of October 1, 2001. NOTE 9 - SEGMENT INFORMATION We have two operating segments: investment management and banking/finance. We based our operating segment selection process primarily on services offered. The investment management segment derives substantially all of its revenues and net income from providing investment advisory, fund administration, distribution and related services to our Sponsored Investment Products. The banking/finance segment offers consumer lending and selected retail-banking services to individuals. Financial information for our two operating segments for the years ended September 30, 2002, 2001 and 2000 is presented in the table below. Operating revenues of the banking/finance segment are reported net of interest expense and provision for loan losses. 58 - --------------------------------------------------------------------------------
(in thousands) INVESTMENT AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2002 MANAGEMENT BANKING/FINANCE TOTALS - --------------------------------------------------- ---------------- ------------------ ----------- Assets $5,331,515 $1,091,223 $6,422,738 Operating revenues 2,463,086 55,446 2,518,532 Interest revenue - inter-segment 5,415 -- 5,415 Interest expense 12,302 N/A 12,302 Income before taxes 546,396 31,879 578,275 - --------------------------------------------------- ---------------- ------------------ ----------- AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2001 - --------------------------------------------------- ---------------- ------------------ ----------- Assets $5,036,406 $1,229,244 $6,265,650 Operating revenues 2,323,085 31,758 2,354,843 Interest revenue - inter-segment 9,778 -- 9,778 September 11, 2001 expense, net 7,649 -- 7,649 Interest expense 10,556 N/A 10,556 Income before taxes 629,908 7,882 637,790 - --------------------------------------------------- ---------------- ------------------ ----------- AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 - --------------------------------------------------- ---------------- ------------------ ----------- Assets $3,742,881 $299,562 $4,042,443 Operating revenues 2,320,755 19,385 2,340,140 Interest revenue - inter-segment 8,617 -- 8,617 Interest expense 13,960 N/A 13,960 Income before taxes 739,030 561 739,591 - --------------------------------------------------- ---------------- ------------------ -----------
Operating revenues of the banking/finance segment included above were as follows:
(in thousands) FOR THE YEAR ENDED SEPTEMBER 30, 2002 2001 2000 - ------------------------------------------------ ---------------- ----------------- --------------- Interest and fees on loans $33,523 $34,296 $30,589 Interest and dividends on investment securities 19,804 11,430 2,077 - ------------------------------------------------ ---------------- ----------------- --------------- Total interest income 53,327 45,726 32,666 Interest on deposits 9,812 10,768 2,742 Interest on short-term debt 392 1,003 -- Interest expense - inter-segment 5,415 9,778 8,617 - ------------------------------------------------ ---------------- ----------------- --------------- Total interest expense 15,619 21,549 11,359 Net interest income 37,708 24,177 21,307 Other income 31,628 17,166 3,329 Provision for loan losses (13,890) (9,585) (5,251) - ------------------------------------------------ ---------------- ----------------- --------------- TOTAL OPERATING REVENUES $55,446 $31,758 $19,385 - ------------------------------------------------ ---------------- ----------------- ---------------
Inter-segment interest payments from the banking/finance segment to the investment management segment are based on market rates prevailing at the inception of each loan. As further described in Note 1, inter-segment interest income and expense are not eliminated in our Consolidated Statements of Income. The investment management segment incurs substantially all of our depreciation and amortization costs and expenditures on long-lived assets. We conduct operations in the following principal geographic areas of the world: the United States, Canada, the Bahamas, Europe, Asia, South America, Africa and Australia. For segment reporting purposes, we have 59 - -------------------------------------------------------------------------------- combined Asia, South America, Africa and Australia into one category - Other. Revenues by geographic area include fees and commissions charged to customers and fees charged to affiliates. Information by geographic area is summarized below:
(in thousands) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------- OPERATING REVENUES: United States $1,846,867 $1,685,108 $1,596,712 Canada 206,287 267,007 250,778 Bahamas 258,745 294,922 284,518 Europe 134,252 129,090 126,111 Other 167,457 144,200 191,095 Eliminations (95,076) (165,484) (109,074) - --------------------------------------------------------------------------------------------------------------- TOTAL $2,518,532 $2,354,843 $2,340,140 - --------------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, NET: United States $338,763 $394,082 $387,197 Canada 5,151 7,246 7,096 Bahamas 7,299 7,916 8,126 Europe 6,371 7,159 6,692 Other 36,588 33,223 35,583 - --------------------------------------------------------------------------------------------------------------- TOTAL $394,172 $449,626 $444,694 - ---------------------------------------------------------------------------------------------------------------
NOTE 10 - DEPOSITS Deposits at September 30, 2002 and 2001 were as follows:
(in thousands) 2002 2001 - --------------------------------------------------------------------------------------------------- DOMESTIC Interest-bearing $670,448 $602,115 Noninterest-bearing 45,332 97,130 - --------------------------------------------------------------------------------------------------- Total domestic deposits 715,780 699,245 - --------------------------------------------------------------------------------------------------- FOREIGN Interest-bearing 12,725 12,500 Noninterest-bearing 5,066 11,863 - --------------------------------------------------------------------------------------------------- Total foreign deposits 17,791 24,363 - --------------------------------------------------------------------------------------------------- TOTAL $733,571 $723,608 - ---------------------------------------------------------------------------------------------------
Maturities of time certificates in amounts of $100,000 or more at September 30, 2002 were:
(in thousands) DOMESTIC (U.S.) FOREIGN TOTAL - --------------------------------------------------------------------------------------------------- 3 months or less $5,715 $12,725 $18,440 Over 3 months through 6 months 100 -- 100 Over 6 months through 12 months 604 -- 604 Over 12 months 1,970 -- 1,970 - --------------------------------------------------------------------------------------------------- TOTAL $8,389 $12,725 $21,114 - ---------------------------------------------------------------------------------------------------
60 - -------------------------------------------------------------------------------- NOTE 11 - DEBT Debt at September 30, 2002 and 2001 was as follows:
2002 2001 (in thousands) CARRYING WEIGHTED CARRYING WEIGHTED AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE - ---------------------------------------- ----------- ------------------ ----------- --------------- Federal Home Loan Board advances $8,500 1.94% $1,000 2.73% - ---------------------------------------- ----------- ------------------ ----------- --------------- Convertible Notes 514,190 1.88% 504,683 1.88% Other 88,788 69,691 - ---------------------------------------- ----------- ------------------ ----------- --------------- 602,978 574,374 Less current maturities 7,830 8,361 - ---------------------------------------- ----------- ------------------ ----------- --------------- Total long-term debt $595,148 $566,013 - ---------------------------------------- ----------- ------------------ ----------- ---------------
Federal Home Loan Board advances are included in other liabilities of the banking/finance operating segment. Other long-term debt consists primarily of deferred commission liability recognized in relation to the U.S. deferred commission assets financed by Lightning Finance Company Limited ("LFL") that have not been sold by LFL in a securitization transaction as of September 30, 2002. As of September 30, 2002, maturities of long-term debt were as follows: (in thousands) Carrying amount - -------------------------------------------------------------------------------- 2003 $10,082 2004 10,101 2005 10,368 2006 10,642 2007 10,924 Thereafter 543,031 - -------------------------------------------------------------------------------- Total long-term debt $595,148 - -------------------------------------------------------------------------------- In May 2001, we received approximately $490 million in net proceeds from the sale of $877 million principal amount at maturity of zero-coupon convertible senior notes due 2031 (the "Convertible Notes"). The Convertible Notes, which were offered to qualified institutional buyers only, carry an interest rate of 1.875% per annum, with an initial conversion premium of 43%. Each of the $1,000 (principal amount at maturity) Convertible Notes is convertible into 9.3604 shares of our common stock. We may redeem the Convertible Notes for cash on or after May 11, 2006 at their accreted value. We may have to repurchase the Convertible Notes at their accreted value, at the option of the holders, on May 11 of 2003, 2004, 2006, 2011, 2016, 2021 and 2026. In this event, we may choose to pay the purchase price in cash or shares of our common stock. At September 30, 2002, the amount included in long-term debt in respect of the Convertible Notes was $514.2 million including principal outstanding and accrued interest. In the maturity schedule above, we have classified this amount as maturing after September 2007, as the final maturity date is May 2031. The amount of convertible notes that will be redeemed depends on, among other factors, the performance of our common stock. At September 30, 2002, approximately $850 million was available to us under unused commercial paper and medium-term note programs and an additional $300 million was available under a shelf registration statement with the Securities and Exchange Commission permitting the issuance of debt and equity securities. We did not have any commercial paper outstanding or medium-term notes issued at September 30, 2002. Our committed revolving credit facilities at September 30, 2002 totaled $420 million, of which, $210 million was under a 364-day facility. The remaining $210 million facility was under a five-year facility and 61 - -------------------------------------------------------------------------------- will expire in June 2007. The agreements related to the revolving credit facilities include various restrictive covenants, including: a capitalization ratio, interest coverage ratio, minimum working capital and limitations on additional debt. In addition, our Fiduciary subsidiary has $350 million available in uncommitted bank lines under the Federal Reserve Funds system. NOTE 12 - INVESTMENT INCOME
(in thousands) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------- Dividends $12,934 $24,369 $12,294 Interest 37,796 63,455 57,025 Realized gains on sale of assets, net 3,957 54,869 19,718 Other-than-temporary decline in investments value (60,068) -- -- Foreign exchange losses, net (6,149) (3,629) (1,311) Other 16,605 (2,713) 2,382 - --------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME $5,075 $136,351 $90,108 - ---------------------------------------------------------------------------------------------------------------
During fiscal 2002, we recognized a $60.1 million other-than-temporary decline in value of investments. Substantially all of our dividend income was generated by investments in our Sponsored Investment Products. We realized a gain of $32.9 million on the sale of our former headquarters building in San Mateo in July 2000. That gain was amortized over 12 months, the period of our leaseback on the building. NOTE 13 - TAXES ON INCOME Taxes on income for the years ended September 30, 2002, 2001 and 2000 were as follows:
(in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------------------------- Current Federal $71,400 $84,220 $96,074 State 17,065 16,694 18,558 Foreign 38,653 41,532 59,590 Deferred expense 18,434 10,623 3,280 - -------------------------------------------------------------------------------------------------- TOTAL PROVISION FOR INCOME TAXES $145,552 $153,069 $177,502 - --------------------------------------------------------------------------------------------------
Included in income before taxes was $283.7 million, $357.0 million and $446.0 million of foreign income for the years ended September 30, 2002, 2001 and 2000. The provision for income taxes includes benefits of $9.3 million for the year ended September 30, 2002 related to the utilization of net operating loss carry-forwards. 62 - -------------------------------------------------------------------------------- The major components of the net deferred tax liability as of September 30, 2002 and 2001 were as follows:
(in thousands) 2002 2001 - --------------------------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS State taxes $5,088 $5,186 Loan loss reserves 4,007 5,021 Deferred compensation and employee benefits 26,117 24,330 Restricted stock compensation plan 32,925 34,328 Severance and retention compensation 20,735 18,232 Net operating loss and foreign tax credit carry-forwards 70,030 65,161 Investments 2,144 2,399 Other 16,260 6,796 - --------------------------------------------------------------------------------------------------------------- Total deferred tax assets 177,306 161,453 Valuation allowance for tax carry-forwards (64,939) (52,268) - --------------------------------------------------------------------------------------------------------------- Deferred tax assets, net of valuation allowance 112,367 109,185 DEFERRED TAX LIABILITIES Depreciation on fixed assets 14,271 10,842 Goodwill and other purchased intangibles 145,110 135,508 Deferred commissions 14,968 12,368 Interest Expense on Convertible Notes 11,863 3,157 Other 22,511 16,199 - --------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 208,723 178,074 - --------------------------------------------------------------------------------------------------------------- NET DEFERRED TAX LIABILITY $(96,356) $(68,889) - ---------------------------------------------------------------------------------------------------------------
At September 30, 2002, there were approximately $43 million of foreign net operating loss carry-forwards, approximately $27 million of which expire between 2003 and 2010 with the remaining carry-forwards having an indefinite life. In addition, there were approximately $725 million in state net operating loss carry-forwards that expire between 2003 and 2022. There were also approximately $10 million in federal foreign tax credit carry-forwards which will expire in 2004. A valuation allowance has been recognized on some deferred tax assets due to the uncertainty of realizing the benefit of the loss and credit carry-forwards. We have made no provision for U.S. taxes on $1,894 million of cumulative undistributed earnings of foreign subsidiaries as those earnings are intended to be reinvested for an indefinite period of time. Determination of the potential amount of unrecognized deferred U.S. income tax liability related to such reinvested income is not practicable because of the numerous assumptions associated with this hypothetical calculation; however, foreign tax credits would be available to reduce some portion of this amount. The following is a reconciliation between the amount of tax expense at the Federal statutory rate and taxes on income as reflected in operations for the years ended September 30, 2002, 2001 and 2000: (in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Federal statutory rate 35% 35% 35% Federal taxes at statutory rate $202,396 $223,226 $258,857 State taxes, net of federal tax effect 10,661 11,716 17,586 Effect of foreign operations (52,269) (75,963) (96,260) Other (15,236) (5,910) (2,681) - -------------------------------------------------------------------------------- ACTUAL TAX PROVISION $145,552 $153,069 $177,502 Effective tax rate 25% 24% 24% - -------------------------------------------------------------------------------- 63 - -------------------------------------------------------------------------------- NOTE 14 - COMMITMENTS AND CONTINGENCIES We lease office space and equipment under long-term operating leases expiring at various dates through fiscal year 2017. Lease expense aggregated $34.8 million, $41.3 million and $43.1 million for the fiscal years ended September 30, 2002, 2001 and 2000. Future minimum lease payments under non-cancelable operating leases are not material. We are contingently liable for approximately $145 million in residual guarantees under an operating lease for our global corporate headquarters in San Mateo, California. This represents about 85% of the total construction costs of $170 million. The lease is classified as an operating lease under Statement of Financial Accounting Standards No. 13, "Accounting for Leases". We are involved in various claims and legal proceedings that are considered normal in our business. While it is not feasible to predict or determine the final outcome of these proceedings, we do not believe that they should have a material adverse effect on our financial position, results of operations or liquidity. In February 2001, we signed an agreement to outsource management of our data center and distributed server operations. Under the agreement, we may end the agreement any time after March 2004 by incurring a termination charge. The maximum termination charge payable depends on the termination date, the service levels prior to our termination of the agreement, and costs incurred to wind down the services. Based on September 30, 2002 service levels, this termination fee would approximate $37.2 million. We do not consider it likely that we will incur this cost. Under the terms of the agreement, we must also pay an additional transition charge of approximately $2.7 million in March 2003. NOTE 15 - EMPLOYEE STOCK AWARD AND OPTION PLANS We sponsor a Universal Stock Incentive Plan ("USIP") and an Annual Incentive Compensation Plan ("AICP"). Under the terms of these plans, eligible employees may receive cash and stock awards based on the performance of Franklin Templeton Investments and that of the individual employee. The USIP provides for the issuance of up to 26 million shares of our common stock for various stock-related awards, including those related to the AICP. As of September 30, 2002 and prior to considering fiscal 2002 grants, we had approximately 4.8 million shares available for grant under the USIP, including those related to the AICP. In addition to the annual award of stock under the plan, we may award options and other forms of stock-based compensation to some employees. The Compensation Committee of the Board of Directors determines the terms and conditions of awards under the plans. Total compensation cost recognized for stock-based compensation during fiscal 2002, 2001 and 2000 was $34.2 million, $28.5 million and $28.9 million. Information regarding stock options is as follows:
2002 2001 2000 WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE (shares in thousands) SHARES PRICE SHARES PRICE SHARES PRICE - -------------------------------------------------------------------------------------------------- Outstanding, beginning of year 8,397 $36.94 2,222 $32.52 1,315 $32.02 Granted 4,208 $37.10 6,640 $38.41 1,108 $32.60 Exercised/cancelled (926) $37.03 (465) $36.70 (201) $29.73 - -------------------------------------------------------------------------------------------------- Outstanding, end of year 11,679 $37.00 8,397 $36.94 2,222 $32.52 Exercisable, end of year 5,479 $36.66 2,602 $35.65 437 $34.44 - --------------------------------------------------------------------------------------------------
The range of exercise prices for these outstanding options at September 30, 2002 was from $28.19 to $45.67. Of the exercisable options, 93% were exercisable at prices ranging from $32.63 to $38.38. The weighted-average remaining contractual life for the options was 7 years. These options generally vest over a 3-year period. 64 - -------------------------------------------------------------------------------- If we had determined compensation costs for our stock option plans and our Employee Stock Investment Plan (See Note 16) based upon fair values at the grant dates in accordance with the provisions of SFAS 123, our net income and earnings per share would have been reduced to the pro forma amounts indicated below. For pro forma purposes, the estimated fair value of options is amortized to expense over the options' vesting period.
FOR THE YEARS ENDED SEPTEMBER 30, 2002 2001 2000 - -------------------------------------------------------------------------------------------------- Net income (in millions) As reported $432.7 $484.7 $562.1 Pro forma 373.4 $445.3 $553.4 - -------------------------------------------------------------------------------------------------- Basic earnings per share As reported $1.66 $1.92 $2.28 Pro forma $1.43 $1.76 $2.25 - -------------------------------------------------------------------------------------------------- Diluted earnings per share As reported $1.65 $1.91 $2.28 Pro forma $1.42 $1.76 $2.24 - --------------------------------------------------------------------------------------------------
The weighted-average estimated fair value of options granted on the date of grant using Black-Scholes option-pricing model was as follows:
FOR THE YEARS ENDED SEPTEMBER 30, 2002 2001 2000 - --------------------------------------------------- -------------- ----------------- ----------------- Weighted-average fair value of options granted $16.14 $19.58 $15.31 Assumptions made: Dividend yield 1% 1% 1% Expected volatility 42% 40% 38% Risk-free interest rate 4% 5% 6% Expected life 3 - 6 years 2 - 9 years 2 - 7 years - --------------------------------------------------- -------------- ----------------- -----------------
NOTE 16 - EMPLOYEE STOCK INVESTMENT PLAN We have a qualified, non-compensatory Employee Stock Investment Plan ("ESIP") which allows participants who meet certain eligibility criteria to buy shares of our common stock at 90% of their market value on defined dates. Our stockholders approved 4 million shares of common stock for issuance under the ESIP. The ESIP is open to substantially all employees of U.S. subsidiaries and some employees of non-U.S. subsidiaries. At September 30, 2002, approximately 1,248,000 shares had been purchased on a cumulative basis under the ESIP at a weighted-average price of $32.14. In connection with the ESIP, we may, at our election, provide matching grants to participants in the ESIP of whole or partial shares of common stock. While reserving the right to change this determination, we have indicated that we will provide one half-share for each share held by a participant for a minimum period of 18 months. We made our first matching grant in fiscal 2000. During fiscal 2002, 2001, and 2000, we issued approximately 85,000, 81,000 and 84,000 shares at an average market price of $35.47, $45.04 and $35.52. NOTE 17 - OTHER COMPENSATION AND BENEFIT PLANS Fiduciary has a noncontributory retirement plan (the "retirement plan") covering substantially all its employees who were hired before our acquisition of Fiduciary, have attained age 21 and completed one year of service. Fiduciary also maintains a nonqualified supplementary executive retirement plan ("SERP") to pay defined benefits that are in excess of limits imposed by Federal tax law, to participants in the retirement plan who attain age 55 and 10 years of service. In addition to these pension retirement plans, Fiduciary sponsors a defined benefit healthcare plan that provides post-retirement medical benefits to full-time 65 - -------------------------------------------------------------------------------- employees who have worked 10 years and attained age 55 while in service of Fiduciary. As of the date of acquisition, the defined benefit healthcare plan was closed to new entrants. The following table shows the funded status of the plans, accrued benefit liability we recognized for amounts not yet funded, and assumptions used as of September 30, 2002 and 2001:
PENSION BENEFITS NON-PENSION BENEFITS (in thousands, except assumptions) 2002 2001 2002 2001 - -------------------------------------------------------------------------------------------------- BENEFIT OBLIGATION $31,635 $29,999 $5,094 $4,454 FAIR VALUE OF PLAN ASSETS $16,592 $19,180 $-- $-- FUNDED STATUS AT YEAR END $(15,043) $(10,819) $(5,094) $(4,454) Unrecognized actuarial losses (gains) 6,861 2,138 300 (155) Unrecognized prior service (credit) cost (128) 274 -- -- - -------------------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $(8,310) $(8,407) $(4,794) $(4,609) - -------------------------------------------------------------------------------------------------- AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS Accrued benefit cost recognized $(14,090) $(8,762) $(4,794) $(4,609) Intangible asset -- 355 -- -- Accumulated other comprehensive income 5,780 -- -- -- - -------------------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $(8,310) $(8,407) $(4,794) $(4,609) - -------------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE ASSUMPTIONS Discount rate 6.50% 7.25% 6.50% 7.25% Expected return on plan assets 8.00% 9.00% N/A N/A Increase in compensation rate 4.50% 5.50% 4.50% 5.50%
Following the acquisition of Fiduciary, we established an $85 million retention pool aimed at retaining key Fiduciary employees, under which employees will receive both cash payments and options. Salaried employees who remain continuously employed through the applicable dates are eligible for compensation under the program. Excluding the value of options granted, the value of the retention plan is $68 million, and is being expensed over a period ranging from one to five years. We expensed $26 million and $24 million in fiscal 2002 and 2001, including the acceleration of retention payments related to the September 11, 2001 events as described in Note 20. NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The methods and assumptions used to estimate fair values of our financial instruments are described below. See Note 1. Due to the short-term nature and liquidity of Cash and cash equivalents and Receivables, the carrying amounts of these assets in the Consolidated Balance Sheets approximated fair value. Investment securities, available-for-sale are carried at fair market value as required by generally accepted accounting principles. Loans receivable, net are valued using interest rates that consider the current credit and interest rate risk inherent in the loans and the current economic and lending conditions. The amounts in the Consolidated Balance Sheets approximated fair value. Deposits of the banking/finance segment are valued using interest rates offered by comparable institutions on deposits with similar remaining maturities. The amounts in the Consolidated Balance Sheets approximated fair value. 66 - -------------------------------------------------------------------------------- Interest-rate swap agreements and foreign exchange contracts are carried at fair value. Debt is valued using publicly-traded debt with similar maturities, credit risk and interest rates. The amounts in the Consolidated Balance Sheet approximate fair values. Guarantees and letters of credit have fair values based on the face value of the underlying instrument. NOTE 19 - BANKING REGULATORY RATIOS Following the acquisition of Fiduciary in April 2001, we became a bank holding company and a financial holding company subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional, discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require us to maintain a minimum Tier 1 capital and Tier 1 leverage ratio (as defined in the regulations), as well as minimum Tier 1 and Total risk-based capital ratios (as defined in the regulations). Based on our calculations as of September 30, 2002 and 2001, we exceeded the capital adequacy requirements applicable to us as listed below. MINIMUM FOR OUR CAPITAL ADEQUACY (in thousands) 2002 2001 PURPOSES - -------------------------------------------------------------------------------- Tier 1 capital $2,170,328 $1,957,612 N/A Total risk-based capital 2,179,363 1,966,075 N/A Tier 1 leverage ratio 45% 49% 4% Tier 1 risk-based capital ratio 65% 72% 4% Total risk-based capital ratio 65% 72% 8% - -------------------------------------------------------------------------------- NOTE 20 - SEPTEMBER 11, 2001 EVENT On September 11, 2001, the headquarters of our subsidiary company, Fiduciary, at Two World Trade Center was destroyed in the terrorist attacks on New York City (the "September 11, 2001 Event"). We have since leased office space for Fiduciary in midtown Manhattan, to resume permanent operations. The following table shows the financial impact of the event recognized at September 30, 2002 and 2001: (in thousands) 2002 2001 - ----------------------------------------------------------------------- ----------- ---------------- Cumulative September 11, 2001 costs recognized as of end of period $64,853 $50,185 September 11, 2001 expense, net -- 7,649 - ----------------------------------------------------------------------- ----------- ----------------
Approximately $19.9 million of the cumulative estimated costs recognized as of September 30, 2002 pertain to the write-off of an intangible asset related to leased office space and to the write-off of property and equipment lost in the September 11, 2001 Event. In addition, as of September 30, 2002 we had recognized a $16.5 million charge related to employee benefit expenses. These expenses include the acceleration of payments under the employee retention bonus plan related to the acquisition of Fiduciary, and other payments made in respect of victims of the tragedy. Cumulative insurance proceeds received through September 30, 2002 were $38.6 million and included $28.6 million related to property and equipment. At September 30, 2002, we were in the process of pursuing a number of additional claims with our insurance carriers. 67 - -------------------------------------------------------------------------------- NOTE 21 - NEW ACCOUNTING STANDARDS In October 2001, Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), was issued. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, and we early adopted this statement on October 1, 2001. The impact of the adoption of SFAS 144 on our reported operating results, financial position and existing financial statement disclosure was not material. In April 2002, Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"), was issued. SFAS 145 rescinds Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, Statement of Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS 145 also rescinds Statement of Financial Accounting Standards No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS 145 amends Statement of Financial Accounting Standards No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for some lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective for financial statements issued for fiscal years beginning after May 15, 2002. We believe that the adoption of SFAS 145 will not have a material impact on our results of operations or financial condition. In June 2002, Statement of Financial Accounting Standards No. 146 "Accounting for Exit or Disposal Activities" ("SFAS 146"), was issued. SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 but early application is encouraged. The provisions of EITF Issue No. 94-3 will continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF Issue No. 94-3 prior to the adoption of SFAS 146. Adopting the provisions of SFAS 146 will change, on a prospective basis, the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred. We intend to adopt the new standard effective October 1, 2002 and we do not expect this adoption to have a material impact on our results of operations or financial condition. In October 2002, Statement of Financial Accounting Standards No.147, "Acquisition of Certain Financial Institutions" ("SFAS 147"), was issued. This statement, which provides guidance on the accounting for the acquisition of a financial institution, applies to all acquisitions except those between two or more mutual enterprises. This statement is effective for financial statements issued for fiscal years beginning after September 30, 2002. We believe that the adoption of SFAS 147 will not have a material impact on our results of operations or financial condition. 68 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Franklin Resources, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity and comprehensive income and cash flows present fairly, in all material respects, the consolidated financial position of Franklin Resources, Inc. and its subsidiaries at September 30, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP San Francisco, California December 6, 2002 69 - -------------------------------------------------------------------------------- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE OFFICERS OF REGISTRANT The following information on the executive officers of FRI, including their principal occupations for the past five (5) years, is given as of December 3, 2002. JENNIFER J. BOLT AGE 38 Vice President of FRI since June 1994; officer and/or director of other Company subsidiaries; employed by FRI or subsidiaries in various other capacities for more than the past eight (8) years. HARMON E. BURNS AGE 57 DIRECTOR SINCE 1991 Vice Chairman and Director of FRI, formerly Executive Vice President and director of the Company for more than the past five (5) years; officer and/or director of many other Company subsidiaries; officer and/or director or trustee in 48 investment companies of Franklin Templeton Investments. MARTIN L. FLANAGAN AGE 42 President, Member - Office of the President, Chief Financial Officer and Chief Operating Officer of FRI; formerly Senior Vice President; Chief Financial Officer of FRI since December 1995; officer and/or director of many other Company subsidiaries; officer, director and/or trustee in 49 investment companies of Franklin Templeton Investments. BARBARA J. GREEN AGE 55 Vice President and Deputy General Counsel of FRI since January 2000; Vice President, Franklin Templeton Companies, LLC since March 2000; Senior Vice President of Templeton Worldwide, Inc. since October 1996; officer in 50 investment companies of Franklin Templeton Investments. DONNA S. IKEDA AGE 46 Vice President of FRI since October 1993. Previously employed by FRI from 1982 to 1990 as Director of Human Resources. CHARLES B. JOHNSON AGE 69 DIRECTOR SINCE 1969 Chairman of the Board, Chief Executive Officer and director of the Company for more than the past five (5) years; officer and/or director of many other Company subsidiaries; officer and/or director or trustee in 45 investment companies of Franklin Templeton Investments. 70 - -------------------------------------------------------------------------------- GREGORY E. JOHNSON AGE 41 President, Member - Office of the President; formerly Vice President of FRI for more than the past five (5) years; officer of many other Company subsidiaries and in two investment companies of Franklin Templeton Investments. RUPERT H. JOHNSON, JR. AGE 62 DIRECTOR SINCE 1969 Vice Chairman, formerly Executive Vice President and director of the Company for more than the past five (5) years; officer and/or director of many other Company subsidiaries; officer and/or director or trustee in 48 investment companies of Franklin Templeton Investments. LESLIE M. KRATTER AGE 57 Senior Vice President of FRI since January 2000 and Secretary since March 1998; formerly Vice President of FRI since March 1993; officer of many other Company subsidiaries. KENNETH A. LEWIS AGE 41 Vice President of Finance, Chief Accounting Officer and Treasurer of FRI since June 2002 and officer of many other Company subsidiaries for the past five years; formerly Vice President of FRI since September 1996. Prior to the Templeton acquisition, employed by various Templeton entities since 1989. WILLIAM J. LIPPMAN AGE 77 Senior Vice President of FRI since March 1990; officer and/or director or trustee of other Company subsidiaries and in two investment companies of Franklin Templeton Investments. MURRAY L. SIMPSON AGE 65 Executive Vice President and General Counsel of FRI since January 2000; officer in 50 investment companies of Franklin Templeton Investments. Previously Managing Director and Chief Executive Officer of Templeton Franklin Investment Services (Asia), Limited from 1994-2000. CHARLES R. SIMS AGE 41 Vice President of FRI and officer of many other Company subsidiaries for the past five years; formerly Vice President - Finance, Chief Accounting Officer since March 2000 and Treasurer of FRI since September 1997; and assistant treasurer in 53 investment companies of Franklin Templeton Investments. Prior to September 1997, employed as Vice President and Chief Financial Officer of Franklin Templeton Investments Corp. formerly known as Templeton Management Limited. Employed by Franklin Templeton Investments since 1989. ANNE M. TATLOCK AGE 63 Vice Chairman, Member - Office of the Chairman and director of the Company; Chairman of the Board (since 2000), Chief Executive Officer (since 2000), President (since 1994) and Director of Fiduciary Trust Company International, a subsidiary of Company; officer and/or director of certain other subsidiaries of Company. Director, Fortune Brands, Inc. and Merck & Co., Inc. 71 - -------------------------------------------------------------------------------- FAMILY RELATIONS. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Peter M. Sacerdote, a director of FRI, is a brother-in-law of Charles B. Johnson and Rupert H. Johnson, Jr. Gregory E. Johnson is the son of Charles B. Johnson, the nephew of Rupert H. Johnson, Jr. and Peter Sacerdote and the brother of Jennifer Bolt. Jennifer Bolt is the daughter of Charles B. Johnson, the niece of Rupert H. Johnson, Jr. and Peter Sacerdote and the sister of Gregory E. Johnson. Information regarding the biographies of the directors of FRI and compliance with Section 16(a) of the Exchange Act in the Proxy Statement under the section entitled "Proposal 1: Election of Directors" is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information in the Proxy Statement under the section entitled "Proposal 1: Election of Directors" is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information about equity compensation plans that have been approved by security holders and plans that have not been approved by security holders.
EQUITY COMPENSATION PLAN INFORMATION Number of securities remaining available for Number of securities to Weighted-average future issuance under equity be issued upon exercise exercise price of compensation plans of outstanding options, outstanding options, (excluding securities warrants and rights warrants and rights reflected in column (a)) PLAN CATEGORY (#)(a) ($)(b) (#)(c) - ------------------------- ------------------------- ------------------------- ------------------------------ Equity compensation plans approved by security holders (1) 11,678,702 (2) $ 37.00 7,271,783 (3) Equity compensation plans not approved by security holders 0 0 0 - ------------------------- ------------------------- ------------------------- ------------------------------ Total 11,678,702 $ 37.00 7,271,783
(1) Consists of the Amended and Restated 1998 Universal Stock Incentive Plan and the 1998 Employee Stock Investment Plan (the "Purchase Plan"). (2) Excludes options to purchase accruing under the Company's Purchase Plan. Due to a stock split which became effective January 15, 1998, the shareholder approved reserve increased from 2,000,000 shares to 4,000,000 shares. Under the Purchase Plan each eligible employee is granted a separate option to purchase up to 22,500 shares of Common Stock per annum at semi-accrual periods on January 31 and July 31 at a purchase price per share equal to 90% of the fair market value of the Common Stock on the enrollment date or the exercise date, whichever is lower. (3) Includes shares available for future issuance under the Purchase Plan. As of September 30, 2002, 2,514,331 of shares of Common Stock were available for issuance under the Purchase Plan. (4) The table includes information for equity compensation plans assumed by the Company in connection with acquisitions of the companies, which originally established those plans. The information in the Proxy Statement under the section entitled "Security Ownership of Principal Shareholders" and "Security Ownership of Management" is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the Proxy Statement under the section entitled "Proposal 1: Election of Directors - Certain Relationships and Related Transactions." 72 - -------------------------------------------------------------------------------- ITEM 14. CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Annual Report on Form 10-K, the Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's principal executive officer and the Company's principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on such evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective. (b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Annual Report on Form 10-K. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Please see the index in Item 8 on page 41 of this Annual Report for a list of the financial statements filed as part of this report. (a)(2) Please see the index in Item 8 on page 41 of this Annual Report for a list of the financial statement schedules filed as part of this report. (a)(3) Exhibits: See Index to Exhibits on Pages 77 to 82. (b)(1) Form 8-K filed on July 25, 2002 reporting under Item 5 "Other Events" an earnings press release, dated July 25, 2002, and including said press release as an Exhibit under Item 7 "Financial Statements and Exhibits". (b)(2) Form 8-K filed on August 13, 2002 reporting under Item 7 "Financial Statements and Exhibits", a Statement Under Oath of Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings dated August 7, 2002 of Charles B. Johnson, the Principal Executive Officer and a Statement Under Oath of Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings dated August 9, 2002 of Martin L. Flanagan, the Principal Financial Officer and under Item 9 "Regulation FD Disclosure". (c) See Item 15(a)(3) above. (d) No separate financial statements are required; schedules are included in Item 8. 73 - -------------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. FRANKLIN RESOURCES, INC. Date: December 18, 2002 By: /s/ Charles B. Johnson ---------------------- Charles B. Johnson, Chairman, Chief Executive Officer, and Member - Office of the Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date: December 18, 2002 By: /s/ Charles B. Johnson ---------------------- Charles B. Johnson, Chairman, Chief Executive Officer, Member - Office of the Chairman, and Director Date: December 18, 2002 By: /s/ Harmon E. Burns ------------------- Harmon E. Burns, Vice Chairman, Member - Office of the Chairman, and Director Date: December 18, 2002 By: /s/ Martin L. Flanagan ---------------------- Martin L. Flanagan, President, Member - Office of the President, Chief Operating Officer, and Chief Financial Officer Date: December 18, 2002 By: /s/ Gregory E. Johnson ---------------------- Gregory E. Johnson, President, and Member - Office of the President Date: December 18, 2002 By: /s/ Rupert H. Johnson, Jr. -------------------------- Rupert H. Johnson, Jr., Vice Chairman, Member - Office of the Chairman, and Director Date: December 18, 2002 By: /s/ Harry O. Kline ------------------ Harry O. Kline, Director Date: December 18, 2002 By: /s/ Kenneth A. Lewis -------------------- Kenneth A. Lewis, Vice President - Finance, Chief Accounting Officer, and Treasurer Date: December 18, 2002 By: /s/ James A. McCarthy --------------------- James A. McCarthy, Director Date: December 18, 2002 By: /s/ Peter M. Sacerdote ---------------------- Peter M. Sacerdote, Director Date: December 18, 2002 By: /s/ Anne M. Tatlock ------------------- Anne M. Tatlock, Vice Chairman, Member - Office of the Chairman, and Director Date: December 18, 2002 By: /s/ Louis E. Woodworth ---------------------- Louis E. Woodworth, Director 74 - -------------------------------------------------------------------------------- CERTIFICATIONS I, Charles B. Johnson, certify that: 1. I have reviewed this Annual Report on Form 10-K of Franklin Resources, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 18, 2002 /s/ Charles B. Johnson ---------------------- Charles B. Johnson Chief Executive Officer 75 - -------------------------------------------------------------------------------- I, Martin L. Flanagan, certify that: 1. I have reviewed this Annual Report on Form 10-K of Franklin Resources, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 18, 2002 /s/ Martin L. Flanagan ---------------------- Martin L. Flanagan Chief Financial Officer 76 - -------------------------------------------------------------------------------- EXHIBIT INDEX EXHIBIT NO. - ----------- 3(i)(a) Registrant's Certificate of Incorporation, as filed November 28, 1969, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994 (the "1994 Annual Report") 3(i)(b) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed March 1, 1985, incorporated by reference to the 1994 Annual Report 3(i)(c) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed April 1, 1987, incorporated by reference to the 1994 Annual Report 3(i)(d) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed February 2, 1994, incorporated by reference to the 1994 Annual Report 3(ii) Registrant's Amended and Restated By-laws adopted November 12, 2002 4.1 Indenture between the Registrant and The Chase Manhattan Bank (formerly Chemical Bank), as trustee, dated as of May 19, 1994, incorporated by reference to the Company's Registration Statement on Form S-3, filed on April 14, 1994 4.2 Indenture between Franklin Resources, Inc. and The Bank of New York dated May 11, 2001, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed on August 6, 2001 4.3 Form of Liquid Yield Option Note due 2031 (Zero Coupon-Senior) (included in Exhibit 4.2 hereto) 4.4 Registration Rights Agreement between Franklin Resources, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") dated May 11, 2001, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed on August 6, 2001 10.1 Representative Distribution Plan between Templeton Growth Fund, Inc. and Franklin/Templeton Investor Services, Inc., incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the "1993 Annual Report") 10.2 Representative Transfer Agent Agreement between Templeton Growth Fund, Inc. and Franklin/Templeton Investor Services, Inc., incorporated by reference to the 1993 Annual Report 10.3 Representative Investment Management Agreement between Templeton Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd., incorporated by reference to the 1993 Annual Report 10.4 Representative Management Agreement between Advisers and the Franklin Group of Funds, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992 (the "1992 Annual Report") 10.5 Representative Distribution 12b-1 Plan between FTDI and the Franklin Group of Funds, incorporated by reference to the 1992 Annual Report 10.6 Amended Annual Incentive Compensation Plan approved January 24, 1995, incorporated by reference to the Company's Proxy Statement filed under cover of Schedule 14A on December 28, 1994 in connection with its Annual Meeting of Stockholders held on January 24, 1995 * 10.7 Universal Stock Plan approved January 19, 1994, incorporated by reference to the Company's 1995 Proxy Statement filed under cover of Schedule 14A on December 29, 1993 in connection with its Annual Meeting of Stockholders held on January 19, 1994 * 77 - -------------------------------------------------------------------------------- 10.8 Representative Amended and Restated Distribution Agreement between Franklin/Templeton Distributors, Inc. and Franklin Federal Tax-Free Income Fund, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995 (the "June 1995 Quarterly Report") 10.9 Distribution 12b-1 Plan for Class II shares between Franklin/Templeton Distributors, Inc. and Franklin Federal Tax-Free Income Fund, incorporated by reference to the June 1995 Quarterly Report 10.10 Representative Investment Management Agreement between Templeton Global Strategy SICAV and Templeton Investment Management Limited, incorporated by reference to the June 1995 Quarterly Report 10.11 Representative Sub-Distribution Agreement between Templeton, Galbraith & Hansberger Ltd. and BAC Corp. Securities, incorporated by reference to the June 1995 Quarterly Report 10.12 Representative Dealer Agreement between Franklin/Templeton Distributors, Inc. and Dealer, incorporated by reference to the June 1995 Quarterly Report 10.13 Representative Investment Management Agreement between Templeton Investment Counsel, Inc. and Client (ERISA), incorporated by reference to the June 1995 Quarterly Report 10.14 Representative Investment Management Agreement between Templeton Investment Counsel, Inc. and Client (NON-ERISA), incorporated by reference to the June 1995 Quarterly Report 10.15 Representative Amended and Restated Transfer Agent and Shareholder Services Agreement between Franklin/Templeton Investor Services, Inc. and Franklin Custodian Funds, Inc., dated July 1, 1995, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 (the "1995 Annual Report") 10.16 Representative Amended and Restated Distribution Agreement between Franklin/Templeton Distributors, Inc. and Franklin Custodian Funds, Inc., incorporated by reference to the 1995 Annual Report 10.17 Representative Class II Distribution Plan between Franklin/Templeton Distributors, Inc. and Franklin Custodian Funds, Inc., on behalf of its Growth Series, incorporated by reference to the 1995 Annual Report 10.18 Representative Dealer Agreement between Franklin/Templeton Distributors, Inc. and Dealer, incorporated by reference to the 1995 Annual Report 10.19 Representative Mutual Fund Purchase and Sales Agreement for Accounts of Bank and Trust Company Customers, effective July 1, 1995, incorporated by reference to the 1995 Annual Report 10.20 Representative Management Agreement between Franklin Value Investors Trust, on behalf of Franklin MicroCap Value Fund, and Franklin Advisers, Inc., incorporated by reference to the 1995 Annual Report 10.21 Representative Sub-Distribution Agreement between Templeton, Galbraith & Hansberger Ltd. and Sub-Distributor, incorporated by reference to the 1995 Annual Report 10.22 Representative Non-Exclusive Underwriting Agreement between Templeton Growth Fund, Inc. and Templeton Franklin Investment Services (Asia) Limited, dated September 18, 1995, incorporated by reference to the 1995 Annual Report 10.23 Representative Shareholder Services Agreement between Franklin/Templeton Investor Services, Inc. and Templeton Franklin Investment Services (Asia) Limited, dated September 18, 1995, incorporated by reference to the 1995 Annual Report 78 - -------------------------------------------------------------------------------- 10.24 Agreement to Merge the Businesses of Heine Securities Corporation, Elmore Securities Corporation and Franklin Resources, Inc., dated June 25, 1996, incorporated by reference to the Company's Report on Form 8-K dated June 25, 1996 10.25 Subcontract for Transfer Agency and Shareholder Services dated November 1, 1996 by and between Franklin Investor Services, Inc. and PFPC Inc., incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996 (the "1996 Annual Report") 10.26 Representative Sample of Franklin/Templeton Investor Services, Inc. Transfer Agent and Shareholder Services Agreement, incorporated by reference to the 1996 Annual Report 10.27 Representative Administration Agreement between Templeton Growth Fund, Inc. and Franklin Templeton Services, Inc., incorporated by reference to the 1996 Annual Report 10.28 Representative Sample of Fund Administration Agreement with Franklin Templeton Services, Inc., incorporated by reference to the 1996 Annual Report 10.29 Representative Subcontract for Fund Administrative Services between Franklin Advisers, Inc. and Franklin Templeton Services, Inc., incorporated by reference to the 1996 Annual Report 10.30 Representative Investment Advisory Agreement between Franklin Mutual Series Fund Inc. and Franklin Mutual Advisers, Inc., incorporated by reference to the 1996 Annual Report 10.31 Representative Management Agreement between Franklin Valuemark Funds and Franklin Mutual Advisers, Inc., incorporated by reference to the 1996 Annual Report 10.32 Representative Investment Advisory and Asset Allocation Agreement between Franklin Templeton Fund Allocator Series and Franklin Advisers, Inc., incorporated by reference to the 1996 Annual Report 10.33 Representative Management Agreement between Franklin New York Tax-Free Income Fund, Inc. and Franklin Investment Advisory Services, Inc., incorporated by reference to the 1996 Annual Report 10.34 1998 Employee Stock Investment Plan approved January 20, 1998, incorporated by reference to the Company's Proxy Statement filed under cover of Schedule 14A on December 17, 1997 in connection with its Annual Meeting of Stockholders held on January 20, 1998 10.35 System Development and Services Agreement dated as of August 29, 1997 by and between Franklin/Templeton Investor Services, Inc. and Sungard Shareholder Systems, Inc., incorporated by reference to the 1997 Annual Report 10.36 1998 Universal Stock Incentive Plan approved October 16, 1998 by the Board of Directors, incorporated by reference to the Company's Proxy Statement filed under cover of Schedule 14A on December 23, 1998 in connection with its Annual Meeting of Stockholders held on January 28, 1999* 10.37 Amendment No. 3 to the Agreement to Merge the Businesses of Heine Securities Corporation, Elmore Securities Corporation and Franklin Resources, Inc., dated December 17, 1997, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1997 10.38 Representative Agreement for the Supply of Investment Management and Administration Services, dated February 16, 1998, by and between Templeton Funds and Templeton Investment Management Limited, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 79 - -------------------------------------------------------------------------------- 10.39 Representative Investment Management Agreement between Templeton Investment Counsel, Inc. and Client (ERISA), as amended, incorporated by reference to the Company's Annual Report on Form 10-K/A for the fiscal year ended September 30, 1998 (the "1998 Annual Report") 10.40 Representative Investment Management Agreement between Templeton Investment Counsel, Inc. and Client (NON-ERISA), as amended, incorporated by reference to the 1998 Annual Report 10.41 Representative Variable Insurance Fund Participation Agreement among Templeton Variable Products Series Fund or Franklin Valuemark Fund, Franklin/Templeton Distributors, Inc. and an insurance company, incorporated by reference on Form 10-Q for the quarter ended December 31, 1998 10.42 Purchase Agreement between Mariners Island Co-Tenancy and Keynote Systems, Inc. dated April 25, 2000, incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended June 30, 2000 10.43 Acquisition Agreement dated July 26, 2000 among Franklin Resources, Inc., FTI Acquisition and Bissett & Associates Investment Management, Ltd., incorporated by reference to the Company's Report on Form 8-K dated August 1, 2000 10.44 Agreement and Plan of Share Acquisition between Franklin Resources, Inc. and Fiduciary Trust Company International dated October 25, 2000, incorporated by reference to the Company's Report on Form 8-K/A (Amendment No. 1) dated October 25, 2000 and filed on October 26, 2000 10.45 Representative Amended and Restated Distribution Agreement among Templeton Emerging Markets Fund, Templeton Canadian Bond Fund, Templeton International Stock Fund, Templeton Canadian Stock Fund, Templeton Global Smaller Companies Fund, Templeton Global Bond Fund, Templeton Treasury Bill Fund, Templeton Global Balanced Fund, Templeton International Balanced Fund, Templeton Canadian Asset Allocation Fund, Mutual Beacon Fund, Franklin U.S. Small Cap Growth Fund, Templeton Balanced Fund, Templeton Growth Fund, Ltd., Templeton Management Limited and FEP Capital, L.P. dated December 31, 1998, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (the "2000 Annual Report") 10.46 Representative Purchase and Sales Agreement by and among Franklin/Templeton Distributors, Inc., Franklin Resources, Inc. and Lightning Finance Company Limited dated August 1, 1999, incorporated by reference to the 2000 Annual Report 10.47 Representative Advisory Agreement between Templeton Global Advisers Limited and Templeton Asset Management Limited dated December 21, 1999, incorporated by reference to the 2000 Annual Report 10.48 Representative Amended and Restated Commission Paying Agreement between Templeton Global Strategy Funds, Templeton Global Advisors Limited, Templeton Global Strategic Services S.A., and Lightning Finance Company Limited dated January 31, 2000, incorporated by reference to the 2000 Annual Report 10.49 Representative Variable Insurance Fund Participation Agreement among Franklin Templeton Variable Insurance Products Trust (formerly Franklin Valuemark Funds), Franklin/Templeton Distributors, Inc. and CUNA Mutual Life Insurance Company dated May 1, 2000, incorporated by reference to the 2000 Annual Report 10.50 Stock Purchase Agreement between Good Morning Securities Co., Ltd. and Templeton Investment Counsel, Inc. dated June 29, 2000, incorporated by reference to the 2000 Annual Report 80 - -------------------------------------------------------------------------------- 10.51 Agreement entered into between NEDCOR Investment Bank Holdings Limited, NEDCOR Investment Bank Limited, Templeton International, Inc., Franklin Templeton Asset Management (Proprietary) Limited and Templeton Global Advisors Limited dated August 1, 2000, incorporated by reference to the 2000 Annual Report 10.52 Representative Amended and Restated Distribution Agreement between Franklin/Templeton Distributors, Inc. and Franklin Growth and Income Fund dated August 10, 2000, incorporated by reference to the 2000 Annual Report 10.53 Employment Agreement entered into on December 22, 2000 by and among Anne M. Tatlock, Fiduciary Trust Company International and Franklin Resources, Inc., incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended December 31, 2000* 10.54 Amended and Restated 1998 Universal Stock Incentive Plan as approved by the Board of Directors on October 28, 2000 and the Stockholders at the Annual Meeting held on January 25, 2001, incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended December 31, 2000* 10.55 Representative Sub-Advisory Agreement between FTTrust Company, on behalf of Templeton International Smaller Companies Fund, Templeton Investment Counsel, LLC and Templeton Asset Management Limited, dated January 23, 2001, incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended March 31, 2001 10.56 Managed Operations Services Agreement between Franklin Templeton Companies, LLC, and International Business Machines Corporation dated February 6, 2001, incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended March 31, 2001 10.57 Representative Agency Agreement between FTTrust Company and Franklin/Templeton Investor Services, LLC, dated April 1, 2001, incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended March 31, 2001 10.58 Lease between RCPI Landmark Properties, L.L.C. and Franklin Templeton Companies, LLC dated September 30, 2001, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2001 (the "2001 Annual Report") 10.59 Synthetic Lease Financing Facility Agreements dated September 27, 1999, incorporated by reference to the 2001 Annual Report 10.60 Representative Amended and Restated Master Management Agreement between Franklin Templeton Investment Corp., as Trustee of Mutual funds and Franklin Templeton Investment Corp., as Manager, dated May 31, 2001, incorporated by reference to the 2001 Annual Report 10.61 Representative Master Management Agreement dated May 31, 2001 between Franklin Templeton Tax Class Corp. and Franklin Templeton Investments Corp., incorporated by reference to the 2001 Annual Report 10.62 Deferred Compensation Agreement for Director's Fees, as amended on April 15, 2002, incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended March 31, 2002 10.63 Franklin Resources, Inc. 1998 Employee Stock Investment Plan as amended by the Board of Directors on October 10, 2002, incorporated by reference to the Company's Report on Form S-8 filed on October 28, 2002 10.64 Amended and Restated Five Year Facility Credit Agreement dated June 5, 2002 between Franklin Resources, Inc. and The Several Banks Parties Thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JP Morgan Chase Bank, as Administrative Agent 81 - -------------------------------------------------------------------------------- 10.65 Amended and Restated 364 Day Facility Credit Agreement dated June 5, 2002 between Franklin Resources, Inc. and The Several Banks Parties Thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JP Morgan Chase Bank, as Administrative Agent 10.66 Settlement Agreement and Release of All Claims dated July 7, 2002 between Franklin Resources, Inc. and Allen J. Gula, Jr. 10.67 Stock Purchase Agreements dated July 23, 2002 between Templeton Asset Management (India) Private Limited and Investment Trust of India Limited, Pioneer Investment Management, Inc. and various employee shareholders* 12 Computation of Ratios of Earnings to Fixed Charges 21 List of Subsidiaries 23 Consent of Independent Auditors 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Management Contract or Compensatory Plan or Arrangement 82 - -------------------------------------------------------------------------------- EX-3.(II) 3 amended_bylaws1102.txt AS ADOPTED ON NOVEMBER 12, 2002 Exhibit 3(ii) AMENDED AND RESTATED BY-LAWS OF FRANKLIN RESOURCES, INC. (Adopted November 12, 2002) ARTICLE I Offices Section 1.1 OFFICES. The Corporation may have offices at such places both within and without the State of Delaware as the Board of Directors or the Chairman of the Board may from time to time determine or the business of the Corporation may require. ARTICLE II Stockholders Section 2.1 ANNUAL MEETING AND ELECTION OF DIRECTORS. The Annual Meeting of Stockholders shall be held at such place either within or without the State of Delaware and at such time and on such date as may be designated by resolution of the Board of Directors from time to time. The directors shall be elected and any other proper business may be transacted at each Annual Meeting of Stockholders. Section 2.2 SPECIAL MEETINGS. Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors or the Chairman of the Board of Directors. Each special meeting shall be held at such date and time as is requested by the person or persons calling the meeting within the limits fixed by law. Section 2.3 PLACE OF MEETINGS. Each annual or special meeting of stockholders shall be held at such location either within or without the State of Delaware as may be determined by the Board of Directors, or if no such determination is made, at such place as may be determined by the Chairman of the Board of Directors. If no location is so determined, any annual or special meeting shall be held at the principal executive office of the Corporation. Section 2.4 NOTICE OF MEETINGS. Notice of each annual or special meeting of stockholders shall contain such information, and shall be given to such persons at such time, and in such manner, as the Board of Directors shall determine, or if no such determination is made, as the Chairman of the Board shall determine, subject to the requirements of applicable law. Section 2.5 ADJOURNMENTS. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.6 CONDUCT OF MEETINGS. Subject to the requirements of applicable law, all annual and special meetings of stockholders shall be conducted in accordance with such rules and procedures as the Board of Directors may determine and, as to matters not governed by such rules and procedures, as the Chairman of such meeting shall determine. Section 2.7 QUORUM. The holders of a majority of the shares issued and outstanding and entitled to vote at a meeting of the stockholders shall constitute a quorum thereat for the transaction of business, except as otherwise provided by statute, by the Certificate of Incorporation ("Certificate") or by these By-Laws. If a quorum is not present or represented at a meeting of the stockholders, the stockholders so present and entitled to vote may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 2.5 of these By-Laws until a quorum is present or represented. At any rescheduled meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. Section 2.8 ACTION WITHOUT MEETING. Any action required by statute to be taken at a meeting of the stockholders, or any action that may be taken at a meeting of the stockholders, may be taken without a meeting, without prior written notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize to take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the Corporation to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of minutes of stockholders are recorded. The signed consent or a signed copy shall be placed in the minute book of the Corporation and prompt notice of the taking of the corporate action shall be given to those stockholders who have not consented in writing. Section 2.9 TELEPHONE AND SIMILAR MEETINGS. Stockholders may participate in and hold a meeting at which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at the meeting, unless a stockholder participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 2.10 VOTING; PROXIES. Except as otherwise provided by the Certificate, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law, the Certificate or these By-Laws, be decided by the vote of the holders of shares of stock having a majority of the votes present in person or represented by proxy and entitled to vote on the matter. Section 2.11 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than 60 nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than 60 days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE III Directors Section 3.1 NUMBER. The authorized number of directors on the Board of Directors shall be eleven (11) unless changed by a by-law duly adopted either by the Board of Directors or the stockholders amending this Section 3.1. Section 3.2 QUALIFICATION; ELECTION; TERM. (a) Except as otherwise provided by Section 3.9 of these By-Laws, the directors shall be elected at the annual meeting of stockholders. (b) Each director elected shall hold office until the next annual meeting of stockholders and until his or her successor has been elected and qualified or until his or her death, resignation, retirement, disqualification or removal. Section 3.3 POWERS. Subject to limitations of the Certificate, these By-Laws, and the General Corporation Law of the State of Delaware relating to actions required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the Corporation to the officers of the Corporation or other persons provided that the business and affairs of the Corporation shall be managed by and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. Section 3.4 MEETINGS OF THE BOARD. (a) Each meeting of the Board of Directors shall be held at a location determined as follows. The Board of Directors may designate any place, within or without the State of Delaware, for the holding of any meeting. If no such designation is made, the meeting shall be held at the Corporation's principal executive office. Subject to the requirements of applicable law, all meetings of the Board of Directors shall be conducted in accordance with such rules and procedures as the Board of Directors may approve and, as to matters not governed by such rules and procedures, as the Chairman of such meeting shall determine. (b) Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman, any President, any Vice President, the Secretary, or by any member of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least 24 hours before the special meeting. Section 3.5 QUORUM: VOTE REQUIRED FOR ACTION. At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the Certificate or these By-Laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 3.6 ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent setting forth the action so taken is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the Secretary of the Corporation and placed in the minute book. Such consent shall have the same force and effect as a unanimous vote at a meeting of such Board of Directors or committee. Section 3.7 COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have any powers or authority in reference to: (a) amending the Certificate; (b) approving an agreement of merger or consolidation; (c) recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets otherwise than in the usual and regular course of its business; (d) recommending to the stockholders a dissolution of the Corporation or a revocation thereof; (e) amending or repealing the By-Laws of the Corporation or adopting new By-Laws of the Corporation; (f) amending or repealing any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (g) appointing other committees of the Board of Directors or the members thereof; (h) filling new vacancies in or removing members of the Board of Directors or of any committee appointed by the Board of Directors; (i) fixing the compensation of the directors for serving on the Board of Directors or for serving as any member of a committee thereof; or (j) unless the resolution of the Board of Directors expressly so provides, declaring a dividend or authorizing the issuance of stock. Any such committee shall report on its meetings to the Board of Directors at the next meeting of the Board of Directors. Section 3.8 REMOVAL. Any or all directors may be removed at any time, with or without cause, by the holders of a majority of the shares of stock outstanding and entitled to vote for the election of directors. Section 3.9 VACANCIES. A vacancy occurring in the Board of Directors (by death, resignation, retirement, disqualification, removal or otherwise) may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum, or by a sole remaining director, or by vote of the stockholders required for the election of directors generally. Section 3.10 COMPENSATION. Members of the Board of Directors and any committee thereof may, by resolution of the Board of Directors, be allowed compensation for attending meetings of the Board of Directors and committees thereof. Section 3.11 TELEPHONE AND SIMILAR MEETINGS. Board members may participate in and hold a meeting at which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at the meeting, unless a person authorized to participate in such a meeting participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting was not lawfully called or convened. Section 3.12 MINUTES. The Board of Directors shall keep either a record of action taken or minutes of their proceedings. The minutes of the proceedings of any committee of the Board of Directors shall be placed in the minute book of the Corporation. ARTICLE IV Indemnification of Directors, Officers, Employees and Agents Section 4.1 INDEMNIFICATION RESPECTING THIRD PARTY CLAIMS. The Corporation, to the fullest extent permitted, and in the manner required, by the laws of the State of Delaware as in effect at the time of the adoption of this Article or as such laws may be amended from time to time shall indemnify any person who was or is made a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (including any appeal thereof), whether civil, criminal, administrative or investigative in nature (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of, or to represent the interests of, the Corporation as a director, officer, partner, fiduciary, employee or agent (a "Subsidiary Officer") of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Affiliated Entity"), against expenses, (including attorneys' fees and disbursements), costs, judgment, fines, penalties and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; provided, however, that the Corporation shall not be obligated to indemnify against any amount paid in settlement unless the Corporation has consented to such settlement, which consent shall not be unreasonably withheld. The termination of any action, suit or proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that such person had reasonable cause to believe that his or her conduct was unlawful. Notwithstanding anything to the contrary in the foregoing provisions of this Section 4.1, a person shall not be entitled, as a matter of right, to indemnification pursuant to this Section 4.1 against costs or expenses incurred in connection with any action, suit or proceeding commenced by such person against any person who is or was a director, officer, fiduciary, employee or agent of the Corporation or a Subsidiary Officer of any Affiliated Entity, but such indemnification may be provided by the Corporation in a specific case as permitted by Section 4.6 of this Article. Section 4.2 INDEMNIFICATION RESPECTING DERIVATIVE CLAIMS. The Corporation, to the full extent permitted, and in the manner required, by the laws of the State of Delaware as in effect at the time of the adoption of this Article or as such laws may be amended from time to time, shall indemnify any person who was or is made a party to or is threatened to be made a party to any threatened, pending or completed action or suit (including any appeal thereof) brought in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was director, officer, employee or agent of the Corporation or is or was serving at the request of, or to represent the interests of, the Corporation as a Subsidiary Officer of an Affiliated Entity against expenses (including attorneys' fees and disbursements) and costs actually and reasonably incurred by such person in connection with such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless, and except to the extent that, the Court of Chancery of the State of Delaware or the court in which such judgment was rendered shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses and costs as the Court of Chancery of the State of Delaware or such other court shall deem proper. Notwithstanding anything to the contrary in the foregoing provisions of this Section 4.2, a person shall not be entitled, as a matter of right, to indemnification pursuant to this Section 4.2 against costs and expenses incurred in connection with any action or suit in the right of the Corporation commenced by such person, but such indemnification may be provided by the Corporation in any specific case as permitted by Section 4.6 of this Article. Section 4.3 DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. Any indemnification under Section 4.1 or 4.2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper under the circumstances because such person has met the applicable standard of conduct set forth in, Section 4.1 or 4.2 of this Article. Such determination shall be made with respect to a person who is a director or officer at the time of such determination (i) by a majority vote of the Board of Directors who were not parties to the action, suit or proceeding, even though less than a quorum or (ii) by a committee of such directors (each of whom is not a party to such action, suit or proceeding) designated by majority vote of the Board of Directors, even though less than a quorum, or (iii) if there are no such directors or if the disinterested directors so direct, by independent legal counsel in a written opinion, or (iv) by the stockholders. In the event a request for indemnification is made by any person referred to in Section 4.1 or Section 4.2 of this Article, the Corporation shall cause such determination to be made not later than 60 days after such request is made. Section 4.4 RIGHT TO INDEMNIFICATION UPON SUCCESSFUL DEFENSE AND FOR SERVICE AS WITNESS. (a) Notwithstanding the other provisions of this Article, to the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 4.1 or 4.2 of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees and disbursements) and costs actually and reasonably incurred by such person in connection therewith. (b) To the extent any person who is or was a director, officer, employee or agent of the Corporation has served or prepared to serve as a witness in any action, suit or proceeding (whether civil, criminal, administrative or investigative in nature) or in any investigation by the Corporation or the Board of Directors thereof or committee thereof or by any securities exchange on which securities of the Corporation are or were listed by reason of his services as a director, officer, employee or agent of the Corporation or as a Subsidiary Officer of any Affiliated Entity (other than in a suit commenced by such person), the Corporation shall indemnify such person against expenses (including attorneys' fees and disbursements) and costs actually and reasonably incurred by such person in connection therewith within 30 days after receipt by the Corporation from such person of a statement requesting such indemnification, averring such service and reasonably evidencing such expenses and costs. Section 4.5 ADVANCE OF EXPENSES. Expenses (including attorneys' fees) and costs incurred by an officer of director of the Corporation in defending a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized by this Article. Such expenses (including attorneys' fees) incurred by other former directors and officers employees or agents of the Corporation may be so paid upon such terms and conditions, if any, as the corporation deems appropriate. Section 4.6 INDEMNIFICATION NOT EXCLUSIVE. The provision of indemnification to, or the advancement of expenses and costs to, any person under this Article, or the entitlement of any person to indemnification or advancement of expenses and costs under this Article, shall not limit or restrict in any way the power of the Corporation to indemnify or advance expenses and costs to such person in any other way permitted by law or be deemed exclusive of, or invalidate, any right to which any person seeking indemnification or advancement of expenses and costs may be entitled under any law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's capacity as an officer, director, employee or agent of the Corporation and as to action to any other capacity while holding any such position. Section 4.7 ACCRUAL OF CLAIMS; SUCCESSORS. The indemnification provided or permitted under this Article shall apply in respect of any expense, cost, judgment, fine, penalty or amount paid in settlement, whether or not the claim or cause of action in respect thereof accrued or arose before or after the effective date of this Article. The right of any person who is or was a director, officer, employee or agent of the Corporation to indemnification under this Article shall continue after he shall have ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, distributes, executors, administrators and other legal representatives of such person. Section 4.8 CORPORATE OBLIGATIONS; RELIANCE. This Article shall be deemed to create a binding obligation on the part of the Corporation to its current and former officers, directors, employees and agents and their heirs, distributes, executors, administrators and other legal representatives, and such persons in acting in such capacities shall be entitled to rely on the provisions of this Article, without giving notice thereof to the Corporation. Section 4.9 INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of, or to represent the interests of, the Corporation as a Subsidiary Officer of any Affiliated Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article or applicable law. Section 4.10 DEFINITIONS OF CERTAIN TERMS. (a) For purposes of this Article, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its corporate existence had continued, would have been permitted under applicable law to indemnify its directors, officers employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request, or to represent the interests of, such constituent corporation as a director, officer, employee or agent of any Affiliated Entity shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Article, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; references to "serving at the request of the Corporation" shall include any service as a director, officer, fiduciary, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, fiduciary, employee or agent-with respect to an employee benefit plan, its participants, or beneficiaries: and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the Corporation" as referred to in this Article. Section 4.11 AMENDMENT OR REPEAL. Any repeal or modification of the foregoing provisions of this Article IV shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE V Officers Section 5.1 PRINCIPAL OFFICERS. The principal officers of the Corporation shall be a Chairman of the Board, one or more Presidents, a Secretary and a Treasurer, each of whom shall have the authority to perform the duties provided in these By-Laws and such other duties, and may have such other authority and powers, as may from time to time be prescribed by the Board of Directors or as the Chairman of the Board may from time to time delegate. One person may hold two or more offices, except that the Secretary may not also hold the office of President. Section 5.2 SUBORDINATE OFFICERS. The Corporation may also have, at the discretion of the Board of Directors, one or more Vice Chairmen, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as the business of the Corporation may require, each of whom shall have the authority and perform the duties as may be provided in these By-Laws or as may from time to time be assigned by the Board of Directors. Section 5.3 APPOINTMENT OF THE CORPORATION'S OFFICERS. The Board of Directors shall appoint the officers of the Corporation, each such officer to hold his office until the earlier of his death, resignation, retirement, disqualification or removal. Thereafter, the Board of Directors may, from time to time, appoint other officers of the Corporation to fill a vacancy in any office or otherwise, each such officer to hold his office until the earlier of his death, resignation, retirement, disqualification or removal from office. Section 5.4 REMOVAL AND RESIGNATION. (a) Any officer may be removed, either with or without cause, by the unanimous written consent of the Board of Directors or by a majority of the directors at the time in office, at any regular or special meeting of the Board of Directors. (b) Any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board of Directors, a President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5.5 CHAIRMAN OF THE BOARD. (a) The Chairman of the Board shall, subject to the ultimate direction of the Board of Directors, have general supervision, direction and control of the business and affairs of the Corporation. (b) The Chairman of the Board shall have the general powers and duties of management usually vested in the chief executive officer of a corporation. (c) The Chairman of the Board shall provide the general and active management of the business operations of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. (d) The Chairman of the Board shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors to some other officer or agent of the Corporation. Section 5.6 PRESIDENT. (a) A President, unless a Chairman of the Board is elected by the Board of Directors, shall, if present, preside at all meetings of stockholders or directors. Section 5.7 SECRETARY. (a) The Secretary shall keep, or cause to be kept, the minute book of the Corporation at the principal executive office of the Corporation, or such other place as the Board of Directors may order, of all meetings of stockholders, the Board of Directors and its committees, with the time and place of holding, whether regular or special and if special, how authorized and the notice thereof given, the names of those present at Board of Directors and committee meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. (b) The Secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. Section 5.8 TREASURER. (a) The Treasurer shall deposit or cause the deposit of all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. (b) The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements of the Corporation. (c) The Treasurer shall be responsible for effecting the properly authorized disbursement of funds of the Corporation and shall provide appropriate and timely accounting of his transactions as Treasurer to the Chairman of the Board and to the Board of Directors. (d) The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, additional paid-in capital and retained earnings. Capital and additional paid-in capital shall be classified according to source and shown in separate accounts. (e) The Treasurer shall provide appropriate and timely reports on the financial condition of and the results of operations of the Corporation to the Chairman of the Board and to the Board of Directors. Section 5.9 VICE PRESIDENTS. The Vice Presidents, if any, shall exercise and perform such powers and duties with respect to the administration of the business affairs and operations of the Corporation as may from time to time be assigned to each of them by the Chairman of the Board, a President or the Board of Directors, or if not ranked, a Vice President designated by the Board of Directors, may perform all of the duties of the Chairman of the Board and when so acting shall have all of the powers of and be subject to all of the restrictions upon the Chairman of the Board. Section 5.10 ASSISTANT SECRETARIES. The Assistant Secretaries, if any, may, in the absence or disability of the Secretary, perform all of the duties of the Secretary and when so acting shall have all of the powers of and be subject to all of the restrictions upon the Secretary. Section 5.11 ASSISTANT TREASURERS. The Assistant Treasurers, if any, may, in the absence or disability of the Treasurer, perform all of the duties of the Treasurer and when so acting shall have all of the powers of and be subject to all of the restrictions upon the Treasurer. Section 5.12 COMPENSATION. The compensation, if any, of the officers and agents shall be fixed from time to time by the Board of Directors. ARTICLE VI Amendments Section 6.1 BY-LAWS. These By-Laws may be altered or repealed, and new By-Laws adopted by the Board of Directors, but the stockholders may make additional By-Laws and may alter and repeal any By-Laws whether adopted by them or otherwise. ARTICLE VII General Provisions Section 7.1 SEAL. The Board of Directors shall adopt a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the date of incorporation. Section 7.2 METHOD. Whenever by statute, the Certificate, these By-Laws, or otherwise, notice is required to be given to a director, committee member or stockholder, and no provision is made as to how the notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given: (a) in writing by mail, first-class postage prepaid, addressed to the director, committee member, or stockholder and the address appearing on the books of the Corporation; (b) facsimile transmission; or (c) in any other method permitted by law. Any notice required or permitted to be given by mail shall be deemed given at the time when the same is deposited in accordance with the terms of this Section in the United States mails. Section 7.3 WAIVER OF NOTICE. Whenever notice is required to be given by these By-Laws or the Certificate or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated herein, and such waiver shall be deemed equivalent to notice. Section 7.4 FISCAL YEAR. The fiscal year of the Corporation shall end on the 30th day of September in each year. Section 7.5 CONSTRUCTION. Whenever the context so requires, the masculine gender shall include the feminine and neuter genders and the singular shall include the plural, and conversely. If any portion of these By-Laws shall be invalid or inoperative, then, so far as is reasonable and possible: (a) the remainder of these By-Laws shall be considered valid and operative; and (b) effect shall be given to the intent manifested by the portion held invalid or inoperative. Section 7.6 HEADINGS. The headings set forth in these By-Laws are for organization, convenience and clarity. In interpreting these By-Laws, they shall be subordinated in importance to other written material. Section 7.7 RELATION TO THE CERTIFICATE OF INCORPORATION. These By-Laws are subject to, and governed by the Certificate and any written agreement by a majority in interest of the stockholders filed with the Corporation at its principal place of business. Section 7.8 FORM OF RECORDS. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, diskettes, hard disk drives, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. EX-10 4 exhibit_10-64.txt EXHIBIT 10.64-5YR CREDIT AGMT EXHIBIT 10.64 EXECUTION COPY ================================================================================ AMENDED AND RESTATED FIVE YEAR FACILITY CREDIT AGREEMENT dated as of June 5, 2002 among FRANKLIN RESOURCES, INC. THE BANKS PARTIES HERETO, BANK OF AMERICA, N.A. and THE BANK OF NEW YORK, as Co-Syndication Agents CITICORP USA INC. and BNP PARIBAS, as Co-Documentation Agents and JPMORGAN CHASE BANK, as Administrative Agent ================================================================================ J.P. MORGAN SECURITIES INC., as Sole Bookrunner and Sole Lead Arranger TABLE OF CONTENTS Page Section 1. DEFINITIONS......................................................1 1.1 Defined Terms....................................................1 1.2 Other Definitional Provisions...................................16 Section 2. AMOUNT AND TERMS OF LOANS.......................................17 2.1 Revolving Credit Commitments....................................17 2.2 Procedure for Revolving Credit Borrowing........................17 2.3 The Bid Loans...................................................18 2.4 Repayment of Loans; Evidence of Debt............................20 2.5 Optional Termination or Reduction of Commitments................21 2.6 Optional Prepayments............................................21 2.7 Mandatory Prepayments...........................................22 2.8 Conversion and Continuation Options.............................22 2.9 Minimum Amounts of Tranches.....................................23 2.10 Interest Rates and Payment Dates................................23 2.11 Computation of Interest and Fees................................24 2.12 Inability to Determine Interest Rate............................24 2.13 Pro Rata Treatment and Payments.................................25 2.14 Illegality......................................................25 2.15 Requirements of Law.............................................26 2.16 Taxes...........................................................27 2.17 Indemnity.......................................................28 2.18 Facility and Utilization Fees...................................28 2.19 Mitigation of Costs; Replacement of Banks.......................29 2.20 New Banks; Exiting Banks........................................30 Section 3. REPRESENTATIONS AND WARRANTIES..................................30 3.1 Financial Condition.............................................30 3.2 No Change.......................................................31 3.3 Corporate Existence; Compliance with Law........................31 3.4 Corporate Power; Authorization; Enforceable Obligations.........31 3.5 No Legal Bar....................................................31 3.6 No Material Litigation..........................................32 3.7 Ownership of Property; Liens....................................32 3.8 Intellectual Property...........................................32 3.9 Taxes...........................................................32 3.10 Federal Regulations.............................................32 3.11 ERISA...........................................................33 3.12 Investment Company Act; Other Regulations.......................33 3.13 Investment Advisory Agreements..................................34 3.14 Subsidiaries....................................................34 3.15 Purpose of Loans................................................34 3.16 Environmental Matters...........................................34 i 3.17 Accuracy and Completeness of Information........................35 Section 4. CONDITIONS PRECEDENT............................................35 4.1 Conditions to Execution.........................................35 4.2 Conditions to Each Loan.........................................36 Section 5. AFFIRMATIVE COVENANTS...........................................36 5.1 Financial Statements............................................36 5.2 Certificates; Other Information.................................38 5.3 Payment of Obligations..........................................38 5.4 Conduct of Business and Maintenance of Existence................38 5.5 Maintenance of Property; Insurance..............................38 5.6 Inspection of Property; Books and Records; Discussions..........39 5.7 Notices.........................................................39 5.8 Environmental Laws..............................................40 Section 6. NEGATIVE COVENANTS..............................................40 6.1 Financial Condition Covenants...................................40 6.2 Limitation on Indebtedness......................................41 6.3 Limitation on Liens.............................................41 6.4 Limitations on Fundamental Changes..............................43 6.5 Limitation on Sale of Assets....................................44 6.6 Limitation on Investments, Loans and Advances...................44 6.7 Transactions with Affiliates....................................44 6.8 Fiscal Year.....................................................45 6.9 Restrictions Affecting Subsidiaries.............................45 Section 7. EVENTS OF DEFAULT...............................................45 Section 8. THE AGENTS......................................................47 8.1 Appointment.....................................................47 8.2 Delegation of Duties............................................48 8.3 Exculpatory Provisions..........................................48 8.4 Reliance by Administrative Agent................................48 8.5 Notice of Default...............................................49 8.6 Non-Reliance on Administrative Agent and Other Banks............49 8.7 Indemnification.................................................49 8.8 The Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents in their Individual Capacities........50 8.9 Successor Administrative Agent..................................50 8.10 Co-Syndication Agents and Co-Documentation Agents...............50 Section 9. MISCELLANEOUS...................................................51 9.1 Amendments and Waivers..........................................51 9.2 Notices.........................................................51 9.3 No Waiver; Cumulative Remedies..................................52 9.4 Survival of Representations and Warranties......................53 ii 9.5 Payment of Expenses and Taxes...................................53 9.6 Successors and Assigns; Participations; Purchasing Banks........53 9.7 Adjustments; Set-off............................................57 9.8 Counterparts....................................................57 9.9 Severability....................................................57 9.10 Integration.....................................................57 9.11 GOVERNING LAW...................................................58 9.12 Submission To Jurisdiction; Waivers; Appointment of Process Agent.........................................................58 9.13 Acknowledgements................................................58 9.14 WAIVERS OF JURY TRIAL...........................................59 9.15 Confidentiality.................................................59 iii SCHEDULES Schedule I Commitments Schedule II Sample Computations of Facility and Utilization Fees Schedule III Required Consents Schedule IV Subsidiary Investment Advisers Schedule V Subsidiary Broker-Dealers Schedule VI List of Subsidiaries of the Borrower Schedule VII Outstanding Indebtedness Schedule VIII Existing Liens EXHIBITS Exhibit A Form of Bid Loan Confirmation Exhibit B Form of Bid Loan Offer Exhibit C Form of Bid Loan Request Exhibit D Form of Assignment and Assumption Exhibit E-1 Form of Revolving Credit Note Exhibit E-2 Form of Grid Bid Loan Note Exhibit E-3 Form of Individual Bid Loan Note iv AMENDED AND RESTATED FIVE YEAR FACILITY CREDIT AGREEMENT, dated as of June 5, 2002 (as more fully defined below, this "Agreement"), among Franklin Resources, Inc., a Delaware corporation (the "Borrower"), the several banks and other financial institutions from time to time parties to this Agreement (the "Banks"), Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents, and JPMorgan Chase Bank ("JPMCB"), as administrative agent for the Banks hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, this Agreement amends and restates that certain Amended, Extended and Restated Five Year Facility Credit Agreement, dated as of May 16, 1997 (as amended, supplemented or otherwise modified prior to the date hereof and in effect immediately prior to the effectiveness of this Agreement, the "Existing Credit Agreement") among the Borrower, the several banks and other financial institutions from time to time parties thereto (the "Existing Banks"), Bank of America National Trust and Savings Association, as Co-Agent and JPMCB (formerly known as The Chase Manhattan Bank), as Administrative Agent; WHEREAS, certain of the Existing Banks are willing to agree to the amendment and restatement requested by the Borrower and have Commitments (as defined herein) hereunder (the "Continuing Banks"), and the other Existing Banks (individually, an "Exiting Bank", and collectively, the "Exiting Banks") will cease to be Banks under the Existing Credit Agreement on the Closing Date (as defined herein); and WHEREAS, certain financial institutions that are not now Banks (individually, a "New Bank", and collectively, the "New Banks") will become Banks and have Commitments hereunder on the Closing Date; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto hereby agree that as of the Closing Date the Existing Credit Agreement shall be amended and restated to read as follows: Section 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ABSOLUTE RATE BID LOAN REQUEST": any Bid Loan Request requesting the Bid Loan Banks to offer to make Absolute Rate Bid Loans. "ABSOLUTE RATE BID LOANS": Bid Loans made at an absolute rate (as opposed to a rate composed of the Applicable Index Rate plus (or minus) a margin). "ADMINISTRATIVE AGENT": as defined in the preamble hereto. "ADMINISTRATIVE QUESTIONNAIRE": an administrative questionnaire in a form supplied by the Administrative Agent. 2 "ADVISERS ACT": as defined in subsection 3.12(b). "AFFILIATE": as to any Person, (a) any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any Person who is a director, officer, shareholder or partner (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in the preceding clause (a). For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "AGREEMENT": this Amended and Restated Five Year Facility Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "ALTERNATE BASE RATE": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1%, and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. "PRIME RATE" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by JPMCB in connection with extensions of credit to debtors); "BASE CD RATE" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate. "THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve Bank of New York (the "BOARD") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, 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 on the next succeeding 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 the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the Alternate Base Rate due to a change in the 3 Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "ALTERNATE BASE RATE LOANS": Revolving Credit Loans the rate of interest applicable to which is based upon the Alternate Base Rate. "APPLICABLE INDEX RATE": in respect of any Bid Loan requested pursuant to a LIBOR Bid Loan Request, the LIBOR Adjusted Rate. "APPLICABLE MARGIN": for any day, (a) for each LIBOR Loan the rate per annum set forth below opposite the Rating in effect on such day: RATING LIBOR ------ ----- Rating 1 0.325% Rating 2 0.375% Rating 3 0.500% Rating 4 0.625% Rating 5 0.875% (b) for each Alternate Base Rate Loan, zero. "ASSET DISPOSITION": the sale, sale leaseback, exchange or other disposition (including by means of a merger, consolidation or amalgamation) of any property, business or assets (other than marketable securities (including "margin stock" within the meaning of Regulation U), liquid investments and other financial instruments) of the Borrower or any of its Subsidiaries to any Person or Persons other than the Borrower or any of its Subsidiaries. Notwithstanding the foregoing, the consummation by the Borrower or FTC of any transfers or other transactions in connection with any Lease Financing Arrangement or otherwise involving all or any portion of the Designated Property shall not constitute an Asset Disposition. "ASSIGNMENT AND ASSUMPTION": an assignment and assumption entered into by a Bank and an assignee (with the consent of any party whose consent is required by Section 9.6), and accepted by the Administrative Agent, substantially in the form of Exhibit D or any other form approved by the Administrative Agent. "AVAILABLE COMMITMENT": as to any Bank at any time, an amount equal to the excess, if any, of (a) the amount of such Bank's Commitment over (b) the aggregate principal amount of all Revolving Credit Loans made by such Bank then outstanding; collectively, as to all the Banks, the "Available Commitments". "BANKING SUBSIDIARY": at any time, Fiduciary Trust Company International, Franklin Templeton Bank and Trust Company, F.S.B. or any other Subsidiary of the Borrower licensed to engage, and principally engaged, at such time in the banking or trust business or any Subsidiary of any such Subsidiary. "BANKS": as defined in the preamble hereto. 4 "BID LOAN": each Bid Loan made pursuant to subsection 2.3; the aggregate amount advanced by a Bid Loan Bank pursuant to subsection 2.3 on each Bid Loan Date shall constitute one or more Bid Loans, as specified by such Bid Loan Bank pursuant to subsection 2.3(b)(vi). "BID LOAN BANKS": Banks from time to time designated as Bid Loan Banks by the Borrower, by written notice to the Administrative Agent (which notice the Administrative Agent shall transmit to each such Bid Loan Bank). "BID LOAN CONFIRMATION": each confirmation by the Borrower of its acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be substantially in the form of Exhibit B and shall be delivered to the Administrative Agent in writing, by telex or by facsimile transmission. "BID LOAN NOTES": the collective reference to the Grid Bid Loan Notes and the Individual Bid Loan Notes. "BID LOAN OFFER": each offer by a Bid Loan Bank to make Bid Loans pursuant to a Bid Loan Request, which Bid Loan Offer shall contain the information specified in Exhibit B and shall be delivered to the Administrative Agent by telephone, immediately confirmed by telex or facsimile transmission. "BID LOAN REQUEST": each request by the Borrower for Bid Loan Banks to submit bids to make Bid Loans, which shall contain the information in respect of such requested Bid Loans specified in Exhibit C and shall be delivered to the Administrative Agent in writing, by telex or facsimile transmission, or by telephone, immediately confirmed by telex or facsimile transmission. "BORROWER": as defined in the preamble hereto. "BORROWING DATE": any Business Day or Working Day, as applicable, specified in a notice pursuant to subsection 2.2 or 2.3 as a date on which the Borrower requests the Banks to make Loans. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close. "CAPITALIZATION RATIO": at a particular date, the ratio of (a) Indebtedness of the Borrower and its Included Subsidiaries at such date to (b) the sum of (i) Indebtedness of the Borrower and its Included Subsidiaries at such date and (ii) the Consolidated Net Worth at such date. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. 5 "C/D ASSESSMENT RATE": for any day as applied to any C/D Rate Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation ("FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. section 327.3(d) (or any successor provision) to the FDIC (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D RATE LOANS": Loans the rate of interest applicable to which is based upon the Base C/D Rate. "C/D RESERVE PERCENTAGE": for any day as applied to any C/D Rate Loan, that percentage which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor)(the "BOARD"), for determining the maximum reserve requirement for a Depository Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity comparable to the Interest Period for such C/D Rate Loan. "CHANGE IN CONTROL": any purchase or other acquisition of more than 50% of the shares of the common stock of the Borrower by any Person or "group" of related Persons, within the meaning of Section 13(d)(3) under the Securities and Exchange Act of 1934, as amended, other than Charles B. Johnson and members of his family and Affiliates thereof. "CLOSING DATE": the date on which each of the conditions set forth in subsection 4.1 shall have been satisfied. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COMMITMENT": as to any Bank, the obligation of such Bank to make Revolving Credit Loans to the Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name on Schedule I, as such amount may be reduced pursuant to the terms hereof. The initial aggregate amount of the Banks' Commitments is $210,000,000. "COMMITMENT PERCENTAGE": as to any Bank at any time, the percentage of the aggregate Commitments then constituted by such Bank's Commitment. "COMMITMENT PERIOD": the period from and including the Closing Date to but excluding the Termination Date or such earlier date as the Commitments shall terminate as provided herein. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. 6 "CONSOLIDATED CURRENT ASSETS": at a particular date, all cash and marketable securities owned by the Borrower and its Included Subsidiaries and all liquid investments of such Person in the Funds as at such date. "CONSOLIDATED CURRENT LIABILITIES": at a particular date, all amounts which would, in conformity with GAAP, be included under current liabilities on a consolidated balance sheet of the Borrower and its Included Subsidiaries as at such date, excluding, however, the current maturities of the Loans. "CONSOLIDATED INTEREST EXPENSE": for any period, the aggregate interest expense of the Borrower and its Included Subsidiaries for such period, as determined in accordance with GAAP, including, without limitation, (a) all commissions, discounts and other fees and charges owed with respect to letters of credit allocable to or amortized over such period, (b) net costs under Interest Rate Agreements allocable to or amortized over such period and (c) the portion of any amount payable under Financing Leases that is, in accordance with GAAP, allocable to interest expense. "CONSOLIDATED NET INCOME": for any period, the consolidated net income (or deficit) of the Borrower and its Included Subsidiaries for such period (taken as a cumulative whole), determined in accordance with GAAP, excluding, however: (a) any gains or losses from the sale or other disposition of assets (including any such sale or other disposition of marketable securities, liquid investments or other financial instruments but excluding any such sale of obsolete or worn-out assets in the ordinary course of business consistent with past practice) and any other non-cash extraordinary or non-recurring gains or losses; and (b) the equity interest of the Borrower and its Included Subsidiaries in the net income (or deficit) of any Joint Venture except to the extent of the actual receipt or payment by the Borrower and its Subsidiaries thereof or therefor. "CONSOLIDATED NET WORTH": at a particular date, all amounts which would be included, under stockholders' equity, on a consolidated balance sheet of the Borrower and its Included Subsidiaries determined on a consolidated basis in accordance with GAAP as at such date. "CONSOLIDATED WORKING CAPITAL": at a particular date, the excess, if any, of Consolidated Current Assets over Consolidated Current Liabilities at such date. "CONTINUING BANK": as defined in the recitals hereto. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "DEFAULT": any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. 7 "DESIGNATED PROPERTY": All right, title and interest of the Borrower or any Affiliate in the real property and related improvements consisting of approximately 32 acres in Phase I of the Bay Meadows development located in the general vicinity of Franklin Parkway and Saratoga Avenue in San Mateo, California, which includes without limitation Borrower's corporate campus and other developed or undeveloped, contiguous or non-contiguous property located thereon. "DOLLARS" and "$": dollars in lawful currency of the United States of America. "EFFECTIVE DATE": shall be June 5, 2002. "ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or requirements of law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "EVENT OF DEFAULT": any of the events specified in Section 7, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXCLUDED TAXES": with respect to the Administrative Agent, any Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income, net worth or capital (including taxes based on capital gains, minimum taxes and alternative minimum taxes) by the United States of America or any political subdivision thereof, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Bank, in which its applicable Lending Office is located,(b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Bank (including for purposes of this definition a Participant claiming the benefits of subsection 2.16 pursuant to subsection 9.6(c)(ii) that would be a Foreign Bank if it were a Bank), any withholding tax that is imposed on amounts payable to such Foreign Bank at the time such Foreign Bank becomes a party to this Agreement (or designates a new lending office other than at the request of the Borrower) or is attributable to such Foreign Bank's failure to comply with Section 2.16(e), except to the extent that such Foreign Bank (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(a). "EXISTING BANK": as defined in the recitals hereto. "EXISTING CREDIT AGREEMENT": as defined in the recitals hereto. 8 "FEDERAL FUNDS EFFECTIVE RATE": as defined in the definition of "ALTERNATE BASE RATE" contained in this subsection 1.1. "FINANCE SUBSIDIARY": Franklin Capital Corporation. "FINANCING LEASE": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "FOREIGN BANK": any Bank that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "FTC": Franklin Templeton Companies, LLC, a Delaware limited liability company (formerly known as Franklin Templeton Corporate Services, Inc., a Delaware Corporation). "FUNDS": the collective reference to all investment companies advised by the Borrower or any of its Subsidiaries. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. If, at any time, GAAP changes in a manner which will materially affect the calculations determining compliance by the Borrower with any of its covenants in subsection 6.1, either the Borrower or the Majority Banks may request an amendment to such covenant (or the definitions related thereto) and the Majority Banks or the Borrower, as the case may be, shall negotiate in good faith with the requesting party to agree upon such amendment to adjust such covenant to give to each of the parties hereto substantially the same protection and benefits as were contemplated prior to such changes. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GRID BID LOAN NOTE": as defined in subsection 2.4(e). "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain 9 the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "INCLUDED SUBSIDIARY": any Subsidiary of the Borrower other than any Banking Subsidiary, Finance Subsidiary, Insurance Subsidiary or Real Estate Subsidiary. "INDEBTEDNESS": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Financing Leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (e) all obligations of such Person, whether absolute or contingent, in respect of letters of credit opened for the account of such Person (other than any such letters of credit opened for the purpose of facilitating the purchase of goods and services in the ordinary course of business and having a term of not more than 360 days) and (f) all Guarantee Obligations of such Person in respect of any indebtedness, obligations or liabilities of any other Person of the type referred to in clauses (a) through (e) of this definition. "INDEMNIFIED TAXES": Taxes other than Excluded Taxes. "INDIVIDUAL BID LOAN NOTE": as defined in subsection 2.4(e). "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INSURANCE SUBSIDIARY": at any time, ILA Financial Services, Inc., or any other Subsidiary of the Borrower licensed to engage, and principally engaged, at such time in the insurance business or any Subsidiary of such Subsidiary. 10 "INTEREST PAYMENT DATE": (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December, (b) as to any LIBOR Loan or LIBOR Bid Loan having an Interest Period of three months or less or any Absolute Rate Bid Loan having an interest period of 90 days or less, the last day of such Interest Period, and (c) as to any LIBOR Loan or Bid Loan having an Interest Period longer than three months (in the case of LIBOR Loans and LIBOR Bid Loans) or 90 days (otherwise), each day which is three months or 90 days, as the case may be, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and, in each case, on the day on which a Loan becomes due and is payable in full and is paid or prepaid in full. "INTEREST PERIOD": (a) with respect to any LIBOR Loans: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such LIBOR Loans and ending one, two, three, or six, months thereafter, as selected by the Borrower in its notice of borrowing as provided in subsection 2.2 or its notice of conversion as provided in subsection 2.8(a), as the case may be; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBOR Loans and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than four Working Days prior to the last day of the then current Interest Period with respect to such LIBOR Loans; (b) with respect to any Bid Loan, the period commencing on the Borrowing Date in respect of such Bid Loan and ending on the scheduled maturity date thereof; PROVIDED that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a LIBOR Loan or a LIBOR Bid Loan would otherwise end on a day which is not a Working Day, such Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; (2) if any Interest Period pertaining to an Absolute Rate Bid Loan would otherwise end on a day that is not a Business Day) such Interest Period shall be extended to the next succeeding Business Day; (3) any Interest Period pertaining to a LIBOR Loan or a LIBOR Bid Loan that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Working Day of a calendar month; (4) any Interest Period that would otherwise end after the Termination Date shall end on the Termination Date; and 11 (5) the Borrower shall use its best efforts to select Interest Periods so as not to require a payment or prepayment of any LIBOR Loan during an Interest Period for such Loan. "INTEREST RATE AGREEMENT": any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement under which the Borrower or any of its Subsidiaries is a party or a beneficiary. "INVESTMENT COMPANY ACT": as defined in subsection 3.12(a). "JOINT VENTURE": any corporation, partnership or other entity (other than a Subsidiary of the Borrower) as to which the Borrower, directly or indirectly, owns 33% or more of the shares of any class of its capital stock or of its other ownership interests, whether voting or non-voting, and as to which the Borrower (or any relevant Subsidiary of the Borrower) is not simply a passive investor. "JPMCB": as defined in the preamble hereto. "LEASE FINANCING ARRANGEMENT": any indebtedness, obligation, contingent liability, guaranty, pledge, lien, lease, sublease, ground lease, synthetic lease, financing, re-financing, sale, sale-leaseback, exchange, disposition, acquisition or other transaction incurred, granted or entered into by Borrower or FTC pursuant to (or as a result of the rights or options available to Borrower or FTC under) (i) the Participation Agreement, dated September 27, 1999, entered into by FTC, First Security Bank, National Association, as owner trustee under the FRI Trust 1999-1, Bank of America, N.A., as the agent for certain lenders and holders, and certain banks and other lending institutions, as the same may be amended, supplemented or extended from time to time, (ii) the leases and other documents entered into in connection therewith, in each case as part of the lease financing transaction relating to the Designated Property, as the same may be amended, supplemented or extended from time to time, or (iii) any transaction entered into by Borrower, FTC or any affiliate thereof from time to time to substitute, refinance, replace discharge, reconvey, restructure or release or enter into any other related transactions with respect to any of the foregoing with respect to all or a portion of the Designated Property. "LENDING OFFICE": as defined in subsection 2.1(b). "LIBOR": with respect to each day during each Interest Period pertaining to a LIBOR Loan or a LIBOR Bid Loan, the rate per annum equal to the rate that appears with respect to such Interest Period on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page for such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) as of 11:00 A.M., London time, two Working Days prior to the beginning of such Interest Period (or, if such rate is not available on any such page, the 12 average (rounded upward to the nearest 1/16th of 1%)of the respective rates notified to the Administrative Agent by each of the Reference Banks as the rate at which such Reference Bank is offered Dollar deposits at or about 11:00 A.M. London time, two Working Days prior to the beginning of such Interest Period in the London interbank eurodollar market for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its LIBOR Loan to be outstanding during such Interest Period or, in the case of a LIBOR Bid Loan, in an amount approximately equal to such LIBOR Bid Loan). "LIBOR ADJUSTED RATE": with respect to each day during each Interest Period pertaining to a LIBOR Loan or LIBOR Bid Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): LIBOR --------------------------------------- 1.00 - LIBOR Reserve Requirements "LIBOR BID LOAN REQUEST": any Bid Loan Request requesting the Bid Loan Banks to offer to make Bid Loans at an interest rate equal to the Applicable Index Rate plus (or minus) a margin. "LIBOR BID LOANS": Bid Loans made at a rate of interest based on the Applicable Index Rate. "LIBOR LOANS": Revolving Credit Loans the rate of interest applicable to which is based upon LIBOR. "LIBOR Reserve Requirements": for any day as applied to a LIBOR Loan or LIBOR Bid Loan, as the case may be, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. As at the Signing Date, there are no such reserve requirements. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "LOANS": the collective reference to the Revolving Credit Loans and the Bid Loans. 13 "LOAN DOCUMENTS": this Agreement and any Notes. "MAJORITY BANKS": at any time, Banks the Commitment Percentages of which aggregate more than 50%. If the Commitments are terminated, Majority Banks shall mean Banks holding more than 50% of the outstanding Loans. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower and its Subsidiaries to perform the obligations of the Borrower under this Agreement or the Notes, or (c) the validity or enforceability of this Agreement, any of the Notes or the rights or remedies of the Administrative Agent or the Banks hereunder or thereunder. "MOODY'S": Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NET PROCEEDS": with respect to any Asset Disposition, the net amount equal to the aggregate amount received in cash (including any cash received by way of deferred payment pursuant to a note receivable, other non-cash consideration or otherwise, but only as and when such cash is so received) in connection with such Asset Disposition minus the sum of (a) the reasonable fees, commissions and other out-of-pocket expenses incurred by the Borrower or any Subsidiary, as applicable, in connection with such Asset Disposition (other than amounts payable to Affiliates of the Person making such disposition) and (b) federal, state and local taxes incurred in connection with such Asset Disposition, whether payable at such time or thereafter. "NEW BANK": as defined in the recitals hereto. "NON-MATERIAL SUBSIDIARY": as to any Person at any time of determination, a Subsidiary of such Person in which such Person and its other Subsidiaries have made an aggregate investment of not more than $2,000,000. "NOTES": the collective reference to the Revolving Credit Notes and the Bid Loan Notes. "OBLIGATIONS": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Notes and all other obligations and liabilities of the Borrower to the Administrative Agent or to the Banks, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, any other Loan Document and any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without 14 limitation, all fees and disbursements of counsel, and the allocated cost of internal counsel, to the Administrative Agent or to the Banks that are required to be paid by the Borrower pursuant to the terms of this Agreement) or otherwise. "OTHER TAXES": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PARTICIPANT": as defined in subsection 9.6(c). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PERSON": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLAN": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PROPERTIES": the collective reference to the real and personal property owned, leased or operated by the Borrower or any of its Subsidiaries. "RATING": at any date, the lower of the ratings then assigned by S&P or Moody's to the unsecured, senior long-term debt of the Borrower (including any medium-term notes of the Borrower). A Rating is one of the following Ratings based upon the applicable rating from S&P or Moody's: Rating S&P Moody's ------ --- ------- Rating 1 AA- or above Aa3 or above Rating 2 A+, A, A- A1, A2, A3 Rating 3 BBB+ Baa1 Rating 4 BBB Baa2 Rating 5 BBB- or below Baa3 or below If any Rating shall be changed by Moody's or S&P, such change shall be effective as of the date on which it is first announced by the applicable rating agency. Any change in the Applicable Margin due to a change in Rating shall apply during the effective date of such change and end on the date immediately preceding the effective date of the next such change. If at any time the Borrower is not rated, Rating 5 will apply. 15 "REAL ESTATE SUBSIDIARY": at any time, Franklin Properties, Inc. or any other Subsidiary of the Borrower principally engaged at such time in the real estate investment and property management business or any Subsidiary of any such Subsidiary. "REFERENCE BANKS": JPMCB, Bank of America, N.A., The Bank of New York, Citicorp USA Inc., and BNP Paribas. "REGISTER": as defined in subsection 9.6(b)(iv). "REGULATION U": Regulation U of the Board of Governors of the Federal Reserve System. "REGULATION X": Regulation X of the Board of Governors of the Federal Reserve System. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.ss. 2615. "REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER": the chief executive officer, the president, any senior vice president or any vice president of the Borrower or, with respect to financial matters, the chief financial officer, treasurer or controller of the Borrower. "REVOLVING CREDIT LOANS": as defined in subsection 2.1(a). "REVOLVING CREDIT NOTES": as defined in subsection 2.4(e). "SEC": the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority. "S&P": Standard & Poor's Corporation. "SIGNING DATE": the date hereof. "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "SUBSIDIARY": as to any Person at any time of determination, a corporation, partnership or other entity (other than any Fund or any other investment company or 16 similar investment entity existing under foreign law substantially equivalent to an investment company) of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries or Subsidiaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "TAXES": any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "TERMINATION DATE": the date that is five years after the Effective Date. "364 DAY FACILITY": the Amended and Restated 364 Day Facility Credit Agreement, dated as of the date hereof, among the Borrower, the several banks and other financial institutions from time to time parties thereto and JPMCB, as administrative agent, as the same may be amended, supplemented or otherwise modified from time to time. "TRANCHE": the collective reference to LIBOR Loans the Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such LIBOR Loans shall originally have been made on the same day). "TRANSFEREE": as defined in subsection 9.6(g). "TYPE": as to any Revolving Credit Loan, its nature as an Alternate Base Rate Loan or a LIBOR Loan. "WORKING DAY": any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. 17 (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF LOANS 2.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof, each Bank severally agrees to make revolving credit loans (the "Revolving Credit Loans") to the Borrower from time to time during the Commitment Period in an aggregate principal amount not to exceed the amount of such Bank's Commitment, provided that the aggregate principal amount of Revolving Credit Loans and Bid Loans outstanding at any one time shall not exceed the aggregate amount of the Commitments at such time. During the Commitment Period the Borrower may use the Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may from time to time be (i) LIBOR Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Administrative Agent in accordance with subsections 2.2 and 2.8, provided that no Revolving Credit Loan shall be made as a LIBOR Loan after the day that is one month prior to the Termination Date. Each Bank may make or maintain its Revolving Credit Loans to the Borrower by or through any branch or other affiliate as determined by it from time to time and notified to the Administrative Agent (any such branch or affiliate being herein called a "Lending Office"). 2.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may borrow under the Commitments during the Commitment Period on any Working Day if the borrowing is a LIBOR Loan or on any Business Day if the borrowing is an Alternate Base Rate Loan, provided that the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent (a) prior to 10:00 A.M., New York City time, four Working Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially LIBOR Loans or (b) prior to 10:30 A.M., New York City time, on the requested Borrowing Date, otherwise), specifying (i) the aggregate amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of LIBOR Loans, Alternate Base Rate Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of LIBOR Loans, the amounts of such Type of Loan and the lengths of the initial Interest Periods therefor. Each borrowing under the Commitments shall be in an amount equal to (x) in the case of Alternate Base Rate Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then Available Commitments are less than $5,000,000, such lesser amount) and (y) in the case of LIBOR Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Bank thereof. Each Bank will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in subsection 9.2 prior to 2:00 P.M., New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such amount will then be made available to the relevant Borrower by the Administrative Agent crediting the account of such Borrower on 18 the books of such office with such amount made available to the Administrative Agent by such Bank for such Borrower and in like funds as received by the Administrative Agent. 2.3 THE BID LOANS. (a) The Borrower may borrow Bid Loans from time to time on any Business Day (in the case of Bid Loans made pursuant to an Absolute Rate Bid Loan Request) or on any Working Day (in the case of Bid Loans made pursuant to a LIBOR Bid Loan Request) during the period from the Closing Date until the date occurring 7 days prior to the Termination Date in the manner set forth in this subsection 2.3 and in amounts such that the aggregate amount of Loans outstanding at any time shall not exceed the aggregate amount of the Commitments at such time. (b) (i) The Borrower shall request Bid Loans by delivering a Bid Loan Request to the Administrative Agent not later than 12:00 Noon (New York City time) four Working Days prior to the proposed Borrowing Date (in the case of a LIBOR Bid Loan Request), and not later than 10:00 A.M. (New York City time) one Business Day prior to the proposed Borrowing Date (in the case of an Absolute Rate Bid Loan Request). Each Bid Loan Request may solicit bids for Bid Loans in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and for not more than three alternative maturity dates for such Bid Loans. The maturity date for each Bid Loan shall be not less than 7 days nor more than 360 days after the Borrowing Date therefor (and in any event not after the Termination Date). The Administrative Agent shall promptly notify each Bid Loan Bank by telex or facsimile transmission of the contents of each Bid Loan Request received by it. (ii) In the case of a LIBOR Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Bank that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans at the Applicable Index Rate plus or minus a margin for each such Bid Loan determined by such Bid Loan Bank in its sole discretion. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Administrative Agent before 10:30 A.M. (New York City time) three Working Days before the proposed Borrowing Date, setting forth the maximum amount of Bid Loans for each maturity date, and the aggregate maximum amount for all maturity dates, which such Bid Loan Bank would be willing to make (which amounts may, subject to subsection 2.3(a), exceed such Bid Loan Bank's Commitment) and the margin above or below the Applicable Index Rate at which such Bid Loan Bank is willing to make each such Bid Loan; the Administrative Agent shall advise the Borrower before 11:15 A.M. (New York City time) three Working Days before the proposed Borrowing Date, of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Bank shall, in its sole discretion, elect to make any such offer, it shall advise the Borrower of the contents of its Bid Loan Offer before 10:15 A.M. (New York City time) three Working Days before the proposed Borrowing Date. (iii) In the case of an Absolute Rate Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Bank that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans at a rate or rates of interest for each such Bid Loan determined by such Bid Loan Bank in its sole discretion. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Administrative Agent before 9:30 A.M. (New York City time) on the proposed Borrowing Date, setting forth the maximum amount of Bid Loans for each maturity date, and the aggregate 19 maximum amount for all maturity dates, which such Bid Loan Bank would be willing to make (which amounts may, subject to subsection 2.3(a), exceed such Bid Loan Bank's Commitment) and the rate or rates of interest at which such Bid Loan Bank is willing to make such Bid Loan; the Administrative Agent shall advise the Borrower before 10:15 A.M. (New York City time) on the proposed Borrowing Date of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Bank shall, in its sole discretion, elect to make any such offer, it shall advise the Borrower of the contents of its Bid Loan Offer before 9:15 A.M. (New York City time) on the proposed Borrowing Date. (iv) The Borrower shall before 11:30 A.M. (New York City time) three Working Days before the proposed Borrowing Date (in the case of Bid Loans requested by a LIBOR Bid Loan Request) and before 10:30 A.M. (New York City time) on the proposed Borrowing Date (in the case of Bid Loans requested by an Absolute Rate Bid Loan Request) either, in its absolute discretion: (A) cancel such Bid Loan Request by giving the Administrative Agent telephone notice to that effect; or (B) accept one or more of the offers made by any Bid Loan Bank or Bid Loan Banks pursuant to clause (ii) or clause (iii) above, as the case may be, by giving telephone notice to the Administrative Agent (immediately confirmed by delivery to the Administrative Agent of a Bid Loan Confirmation) of the amount of Bid Loans for each relevant maturity date to be made by each Bid Loan Bank (which amount for each such maturity date shall be equal to or less than the maximum amount for such maturity date specified in the Bid Loan Offer of such Bid Loan Bank, and for all maturity dates included in such Bid Loan Offer shall be equal to or less than the aggregate maximum amount specified in such Bid Loan Offer for all such maturity dates) and reject any remaining offers made by Bid Loan Banks pursuant to clause (ii) or clause (iii) above, as the case may be; PROVIDED, HOWEVER, that (x) the Borrower may not accept offers for Bid Loans for any maturity date in an aggregate principal amount in excess of the maximum principal amount requested in the related Bid Loan Request, (y) if the Borrower accepts any of such offers, it must accept offers strictly based upon pricing for such relevant maturity date and not any other criteria whatsoever and (z) if two or more Bid Loan Banks submit offers for any maturity date at identical pricing and the Borrower accepts any of such offers but does not wish to borrow the total amount offered by such Bid Loan Banks with such identical pricing, the Borrower shall accept offers from all of such Bid Loan Banks in amounts allocated among them PRO RATA as shall be practicable after giving effect to the requirement that Bid Loans made by a Bid Loan Bank on a Borrowing Date for each relevant maturity date shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof). (v) If the Borrower notifies the Administrative Agent that a Bid Loan Request is cancelled pursuant to clause (iv) (A) above, the Administrative Agent shall give prompt telephone notice thereof to the Bid Loan Banks, and the Bid Loans requested thereby shall not be made. 20 (vi) If the Borrower accepts pursuant to clause (iv) (B) above one or more of the offers made by any Bid Loan Bank or Bid Loan Banks, the Administrative Agent shall promptly notify each Bid Loan Bank which has made such an offer, of the aggregate amount of such Bid Loans to be made on such Borrowing Date for each maturity date and of the acceptance or rejection of any offers to make such Bid Loans made by such Bid Loan Bank. Each Bid Loan Bank which is to make a Bid Loan shall, before 12:00 Noon (New York City time) on the Borrowing Date specified in the Bid Loan Request applicable thereto, make available to the Administrative Agent at its office set forth in subsection 9.2 the amount of Bid Loans to be made by such Bid Loan Bank, in immediately available funds. The Administrative Agent will make such funds available to the Borrower as soon as practicable on such date at the Administrative Agent's aforesaid address. As soon as practicable after each Borrowing Date, the Administrative Agent shall notify each Bank of the aggregate amount of Bid Loans advanced on such Borrowing Date and the respective maturity dates thereof. (c) Within the limits and on the conditions set forth in this subsection 2.3, the Borrower may from time to time borrow under this subsection 2.3, repay pursuant to subsection 2.4, and reborrow under this subsection 2.3. The Borrower shall not have the right to prepay any principal amount of any Bid Loan. (d) The Borrower shall pay interest on the unpaid principal amount of each Bid Loan made to it from the Borrowing Date to the stated maturity date thereof, at the rate of interest determined pursuant to subsection 2.4 below (calculated on the basis of a 360 day year for actual days elapsed), payable on each Interest Payment Date for such Bid Loan. If all or a portion of the principal amount of any Bid Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue principal amount shall, without limiting any rights of any Bank under this Agreement, bear interest from the date on which such payment was due at a rate per annum which is 2% above the rate which would otherwise be applicable pursuant to such Bid Loan until the scheduled maturity date with respect thereto, and for each day thereafter at a rate per annum which is 2% above the Alternate Base Rate until paid in full (as well after as before judgment). Interest accruing pursuant to the immediately preceding sentence shall be payable on demand. 2.4 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Bank the then unpaid principal amount of each Revolving Credit Loan on the Termination Date (or any earlier date on which, subject to the terms and conditions of this Agreement, such payment shall become due and payable, by acceleration or otherwise) and (ii) to the Administrative Agent for the account of each relevant Bid Loan Bank the then unpaid principal amount of each Bid Loan on the maturity date for such Loan (such maturity date being that specified by the Borrower for the repayment of such Bid Loan in the related Bid Loan Request). (b) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Bank resulting from each Loan made by such Bank, including the amounts of principal and interest payable and paid to such Bank from time to time hereunder. 21 (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, whether such Loan is a Revolving Credit Loan or a Bid Loan, the Type thereof and the Interest Period or, in the case of Bid Loans, the maturity date applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Banks and each Bank's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Bank or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. The Administrative Agent shall provide such back-up information and supporting documentation that is reasonably requested by the Borrower from time to time to support entries made in said accounts. (e) Any Bank may request that Loans made by it be evidenced by a promissory note. In such event, the Administrative Agent shall prepare, and the Borrower shall execute and deliver to such Bank, a promissory note payable to the order of such Bank (or, if requested by such Bank, to such Bank and its registered assigns) substantially in the form of Exhibit E-1, in the case of Revolving Loans (a "Revolving Credit Note"), or Exhibit E-2, in the case of any Bid Loans (a "Grid Bid Loan Note"); provided that any Bid Loan Bank may request that any individual Bid Loan (or portion thereof) made by it in an amount of at least $5,000,000 be evidenced by an individual note in the form of Exhibit E-3 (an "Individual Bid Loan Note"). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.6) be represented by one or more promissory notes in substantially such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 2.5 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower shall have the right, upon not less than five Business Days' notice to the Administrative Agent to terminate the Commitments or, from time to time, to reduce the amount of the Commitments, provided that no such reduction or termination shall be permitted if, after giving effect thereto, and to any prepayment of the Revolving Credit Loans made on the effective date therein, the then outstanding principal amount of Loans (including, without limitation, Bid Loans) would exceed the aggregate amount of the Commitments as so reduced. Any such reduction shall be in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Commitments then in effect. 2.6 OPTIONAL PREPAYMENTS. Subject to subsection 2.17, the Borrower may, at any time and from time to time, prepay the Revolving Credit Loans, in whole or in part, without premium or penalty, upon at least four Business Days' irrevocable notice from the Borrower to the Administrative Agent specifying the date and amount of prepayment and whether the prepayment is of LIBOR Loans, Alternate Base Rate Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Bank thereof. If any such notice 22 is given, the amount specified in such notice shall be due and payable by the Borrower on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof and may only be made, if after giving effect thereto, subsection 2.9 shall not have been contravened. The Borrower shall not have the right to prepay the principal amount of any Bid Loan. 2.7 MANDATORY PREPAYMENTS. (a) Upon receipt by the Borrower or any of its Subsidiaries of any Net Proceeds with respect to an Asset Disposition, (i) if such Net Proceeds exceed $10,000,000 or (ii) if such Net Proceeds do not exceed $10,000,000 but such Net Proceeds, together with all other Net Proceeds from other, prior Asset Dispositions in the same fiscal year of the Borrower, which, in each case, have not exceeded $10,000,000, exceed $25,000,000, then on the first Business Day after the receipt of Net Proceeds from such Asset Disposition, the Revolving Credit Loans shall be prepaid, without an accompanying reduction of the Commitments, in an amount equal to 100% of such Net Proceeds (or, in the case of Net Proceeds described in clause (ii) of this paragraph (a), if less, the amount by which such Net Proceeds, together with such other Net Proceeds, exceed $25,000,000). To the extent that the Borrower makes mandatory prepayments with such Net Proceeds under subsection 2.7(a) of the 364 Day Facility Credit Agreement, no mandatory prepayment shall be due under this subsection 2.7(a). (b) In the event of any Change in Control, if the Majority Banks give the Borrower a notice within 30 days of the announcement of such Change in Control requiring the Borrower to prepay the Loans in full, then the Borrower shall prepay the Loans in full on a date determined by the Borrower and notified by the Borrower pursuant to the procedures of subsection 2.6 which is not more than 90 days after such Change in Control. If the Loans are required to be prepaid in full pursuant to this subsection 2.7(b), such Loans shall not be permitted to be reborrowed and the Commitments shall be deemed to be terminated as of the date of such prepayment. (c) If, after giving effect to any termination or reduction of any Commitments pursuant to subsection 2.5 or this subsection 2.7, the outstanding aggregate principal amount of the Loans exceeds the aggregate amount of such Commitments then in effect, the Borrower shall pay or prepay such Loans (including, without limitation, the Bid Loans) on the date of such termination or reduction in an aggregate principal amount at least equal to such excess, together with interest thereon accrued to the date of such payment or prepayment. All prepayments made pursuant to this subsection 2.7(c) shall be applied first to the Revolving Credit Loans until such Loans are paid in full and second to the Bid Loans. (d) Each prepayment of the Loans pursuant to this subsection 2.7 shall be accompanied by payment in full of all accrued interest thereon to and including the date of such prepayment, together with any additional amounts owing pursuant to subsection 2.17. 2.8 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect from time to time to convert LIBOR Loans to Alternate Base Rate Loans, by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of LIBOR Loans may only be made on the last day of an 23 Interest Period with respect thereto. The Borrower may elect from time to time to convert Alternate Base Rate Loans to LIBOR Loans by giving the Administrative Agent at least three Working Days' prior irrevocable notice of such election. Any such notice of conversion to LIBOR Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Bank thereof. All or any part of outstanding LIBOR Loans and Alternate Base Rate Loans may be converted as provided herein, provided that (i) any such conversion may only be made if, after giving effect thereto, subsection 2.9 shall not have been contravened and (ii) no Revolving Credit Loan may be converted into a LIBOR Loan after the date that is one month prior to the Termination Date. (b) Any LIBOR Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving notice to the Administrative Agent in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such LIBOR Loans, PROVIDED that no LIBOR Loan may be continued as such (i) if, after giving effect thereto, subsection 2.9 would be contravened or (ii) after the date that is one month prior to the Termination Date and PROVIDED, FURTHER, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Revolving Credit Loans shall be automatically converted to Alternate Base Rate Loans on the last day of such then expiring Interest Period. 2.9 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and continuations of Revolving Credit Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Revolving Credit Loans comprising each Tranche shall be equal to $15,000,000 or a whole multiple of $1,000,000 in excess thereof. 2.10 INTEREST RATES AND PAYMENT DATES. (a) Each LIBOR Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the LIBOR Adjusted Rate determined for such day plus the Applicable Margin. (b) Each Alternate Base Rate Loan shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. (c) Each Bid Loan shall bear interest as provided in subsection 2.3. (d) If all or a portion of the principal amount of any Loan or any interest payable on the Loans shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal to the last day of any Interest Period then applicable thereto, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) otherwise, the rate described in paragraph (b) of this subsection plus 2%, in each case from the date of such non-payment until such amount is paid in full (as well after as before judgment). 24 (e) Interest on each LIBOR Loan and Alternate Base Rate Loan shall be payable in arrears on each Interest Payment Date, provided in each case that interest accruing pursuant to paragraph (d) of this subsection shall be payable on demand. 2.11 COMPUTATION OF INTEREST AND FEES. (a) Interest on Alternate Base Rate Loans, facility fees and utilization fees shall be calculated on the basis of a 360 day year for the actual days elapsed, PROVIDED that interest on Alternate Base Rate Loans the rate of interest on which are based on the Prime Rate shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. Interest on LIBOR Loans and Bid Loans shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Banks of each determination of a LIBOR Adjusted Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate or the LIBOR Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced or such change in the LIBOR Reserve Requirements becomes effective, as the case may be. The Administrative Agent shall as soon as practicable notify the Borrower and the Banks of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Banks in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to subsection 2.10(a) and the calculations made by the Administrative Agent in determining any interest rate pursuant to subsection 2.10(b). (c) If any Reference Bank's Commitment shall terminate or all its Loans shall be assigned for any reason whatsoever, such Reference Bank shall thereupon cease to be a Reference Bank, and if, as a result of the foregoing, there shall only be one Reference Bank remaining, the Administrative Agent (after consultation with the Borrower and the Banks) shall, by notice to the Borrower and the Banks, designate another Bank as a Reference Bank so that there shall at all times be at least two Reference Banks. (d) Each Reference Bank shall use its best efforts to furnish quotations of rates to the Administrative Agent as contemplated hereby. If any of the Reference Banks shall be unable or shall otherwise fail to supply such rates to the Administrative Agent upon its request, the rate of interest shall, subject to the provisions of subsection 2.12, be determined on the basis of the quotations of the remaining Reference Banks or Reference Bank. 2.12 INABILITY TO DETERMINE INTEREST RATE. In the event that prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR Adjusted Rate for such Interest Period, or 25 (b) the Administrative Agent shall have received notice from the Majority Banks that the LIBOR Adjusted Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Banks (as conclusively certified by such Banks) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telex, telecopy or telephonic notice thereof to the Borrower and the Banks as soon as practicable thereafter. If such notice is given (x) any LIBOR Loans requested to be made on the first day of such Interest Period shall be made as Alternate Base Rate Loans, (y) any Revolving Credit Loans that were to have been converted on the first day of such Interest Period to LIBOR Loans shall be converted to or continued as Alternate Base Rate Loans and (z) any outstanding LIBOR Loans shall be converted, on the first day of such Interest Period, to Alternate Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent no further LIBOR Loans shall be made or continued as such, nor shall the Borrower have the right to convert Alternate Base Rate Loans to LIBOR Loans. 2.13 PRO RATA TREATMENT AND PAYMENTS. Each borrowing of Revolving Credit Loans by the Borrower from the Banks hereunder, each payment by the Borrower of any facility, utilization or other fee hereunder, and any reduction of the Commitments of the Banks shall be made pro rata according to the respective Commitment Percentages of the Banks. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Banks. All payments (including prepayments) to be made by the Borrower hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent for the account of the appropriate Banks, at the Administrative Agent's office specified in subsection 9.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to such Banks promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Loans or LIBOR Bid Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Loan or LIBOR Bid Loan becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Working Day. 2.14 ILLEGALITY. Notwithstanding any other provision herein, if any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Bank or Lending Office to make or maintain LIBOR Loans as contemplated by this Agreement, (a) the commitment of such Bank hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert Alternate Base Rate Loans to LIBOR Loans shall forthwith be cancelled and (b) the Loans of such Bank or Lending Office then outstanding as LIBOR Loans, if any, shall be converted automatically to Alternate Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a LIBOR Loan occurs on a day which is not 26 the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Bank such amounts, if any, as may be required pursuant to subsection 2.17. 2.15 REQUIREMENTS OF LAW. (a) In the event that any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law but, if not having the force of law, generally applicable to and complied with by banks of the same general type as such Bank in the relevant jurisdiction) from any central bank or other Governmental Authority made subsequent to the Effective Date: (i) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Bank or Lending Office which is not otherwise included in the determination of the LIBOR Adjusted Rate hereunder; or (ii) shall impose on such Bank or Lending Office any other condition; and the result of any of the foregoing is to increase the cost to such Bank or Lending Office, by an amount which such Bank deems to be material, of making, converting into, continuing or maintaining LIBOR Loans or Bid Loans or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Borrower shall promptly pay such Bank or Lending Office, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable. If any Bank or any Lending Office becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrower, through the Administrative Agent of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Bank or Lending Office, through the Administrative Agent to the Borrower shall be prima facie evidence of the accuracy of the information so recorded. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder for one year. (b) If, after the date of this Agreement, the introduction of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, affects the amount of capital required or expected to be maintained by any Bank or any corporation controlling any Bank, and such Bank or such corporation (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) determines that the amount of capital maintained by such Bank or such corporation which is attributable to or based upon the Loans, the Commitments or this Agreement must be increased as a consequence of such introduction or change, then, upon demand of the Administrative Agent at the request of such Bank, the Borrower shall immediately pay to the Administrative Agent on behalf of such Bank, additional amounts sufficient to compensate such Bank or such corporation for the increased costs to such Bank or corporation of such increased capital. Any such demand shall be accompanied by a certificate of such Bank setting forth in reasonable detail the computation of any such increased costs. This covenant 27 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder for one year. (c) Each Bank will promptly notify the Borrower, through the Administrative Agent of any event of which it has knowledge that will entitle such Bank to compensation pursuant to subsection 2.15(a) or (b) above. No failure by any Bank to give (or delay in giving) such notice shall adversely affect such Bank's rights to such compensation, except that the Borrower shall have no obligation to compensate any Bank for any cost or reduction incurred or accrued by it more than one year before such Bank gives notice of the event giving rise to such cost or reduction as required by the preceding sentence. 2.16 TAXES. (a) Any and all payments by or on account of any obligation of the Borrower hereunder or under any Note shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this subsection) the Administrative Agent or Bank receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Bank, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Bank, or by the Administrative Agent on its own behalf or on behalf of a Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Bank hereby agrees that it shall deliver to the Administrative Agent and the Borrower: (i) two copies of Internal Revenue Service Form W-8-BEN or Form W-8-ECI (or appropriate successor form), properly completed and duly executed by such Foreign Bank claiming complete exemption from U.S. Federal withholding tax on payments by 28 the Borrower or the Administrative Agent under this Agreement and the other Loan Documents; (ii) any other documentation as may be required under applicable U.S. tax law and regulations to evidence complete exemption from U.S. Federal withholding tax on all payments by the Borrower or the Administrative Agent under this Agreement and the Loan Documents. Such forms and other documentation shall be delivered by each Foreign Bank on or before the Initial Date (as defined below) and on or before the date, if any, such Foreign Bank changes its applicable Lending Office by designating a different Lending Office or selecting an additional office. In addition, each Foreign Bank shall deliver appropriate replacements to such forms previously delivered by it promptly upon the obsolescence or invalidity of any form or other documentation previously delivered by such Foreign Bank unless an event beyond the control of such Foreign Bank (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Foreign Bank from duly completing and delivering any such form with respect to it and such Foreign Bank so advises the Borrower and the Administrative Agent. (f) For purposes of subsection (e), the term "Initial Date" shall mean (i) with respect to each Foreign Bank that is a party hereto on the date hereof, the date hereof, (ii) with respect to each Participant, the date of the grant of a participation to such Participant, and (ii) with respect to each transferee, the effective date of such transfer or assignment of an interest hereunder to such transferee. 2.17 INDEMNITY. The Borrower agrees to indemnify each Bank and to hold each Bank harmless from any loss or expense which such Bank may sustain or incur as a consequence of (a) default by the Borrower in payment when due of the principal amount of or interest on any LIBOR Loan or Bid Loan, (b) default by the Borrower in making a borrowing of, conversion into or continuation of Bid Loans or LIBOR Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement (and, in the case of Bid Loans, so long as the Borrower has accepted a Bid Loan offered in connection with any such notice), (c) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (d) the making by the Borrower of a prepayment of LIBOR Loans or (without prejudice to the last sentence of subsection 2.3(c)) Bid Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder for one year. 2.18 FACILITY AND UTILIZATION FEES. (a) During the Commitment Period, the Borrower agrees to pay to the Administrative Agent for the account of each Bank a facility fee equal to the product of (i) 0.090% per annum at any time the Applicable Margin is based on Rating 1, (ii) 0.125% per annum at any time the Applicable Margin is based on Rating 2, (iii) 0.150% per annum at any time the Applicable Margin is based on Rating 3, (iv) 0.175% at any 29 time the Applicable Margin is based on Rating 4 or (v) 0.225% at any time the Applicable Margin is based on Rating 5, and the average Commitment of such Bank (without regard to the principal amount of Loans from time to time made by such Bank) during the quarter in which the facility fee is paid. Such facility fee shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing June 30, 2002 and on the Termination Date (or, in any case, any earlier date on which all amounts outstanding hereunder shall become due and payable by acceleration or otherwise). (b) During the Commitment Period, the Borrower agrees to pay to the Administrative Agent for the account of each Bank a utilization fee computed at the rate of 0.125% per annum on the aggregate average amount of the Revolving Credit Loans under this Agreement and the 364 Day Facility outstanding during the quarter for which such fee is to be paid; provided, that no such fee shall be required to be paid with respect to any quarter in which the aggregate average amount of the Revolving Credit Loans and Bid Loans then outstanding under this Agreement and the 364 Day Facility does not exceed 50% of the aggregate Commitments of the Banks under this Agreement and the 364 Day Facility. Such utilization fee, to the extent payable, shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on June 30, 2002 and on the Termination Date (or, in any case, any earlier date on which all amounts outstanding hereunder shall become due and payable by acceleration or otherwise). Sample computations of the facility fee and the utilization fee are given in Schedule II hereto. 2.19 MITIGATION OF COSTS; REPLACEMENT OF BANKS. (a) If any Bank, by changing its Lending Office or taking any other reasonable action, so long as making such change or taking such other action is not, in the reasonable judgment of such Bank, disadvantageous to it in any financial, regulatory or other respect, can mitigate any adverse effect on the Borrower under subsections 2.14, 2.15 or 2.16, such Bank shall take such action. (b) Within fifteen (15) days after Borrower receives a notice and/or a demand from any Bank (or from another Person on account of such Bank) (an "AFFECTED BANK") for payment of additional amounts or increased costs as provided in subsection 2.15 or 2.16, Borrower may, at its option, notify Administrative Agent and such Affected Bank of its intention to replace the Affected Bank; PROVIDED, however, Borrower shall promptly pay such amounts upon demand in accordance with subsection 2.15 or subsection 2.16 as applicable. So long as no Default or Event of Default shall have occurred and be continuing, and the Borrower shall have received the prior written consent of the Administrative Agent (not to be unreasonably withheld) for such assignment, Borrower may obtain, at Borrower's expense (including, but not limited to, with respect to any processing and recordation fee charged pursuant to subsection 9.6(b)(ii)(C)), a replacement bank ("REPLACEMENT BANK") for the Affected Bank. If Borrower obtains a Replacement Bank within one hundred eighty (180) days following notice of its intention to do so, then, notwithstanding anything to the contrary in Section 9.6 (other than subsections 9.6(b)(ii)(C), 9.6(b)(ii)(D), 9.6(b)(iii), 9.6(iv) and 9.6(b)(v)), Affected Bank must sell and assign its Loans and Commitments to such Replacement Bank for an amount equal to the principal balance of all Loans held by the Affected Bank and all accrued interest and fees with respect thereto through the date of such sale, PROVIDED that Borrower shall have reimbursed such 30 Affected Bank for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment. Notwithstanding the foregoing, Borrower shall not have the right to obtain a Replacement Bank if the Affected Bank rescinds its demand for increased costs or additional amounts within fifteen (15) days following its receipt of Borrower's notice of intention to replace such Affected Bank. Furthermore, if Borrower gives a notice of intention to replace and does not so replace such Affected Bank within one hundred eighty (180) days thereafter, Borrower's rights under this subsection 2.19(b) shall terminate and Borrower shall promptly pay, to the extent not previously paid in accordance with the proviso to the first sentence of this subsection 2.19(b), all increased costs or additional amounts demanded by such Affected Bank pursuant to subsections 2.15 and 2.16. 2.20 NEW BANKS; EXITING BANKS. (a) As of the Closing Date, the New Banks shall become Banks parties to this Agreement, and the terms "Bank" and "Banks" as used in this Agreement shall be deemed to include each New Bank. Each New Bank (i) hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as provided by the terms thereof and in accordance with Section 8 hereof and (ii) agrees that as of the Closing Date it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Bank. As of the Closing Date, each New Bank shall have all the rights of a Bank under this Agreement. (b) As of the Closing Date, the Commitments of each of the Exiting Banks shall be terminated, and the Exiting Banks shall no longer be parties to this Agreement, PROVIDED that any indemnities or other agreements under this Agreement or any other Loan Document which by their terms survive repayment of amounts payable thereunder shall survive repayment pursuant hereto with respect to the Exiting Banks. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Banks to enter into this Agreement, and to make the Loans the Borrower hereby represents and warrants to the Administrative Agent, and each Bank that: 3.1 FINANCIAL CONDITION. The consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at September 30, 2000, and September 30, 2001, and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by PricewaterhouseCoopers LLP, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at March 31, 2002 and the related unaudited consolidated statements of income and of cash flows for the six-month period ended on such date, certified to the best of their knowledge by a Responsible Officer of the Borrower, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP 31 applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither the Borrower nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto and which is material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at such date. During the period from March 31, 2002 to and including the Closing Date there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at March 31, 2002. 3.2 NO CHANGE. Since March 31, 2002 there has been no Material Adverse Effect. 3.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged and in which it proposes to be engaged after the Closing Date, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents and to borrow hereunder and has taken all necessary corporate action to authorize (i) the borrowings on the terms and conditions of this Agreement and the Notes and (ii) the execution, delivery and performance of the Loan Documents. Except as set forth on Schedule III hereto, no consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or the Notes. This Agreement has been, and each of the Notes will be, duly executed and delivered. This Agreement constitutes, and each of the Notes when executed and delivered will constitute, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 NO LEGAL BAR. The execution, delivery and performance of this Agreement and the Notes, the borrowings hereunder and the use of the proceeds thereof will not (a) violate, to the knowledge of the Borrower, any Requirement of Law or Contractual 32 Obligation of the Borrower, any of its Subsidiaries or any of the Funds, or (b) violate any Requirement of Law or Contractual Obligation of the Borrower, any of its Subsidiaries or any of the Funds which could reasonably be expected to have a Material Adverse Effect and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 3.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues or by or against any "affiliated person" of the Borrower or any of its Subsidiaries, within the meaning of the Investment Company Act, (a) with respect to this Agreement or the Notes or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 3.7 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to all its other property which is material to its business, and none of such property, and none of the investment advisory agreements to which the Borrower or any of its Subsidiaries is a party or any of the revenues thereunder, is subject to any Lien except as permitted by subsection 6.3. 3.8 INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "Intellectual Property"). To the knowledge of the Borrower, no claim which could reasonably be expected to have a Material Adverse Effect has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Borrower know of any valid basis for any such claim. To the knowledge of the Borrower, the use of such Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.9 TAXES. Each of the Borrower and its Subsidiaries has filed or caused to be filed all material tax returns which, to the knowledge of the Borrower, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); to the knowledge of Borrower, no tax Lien has been filed, and no claim is being asserted with respect to any such tax, fee or other charge which could reasonably be expected to have a Material Adverse Effect. 3.10 FEDERAL REGULATIONS. No part of the proceeds of any Loans are intended to be or will be used for "purchasing" or "carrying" any "margin stock" within the respective 33 meanings of each of the quoted terms under Regulations U and X, or for any purpose which violates the provisions of the Regulations of the Board of Governors of the Federal Reserve System. If requested by any Bank or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Bank a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 3.11 ERISA. No Reportable Event has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. The present value of all accrued benefits under each Single Employer Plan maintained by the Borrower or any Commonly Controlled Entity (based on those assumptions used to fund the Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits. There are no Multiemployer Plans. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Borrower and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount in excess of $0. 3.12 INVESTMENT COMPANY ACT; OTHER REGULATIONS. (a) The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (b) Each of the Subsidiaries of the Borrower listed on Schedule IV hereto is duly registered as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"). None of the other Subsidiaries of the Borrower or the Borrower is an "investment adviser" within the meaning of the Advisers Act and the rules and regulations promulgated thereunder. Each entity for which any Subsidiary of the Borrower acts as an investment adviser and which is required to be registered as an "investment company" under the Investment Company Act is duly registered as such thereunder. (c) Except for the Subsidiaries of the Borrower listed on Schedule V hereto, neither the Borrower nor any of its Subsidiaries is required to be duly registered as a broker-dealer under the Securities and Exchange Act of 1934, as amended, and such Subsidiaries so listed are duly registered as such. (d) Each of the Borrower and its Subsidiaries is duly registered, licensed or qualified as an investment adviser or broker-dealer in each State of the United States where the conduct of its business requires such registration, licensing or qualification and is in compliance in all material respects with all Federal and State laws requiring such registration, licensing or qualification, except to the extent where the failure to be so registered, licensed or qualified or to be in such compliance will not have a Material Adverse Effect. 34 3.13 INVESTMENT ADVISORY AGREEMENTS. Each of the investment advisory agreements, distribution agreements and shareholder servicing contracts to which the Borrower or any of its Subsidiaries is a party is a legal, valid and binding obligation of the parties thereto enforceable against such parties in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law); and neither the Borrower nor any of its Subsidiaries is in breach or violation of or in default under any such agreement or contract in any material respect which would individually or in the aggregate have a Material Adverse Effect. 3.14 SUBSIDIARIES. The Subsidiaries listed on Schedule VI hereto constitute all the Subsidiaries of the Borrower at the Closing Date, other than any Subsidiary having a net worth of less than $5,000,000; provided, that the aggregate net worth of all Subsidiaries not listed on Schedule VI may not exceed $25,000,000. 3.15 PURPOSE OF LOANS. The proceeds of the Revolving Credit Loans and the Bid Loans, if any, shall be used for general corporate purposes, including commercial paper backup. 3.16 ENVIRONMENTAL MATTERS. To the best knowledge of the Borrower: (a) The Properties and all operations at the Properties are in compliance in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties, or violation of any Environmental Law with respect to the Properties or the business conducted at the Properties which could materially interfere with the continued operation of the Properties. (b) Neither the Borrower nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business conducted at the Properties, nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened except insofar as such notice or threatened notice, or any aggregation thereof, does not involve a matter or matters that is or are reasonably likely to cause a Material Adverse Effect. (c) No judicial proceedings or governmental or administrative action is pending, or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any of its Subsidiaries is or will be named as a party with respect to the Properties or the business conducted at the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or such business except insofar as such proceeding, action, decree, order or other requirement, or any aggregation thereof, is not reasonably likely to cause a Material Adverse Effect. 35 3.17 ACCURACY AND COMPLETENESS OF INFORMATION. To the best of the Borrower's knowledge, the documents furnished and the statements made in writing to the Banks by the Borrower in connection with the negotiation, preparation or execution of this Agreement taken as a whole do not contain any untrue statement of fact material to the credit worthiness of the Borrower or omit to state any such material fact necessary in order to make the statements contained therein not misleading, in either case which has not been corrected, supplemented or remedied by subsequent documents furnished or statements made in writing to the Banks prior to the date hereof. SECTION 4. CONDITIONS PRECEDENT 4.1 CONDITIONS TO EXECUTION. The parties acknowledge that the execution, delivery and effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent: (a) CREDIT AGREEMENT. The Administrative Agent shall have received this Agreement, executed and delivered by a Responsible Officer of the Borrower with a counterpart for each Bank, and such officer shall be covered by an incumbency certificate which has been executed and delivered to the Administrative Agent. (b) INCUMBENCY CERTIFICATES. The Administrative Agent shall have received an Incumbency Certificate of the Borrower as of the Closing Date, dated the Closing Date, executed by one of its Responsible Officers and its Secretary or Assistant Secretary. (c) CORPORATE PROCEEDINGS. The Administrative Agent shall have received a copy of the resolutions of the Board of Directors of the Borrower as of the Closing Date authorizing (i) the execution, delivery and performance of this Agreement and (ii) the borrowings contemplated hereunder, certified by the Secretary or an Assistant Secretary as of the Closing Date, which certificate states that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (d) CORPORATE DOCUMENTS. The Administrative Agent shall have received copies of the certificate of incorporation and by-laws of the Borrower as of the Closing Date, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of the Borrower. (e) FEES. The Banks, the Administrative Agent and J.P. Morgan Securities Inc. shall have received all fees required to be paid, and all expenses for which invoices have been presented. (f) LEGAL OPINIONS. The Administrative Agent shall have received the executed legal opinions of (i) Morrison & Foerster, counsel to the Borrower and (ii) Murray L. Simpson, General Counsel to the Borrower, and each such legal opinion shall be satisfactory in form and substance to the Administrative Agent and its counsel. (g) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing as of the Closing Date. 36 (h) REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in Section 3 shall be true and correct in all material respects on the Closing Date as if made on the Closing Date. (i) EXISTING CREDIT AGREEMENT. The Administrative Agent shall have received evidence reasonably satisfactory to it that all amounts outstanding, if any, under the Existing Credit Agreement have been repaid in full as of the Closing Date. (j) REVOLVING CREDIT NOTES. The Administrative Agent shall have received, for the account of each Bank that has requested a Revolving Credit Note pursuant to subsection 2.4(e), a Revolving Credit Note conforming to the requirements of this Agreement, and executed by a duly authorized officer of the Borrower. 4.2 CONDITIONS TO EACH LOAN. The agreement of each Bank to make any Loan requested to be made by it on any date is subject to the satisfaction of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents (or, in the case of any Loan requested to be made hereunder the proceeds of which are solely to be used to repay any then outstanding Loans, solely the representation contained in subsection 3.2), shall be true and correct in all material respects on and as of such date as if made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. (b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. (c) BID LOAN CONFIRMATION. With respect to any Bid Loan, a Bid Loan Confirmation shall have been delivered in accordance with subsection 2.3(b)(iv). Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such Loan that the conditions contained in this subsection 4.2 have been satisfied. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that from and after the Closing Date, so long as the Commitments remain in effect, any Loan remains outstanding or any other amount is owing to any Bank or the Administrative Agent hereunder: 5.1 FINANCIAL STATEMENTS. The Borrower shall furnish to the Administrative Agent (for distribution to each Bank): (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and 37 its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by PricewaterhouseCoopers LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event within 10 days after delivery of the financial statements described in paragraph (a) above, the corresponding consolidating balance sheet as at the end of such year and the related consolidating statements of income and retained earnings and of cash flows for such year, all showing separately the principal lines of business conducted by separate Subsidiaries or groups of Subsidiaries to the extent requested by the Administrative Agent, certified by a Responsible Officer of the Borrower as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its consolidated Subsidiaries, taken as a whole; (c) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and retained earnings and of cash flows of the Borrower and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its consolidated Subsidiaries (subject to normal year-end audit adjustments); and (d) as soon as available, but in any event within 10 days after delivery of the financial statements described in paragraph (c) above, the corresponding consolidating balance sheet as at the end of such quarter and the related consolidating statements of income and retained earnings and of cash flows for the portion of the fiscal year through such date, all showing separately the entities described in paragraph (b) above, certified by a Responsible Officer of the Borrower as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower for such quarter taken as a whole; all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). Any delivery required to be made pursuant to subsections 5.1(a), (b), (c) or (d) shall be deemed to have been made on the date on which the Borrower posts such delivery on the Internet at the website of the Borrower or when such delivery is posted on the SEC's website on the Internet at www.sec.gov; PROVIDED that the Borrower shall have given notice of any such posting to the Banks, which notice shall include a link to the applicable website to which such 38 posting was made; PROVIDED, FURTHER, that the Borrower shall deliver paper copies of any delivery referred to in subsections 5.1(a), (b), (c) or (d) to any Bank that requests the Borrower to deliver such paper copies until notice to cease delivering such paper copies is given by such Bank. 5.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall furnish to the Administrative Agent (for distribution to each Bank): (a) concurrently with the delivery of the financial statements referred to in subsections 5.1(a) and 5.1(c), a certificate of a Responsible Officer of the Borrower stating that, to the best of such officer's knowledge, the Borrower during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) with respect to the covenants contained in subsection 6.1, setting forth such calculations as are necessary to demonstrate compliance with such covenants; (b) within five days after the same are sent, copies of all financial statements and reports which the Borrower sends to its stockholders, and within five days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the SEC or any successor or analogous Governmental Authority; and (c) promptly, such additional financial and other information as any Bank may from time to time reasonably request. 5.3 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each of its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Borrower shall, and shall cause each of its Subsidiaries to, continue to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, registrations, licenses, privileges and franchises necessary or desirable in the normal conduct of its business (including, without limitation, all such registrations under the Advisers Act and all material investment advisory agreements, distribution agreements and shareholder servicing contracts), except as otherwise permitted pursuant to subsection 6.5; comply, and to the extent reasonably within its control cause each Fund to comply, with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 5.5 MAINTENANCE OF PROPERTY; INSURANCE. The Borrower shall, and shall cause each of its Subsidiaries to, keep all property useful and necessary in its business in good working 39 order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. 5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower shall, and shall cause each of its Subsidiaries to, keep proper books of records and account in which full, true and correct entries in conformity with GAAP or with respect to foreign Subsidiaries in conformity with appropriate local accounting practices, and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of any Bank to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants. 5.7 NOTICES. The Borrower shall promptly give notice to the Administrative Agent, which shall promptly give notice to each Bank, of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries, which default or event of default could reasonably be expected to have a Material Adverse Effect, or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority or any Fund, which in either case, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of its Subsidiaries or any "affiliated person" of the Borrower or any of its Subsidiaries, within the meaning of the Investment Company Act, in which the amount involved is $10,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought or which could reasonably be expected to have a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; (e) any suspension or termination of the registration of any Subsidiary of the Borrower as an investment adviser under the Advisers Act or any cancellation or expiration without renewal of any investment advisory agreement, distribution agreement or shareholder servicing contract to which the Borrower or any of its Subsidiaries is a party 40 the revenues under which have exceeded in the most recent fiscal year of the Borrower $25,000,000; and (f) a development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. 5.8 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each of its Subsidiaries to: (a) Comply with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so could not be reasonably expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not be reasonably expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless the Administrative Agent and the Banks, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Laws applicable to the operations of the Borrower or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. This indemnity shall continue in full force and effect regardless of the termination of this Agreement. SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that from and after the Closing Date, so long as the Commitments remain in effect, any Loan remains outstanding or any other amount is owing to any Bank or the Administrative Agent hereunder: 6.1 FINANCIAL CONDITION COVENANTS. The Borrower shall not: 41 (a) INTEREST COVERAGE. Permit for any period of four consecutive fiscal quarters of the Borrower commencing on or after the Closing Date (or for any of the periods of one, two and three consecutive fiscal quarters of the Borrower commencing on or immediately after the Closing Date) the ratio of (i) the sum of Consolidated Net Income for such period plus income taxes deducted in determining such Consolidated Net Income plus Consolidated Interest Expense for such period to (ii) Consolidated Interest Expense for such period to be less than 4.0 to 1. (b) MAINTENANCE OF CONSOLIDATED WORKING CAPITAL. Permit Consolidated Working Capital on any date on or after the Closing Date to be less than $100,000,000. (c) MAXIMUM CAPITALIZATION RATIO. Permit the Capitalization Ratio at any time to be greater than 55%. 6.2 LIMITATION ON INDEBTEDNESS. The Borrower shall not create, incur, assume or suffer to exist any secured Indebtedness, and shall not permit any of its Included Subsidiaries to create, incur, assume or suffer to exist any Indebtedness, except for: (a) Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount not exceeding as to the Borrower and its Included Subsidiaries $50,000,000 at any time outstanding; (b) Indebtedness outstanding on the Closing Date and listed on Schedule VII or reflected in the financial statements referred to in subsection 3.1; (c) Indebtedness of a corporation which becomes a Subsidiary after the date hereof, PROVIDED that (i) such Indebtedness existed at the time such corporation became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation by the Borrower or any existing Subsidiary no Default or Event of Default shall have occurred and be continuing; (d) unsecured Indebtedness of any Subsidiary owing to the Borrower or any other Subsidiary or secured Indebtedness of any Subsidiary owing to the Borrower; (e) Indebtedness created by this Agreement and by the 364 Day Facility; and (f) Indebtedness consisting of the obligations of the Borrower and FTC under any Lease Financing Arrangement. 6.3 LIMITATION ON LIENS. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, PROVIDED that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; 42 (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or such Subsidiary; (f) Liens in existence on the Closing Date listed on Schedule VIII or described in the financial statements referred to in subsection 3.1 or in any notes thereto, securing Indebtedness permitted by subsection 6.2(b), provided that no such Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Borrower and its Subsidiaries permitted by subsection 6.2(a) incurred to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the purchase price of such property; (h) Liens on the property or assets of a corporation which becomes a Subsidiary after the date hereof securing Indebtedness permitted by subsection 6.2(c), provided that (i) such Liens existed at the time such corporation became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such corporation after the time such corporation becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not increased; (i) Liens (not otherwise permitted hereunder) which secure obligations in an aggregate amount at any one time outstanding not exceeding as to the Borrower and its Included Subsidiaries an amount equal to 5% of the Consolidated Net Worth, measured at the time of the creation, incurrence or assumption of any such Lien and based upon the Consolidated Net Worth as at the end of the most recently completed fiscal quarter of the Borrower for which financial statements have been furnished to the Administrative Agent pursuant to subsection 5.1; 43 (j) Liens on "margin stock" within the meaning of Regulation U to the extent that margin stock would, but for this paragraph (j), represent more than 25% of the value of the assets subject to this subsection 6.3; (k) Liens on cash or cash equivalents to secure obligations of the Borrower and its Subsidiaries in respect of any interest rate and currency hedging agreements entered into in the ordinary course of business and not for speculative purposes, and Liens with respect to hedging accounts maintained with dealers of NYMEX or similar contracts which require the maintenance of cash margin account balances; and (l) Liens provided for or required to be granted by the Borrower or FTC under any Lease Financing Arrangement, which Liens shall not limit or apply against the right of the Borrower and its Included Subsidiaries to create, incur, assume or permit to exist Liens that comply with the provisions of paragraphs (a) through (k) of this subsection 6.3. 6.4 LIMITATIONS ON FUNDAMENTAL CHANGES. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, except, so long as no Default or Event of Default has occurred and is continuing or would result therefrom: (a) that the Borrower may enter into any merger, consolidation or amalgamation for the purpose of effecting any corporate or tax reorganization of the Borrower and the Subsidiaries or for the purpose of effecting any investment permitted under subsection 6.6, PROVIDED that such merger, consolidation or amalgamation is not with any Banking Subsidiary, Insurance Subsidiary or Real Estate Subsidiary (or with any other Person which is principally engaged in the banking or trust, insurance or real estate business), that the ownership of the Borrower (or its successor) is not materially different after such transaction from what it was prior thereto, that the Borrower (or its successor) remains the holding company for the Subsidiaries of the Borrower prior thereto, and that, if the Borrower is not the successor corporation in such transaction, such successor corporation is a corporation organized and validly existing under the laws of the United States or any state thereof and, by operation of law or otherwise, assumes the obligations of the Borrower hereunder and such organization and assumption are evidenced by an opinion of counsel to such successor satisfactory in form and substance to the Administrative Agent; and (b) that any Subsidiary of the Borrower may enter into any such transaction for the purpose of effecting any corporate or tax reorganization of the Borrower and its Subsidiaries or for the purpose of effecting any sale or other disposition of any of its property, business or assets permitted under subsection 6.5 or any investment permitted under subsection 6.6, PROVIDED that such merger, consolidation or amalgamation is not with any Banking Subsidiary, Insurance Subsidiary or Real Estate Subsidiary (or with any other Person which is principally engaged in the banking or trust, insurance or real estate business), unless such Subsidiary is also a Banking Subsidiary, Insurance Subsidiary or Real Estate Subsidiary, as the case may be. 44 6.5 LIMITATION ON SALE OF ASSETS. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, make any Asset Disposition, unless the Revolving Credit Loans are reduced to the extent required pursuant to subsection 2.7 and the Borrower makes the mandatory prepayment, if any, required in connection therewith pursuant to subsection 2.7. 6.6 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in (any of the foregoing, an "investment"), any Person, except for: (a) investments in marketable securities, liquid investments and other financial instruments that are acquired for investment purposes and that have a value which may be readily established, including any such investment that may be readily sold or otherwise liquidated in any Fund or in any investment company managed by any Joint Venture pursuant to an investment advisory agreement; (b) any investment in any Included Subsidiary of the Borrower or in any other Person principally engaged in the business of providing investment advisory services and related (including distribution and shareholder servicing) services, PROVIDED that, after giving effect to any such investment in any such other Person, such other Person is a Subsidiary or a Joint Venture; (c) any investment in any Banking Subsidiary or in any other Person which, after giving effect to any such investment, is a Banking Subsidiary; (d) extensions of trade credit in the ordinary course of business; (e) loans to officers of the Borrower or any of its Subsidiaries consistent with past practices of the Borrower and its Subsidiaries, and advances to employees of the Borrower or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; (f) investments in the Finance Subsidiary; (g) investments constituting non-cash consideration received in connection with an Asset Disposition, PROVIDED that such non-cash consideration shall not exceed 25% of the aggregate consideration received for such Asset Disposition; and PROVIDED FURTHER that the aggregate amount of any such non-cash consideration with respect to Asset Dispositions shall not exceed $10,000,000 at any one time outstanding; and (h) other investments in an aggregate amount as to the Borrower and its Subsidiaries (other than the Banking Subsidiaries and the Finance Subsidiary) not exceeding $125,000,000 for the period since the Closing Date. 6.7 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate or any 45 Subsidiary less than 80% owned, directly or indirectly, by the Borrower, unless such transaction is otherwise permitted under this Agreement, is in the ordinary course of the Borrower's or such Subsidiary's business and is upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. 6.8 FISCAL YEAR. The Borrower shall not permit the fiscal year of the Borrower to end on a day other than September 30, except with the consent of the Majority Banks (which consent shall not be unreasonably withheld and which consent may be conditioned upon adjusting the covenants in a manner to give each of the parties hereto substantially the same protection and benefits as were in effect prior to any such change in the fiscal year of the Borrower). 6.9 RESTRICTIONS AFFECTING SUBSIDIARIES. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, enter into, or suffer to exist, any agreement with any Person other than the Banks which prohibits or limits the ability of any Included Subsidiary to (a) pay dividends or make other distributions or pay any Indebtedness owed to the Borrower or any other Included Subsidiary, (b) make loans or advances to the Borrower or any other Included Subsidiary or (c) transfer any of its properties or assets to the Borrower or any other Included Subsidiary. Notwithstanding the foregoing, the provisions of this subsection shall not apply to the obligations of the Borrower and FTC under any Lease Financing Arrangement. SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by the Borrower herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Borrower shall default in the observance or performance of any agreement contained in subsection 6.1 or 6.4; or (d) The Borrower shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days or, if longer, a period ending 15 days after the giving of notice of such default by the Administrative Agent to the Borrower (or, in the case of any such default in the observance or performance of subsection 5.7(a), for a period of 30 days after a Responsible Officer has knowledge of a Default or Event of Default as to which notice is required by said subsection); or 46 (e) The Borrower or any of its Subsidiaries shall (i) default in any payment of principal of or interest, regardless of the amount, due in respect of any Indebtedness other than amounts due hereunder, including all of the Indebtedness issued under the same indenture or other agreement, of $75,000,000 or greater or in the payment of any Guarantee Obligation with respect to an amount of $75,000,000 or greater, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; or (f) (i) The Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall 47 be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Banks is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Borrower or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of the Borrower and its Subsidiaries taken as a whole; or (h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $75,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments to the Borrower shall immediately terminate and the Loans made to such Borrower hereunder (with accrued interest thereon) and all other amounts owing by the Borrower under this Agreement and the Notes shall immediately and automatically become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Banks, the Administrative Agent may, or upon the request of the Majority Banks, the Administrative Agent shall, by notice to the Borrower declare the Commitments of the Borrower to be terminated forthwith, whereupon such Commitments shall immediately terminate; and (ii) with the consent of the Majority Banks, the Administrative Agent may, or upon the request of the Majority Banks, the Administrative Agent shall, by notice of default to the Borrower, declare the Loans hereunder made (with accrued interest thereon) and all other amounts owing by the Borrower under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 8. THE AGENTS 8.1 APPOINTMENT. Each Bank hereby irrevocably designates and appoints JPMCB as Administrative Agent, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents and Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents for such Bank under this Agreement, and each such Bank irrevocably authorizes JPMCB, as the Administrative Agent, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents and Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents for such Bank, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent, the Co- 48 Syndication Agents or the Co-Documentation Agents, as the case may be, by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, neither the Administrative Agent, the Co-Syndication Agents nor the Co-Documentation Agents shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents in such respective capacities. 8.2 DELEGATION OF DUTIES. The Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents may execute any of their respective duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent, the Co-Syndication Agents nor the Co-Documentation Agents shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or for any failure of the Borrower to perform its obligations hereunder or thereunder. Neither the Administrative Agent, the Co-Syndication Agents nor the Co-Documentation Agents shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. 8.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by any of them to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully 49 protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks. 8.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Banks. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Banks; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 8.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER BANKS. Each Bank expressly acknowledges that none of the Administrative Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Bank. Each Bank represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement or its Note(s), and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 INDEMNIFICATION. The Banks agree to indemnify the Administrative Agent in its respective capacities as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to the respective amounts of their original Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs (including, without limitation, the allocated cost of internal counsel), expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the repayment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or 50 arising out of this Agreement, the Notes or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the repayment of the Loans and all other amounts payable hereunder. 8.8 THE ADMINISTRATIVE AGENT, THE CO-SYNDICATION AGENTS AND THE CO-DOCUMENTATION AGENTS IN THEIR INDIVIDUAL CAPACITIES. The Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and their respective Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents were not the Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents, respectively, hereunder. With respect to the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, such Loans made or renewed by the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, as the case may be, shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, as the case may be, and the terms "Bank" and "Banks" shall include the Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents in their individual capacities. 8.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Banks. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Majority Banks shall appoint from among the Banks a successor administrative agent for the Banks, which successor administrative agent shall be approved by the Borrower, whereupon such successor administrative agent shall succeed to the rights, powers and duties of the Administrative Agent and the term "Administrative Agent" shall mean such successor administrative agent effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 8.10 CO-SYNDICATION AGENTS AND CO-DOCUMENTATION AGENTS. Without limiting any provision contained in this Section 8, none of the Banks identified in this Agreement as the Co-Syndication Agents or the Co-Documentation Agents shall have, except as and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Banks as such. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. 51 SECTION 9. MISCELLANEOUS 9.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any Note, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Majority Banks, the Administrative Agent and the Borrower may, from time to time, enter into written amendments, supplements or modifications hereto and to the Notes for the purpose of adding any provisions to this Agreement or the Notes or changing in any manner the rights of the Banks or the Borrower hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or modification shall (a) reduce the amount or extend the maturity of any Loan, or reduce the rate or extend the time of payment of interest thereon, or reduce or extend the time of payment of any fee payable to any Bank hereunder, or change the amount of any Bank's Commitment, in each case without the written consent of the Bank affected thereby, or (b) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Majority Banks, or consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, in each case without the written consent of all the Banks, or (c) amend, modify or waive any provision of Section 8 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Borrower, the Banks and the Administrative Agent. In the case of any waiver, the Borrower, the Banks and the Administrative Agent shall be restored to their former position and rights hereunder, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 9.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy or other electronic transmission), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or 3 days after being deposited in the mail, postage prepaid, or, in the case of telecopy or other electronic notice, when received, addressed as follows in the case of the Borrower, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Borrower: Franklin Resources, Inc. One Franklin Parkway San Mateo, California 94403-1906 Attention: Martin L. Flanagan President, Member Office of the President Telecopy: 650-312-3528 With a copy to: Attention: Leslie M. Kratter Senior Vice President 52 Telecopy: 650-312-2804 The Chase Manhattan Bank, as Administrative Agent and a Co-Agent: JPMorgan Chase Bank 270 Park Avenue New York, New York 10017 Attention: Elisabeth Schabe Telecopy: 212-270-1511 With a copy to: JPMorgan Chase Bank Agency Services Corporation One Chase Manhattan Plaza Eighth Floor New York, New York 10081 Attention: Laura Rebecca or Maxeen Pinnock Telecopy: 212-552-7490 Bank of America, N.A., as Co-Syndication Agent: The Bank of New York, as Co-Syndication Agent: Citicorp USA Inc., as Co-Documentation Agent: BNP Paribas, as Co-Documentation Agent: PROVIDED that any notice, request or demand to or upon the Administrative Agent, the Co-Syndication Agents or Co-Documentation Agents or the Banks pursuant to subsection 2.2, 2.6, 2.7 or 2.8 or any notice to the Borrower pursuant to Section 7 shall not be effective until received. 9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or any Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 53 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement. 9.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or reimburse the Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents for all their reasonable costs and out-of-pocket expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of one external counsel to the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Banks, (b) after the occurrence of an Event of Default, to pay or reimburse each Bank, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, and any such other documents, including, without limitation, fees and disbursements of counsel to the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and to the several Banks and the allocated cost of internal counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Bank, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and any such other documents, and (d) to pay, indemnify, and hold each Bank, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Borrower shall have no obligation hereunder to the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or any Bank with respect to indemnified liabilities arising from (i) the negligence or willful misconduct of the Administrative Agent or any such Bank or their agents or attorneys-in-fact, (ii) legal proceedings commenced against the Administrative Agent or any such Bank by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such or (iii) legal proceedings commenced against any such Bank, the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents by any other Bank or the Administrative Agent with respect to fee arrangements and other payment obligations between the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Banks. The agreements in this subsection shall survive repayment of all amounts payable hereunder. The Administrative Agent and the Banks agree to provide reasonable details and supporting information concerning any costs and expenses required to be paid by the Borrower pursuant to the terms hereof. 9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING BANKS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Banks, the Co- 54 Syndication Agents, the Co-Documentation Agents and the Administrative Agent, all future holders of Loans or Commitments and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. (b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Bank may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (any such consent not to be unreasonably withheld or delayed) of: (A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to an assignee that is a Bank immediately prior to giving effect to such assignment, an Affiliate of a Bank, an Approved Fund (as defined below) or, if an Event of Default has occurred and is continuing, any other assignee; and (B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment to an assignee that is a Bank immediately prior to giving effect to such assignment. (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Bank or an Affiliate of a Bank or an assignment of the entire remaining amount of the assigning Bank's Commitment, the amount of the Commitment of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing; (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Bank's rights and obligations under this Agreement, provided that this clause shall not apply to rights in respect of outstanding Bid Loans; (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; (D) the assignee, if it shall not be a Bank prior to such assignment, shall deliver to the Administrative Agent an Administrative Questionnaire; and (E) in the case of an assignment to a CLO (as defined below), the assigning Bank shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, PROVIDED that the Assignment and Assumption between such Bank and such CLO may provide that such Bank will 55 not, without the consent of such CLO, agree to any amendment, modification or waiver described in clause (a) or (b) of the proviso to subsection 9.1 that affects such CLO, PROVIDED FURTHER that nothing in this subsection 9.6 shall be construed to waive the requirement that mutual consent of the appropriate parties in accordance with subsection 9.1 is required in order to amend or modify the terms of this Agreement. For the purposes of this subsection 9.6, the terms "Approved Fund" and "CLO" have the following meanings: "APPROVED FUND" means (a) a CLO and (b) with respect to any Bank that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Bank or by an Affiliate of such investment advisor. "CLO" means any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Bank or an Affiliate of such Bank. (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this subsection, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Bank under this Agreement, and the assigning Bank thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto but shall continue to be entitled to the benefits of subsections 2.15, 2.16, 2.17 and 9.5). Any assignment or transfer by a Bank of rights or obligations under this Agreement that does not comply with this subsection 9.6 shall be treated for purposes of this Agreement as a sale by such Bank of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitment of, and principal amount of the Loans owing to, each Bank pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Bank, at any reasonable time and from time to time upon reasonable prior notice. 56 (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Bank and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Bank hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall promptly accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (c) (i) Any Bank may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of such Bank's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); PROVIDED that (A) such Bank's obligations under this Agreement shall remain unchanged, (B) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Bank sells such a participation shall provide that such Bank shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such agreement or instrument may provide that such Bank will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clause (a) or (b) of subsection 9.1 that affects such Participant. Subject to paragraph (c)(ii) of this subsection, the Borrower agrees that each Participant shall be entitled to the benefits of subsections 2.15, 2.16 and 2.17 to the same extent as if it were a Bank and had acquired its interest by assignment pursuant to paragraph (b) of this subsection. To the extent permitted by law, each Participant also shall be entitled to the benefits of subsection 9.7(b) as though it were a Bank, provided such Participant agrees to be subject to subsection 9.7(a) as though it were a Bank. (ii) A Participant shall not be entitled to receive any greater payment under subsection 2.15, 2.16 or 2.17 than the applicable Bank would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. Subject to the preceding sentence, a Participant that would be a Foreign Bank if it were a Bank shall not be entitled to the benefits of subsection 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with subsection 2.16(e) as though it were a Bank and for purposes of claiming any benefit under subsection 2.16, any reference to a Foreign Bank shall be deemed to refer to such Participant. (d) Any Bank may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement including any Note to secure obligations of such Bank, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Bank from any of its obligations hereunder or substitute any such pledgee or assignee for such Bank as a party hereto. 57 9.7 ADJUSTMENTS; SET-OFF. (a) If any Bank (a "Benefitted Bank") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans, or interest thereon, such Benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loans, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Bank so purchasing a portion of another Bank's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. (b) In addition to any rights and remedies of the Banks provided by law, each Bank shall have the right, exercisable upon the occurrence of an Event of Default and acceleration of the obligations of the Borrower owing in connection with this Agreement, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set-off and appropriate and apply against any such obligations any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Bank or any branch or agency thereof to or for the credit or the account of the Borrower (except for any such deposits, credits, indebtedness or claims held in any accounts maintained at any Bank as to which such Bank has waived its right of set-off). Each Bank agrees promptly to notify the Borrower, and the Administrative Agent after any such set-off and application made by such Bank, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. 9.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 9.9 SEVERABILITY. 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, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.10 INTEGRATION. This Agreement represents the agreement of the Borrower, the Administrative Agent and the Banks with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Co- 58 Syndication Agents, the Co-Documentation Agents or any Bank relative to subject matter hereof not expressly set forth or referred to herein. 9.11 GOVERNING LAW. THIS AGREEMENT (INCLUDING SECTION 9) AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). 9.12 SUBMISSION TO JURISDICTION; WAIVERS; APPOINTMENT OF PROCESS AGENT. (a) The Borrower, to the extent permitted by applicable law, hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or any Note 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 appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in 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; (iii) 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 subsection 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; and (iv) 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. 9.13 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement; (b) neither the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents nor any Bank has any fiduciary relationship to the Borrower, solely by virtue of any of the Loan Documents, and the relationship pursuant to the Loan Documents between the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Banks, on one hand, and the Borrower, on the other hand, is solely that of creditor and debtor; and 59 (c) no joint venture exists among the Banks or among the Borrower and the Banks. 9.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT, THE CO-SYNDICATION AGENTS, THE CO-DOCUMENTATION AGENTS AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 9.15 CONFIDENTIALITY. Each of the Administrative Agent and the Banks agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a known breach of this Section or (ii) becomes available to the Administrative Agent or any Bank on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "INFORMATION" means all information received whether on or prior to the date hereof or hereafter from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Bank on a nonconfidential basis prior to disclosure by the Borrower. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. FRANKLIN RESOURCES, INC. By: /s/ Leslie M. Kratter --------------------- Name: Leslie M. Kratter Title: Senior Vice President and Secretary JPMORGAN CHASE BANK, as Administrative Agent and a Bank By: /s/ Marybeth Mullen ------------------- Name: Marybeth Mullen Title: Vice President CITICORP USA INC., as Co-Documentation Agent and a Bank By: /s/ Alex Duka ------------- Name: Alex Duka Title: Director BNP PARIBAS, as Co-Documentation Agent and a Bank By: /s/ Marguerite L. Lebon ----------------------- Name: Marguerite L. Lebon Title: Vice President BNP PARIBAS, as Co-Documentation Agent and a Bank By: /s/ Barry K. Chung ------------------ Name: Barry K. Chung Title: V.P. THE BANK OF NEW YORK, as Co-Syndication Agent and a Bank By: /s/ Scott Buitekant ------------------- Name: Scott Buitekant Title: Vice President BANK OF AMERICA, N.A., as Co-Syndication Agent and a Bank By: /s/ Elizabeth W. F. Bishop -------------------------- Name: Elizabeth W. F. Bishop Title: Managing Director DEUTSCHE BANK AG, NEW YORK BRANCH By: /s/ Gayma Z. Shivnarain ----------------------- Name: Gayma Z. Shivnarain Title: Director By: /s/ Elizabeth Zieglmeier ------------------------ Name: Elizabeth Zieglmeier Title: Managing Director ROYAL BANK OF CANADA By: /s/ Gabriella King ------------------ Name: Gabriella King Title: Senior Manager TORONTO DOMINION (TEXAS), INC. By: /s/ Alva J. Jones ----------------- Name: Alva J. Jones Title: Vice President HSBC BANK USA By: /s/ L. Sue Lomax ---------------- Name: L. Sue Lomax Title: Senior Vice President BAYERISCHE HYPO-UND VEREINSBANK AG NEW YORK BRANCH By: /s/ David A. Lefkovits ---------------------- Name: David A. Lefkovits Title: Managing Director By: /s/ Sessa von Richthofen ------------------------ Name: Sessa von Richthofen Title: Associate STATE STREET BANK AND TRUST COMPANY By: /s/ Steven G. Caron ------------------- Name: Steven G. Caron Title: Vice President BANCA DI ROMA By: /s/ Luca Belestra Name: Luca Belestra (#25050) Title: Senior Vice President and Manager By: /s/ Richard G. Dietz --------------------- Name: Richard G. Dietz (#97271) Title: Vice President SCHEDULE I - COMMITMENTS Name and Address of Lender Commitment Amount - -------------------------- ----------------- JPMorgan Chase Bank $21,000,000 270 Park Avenue New York, New York 10017 Attn: Elisabeth Schwabe Facsimile: (212) 270-1511 Citicorp USA Inc $21,000,000 399 Park Avenue, 12th Floor New York, New York 10043 Attn: Alexander Duka Facsimile: (212) 371-6309 BNP Paribas $21,000,000 499 Park Avenue, 3rd Floor New York, New York 10022-1278 Attn: Laurent Vanderzyppe Facsimile: (212) 841-2299 The Bank of New York . $21,000,000 One Wall Street, 17th Floor New York, New York 10286 Attn: Scott Buitekant Facsimile: (212) 635-6348 Bank of America, N.A. $21,000,000 231 South LaSalle Street, Suite 1044 Chicago, IL 60697 Attn: Elizabeth Bishop Facsimile: (312) 987-0889 Deutsche Bank AG $17,500,000 31 West 52nd Street, 20th Floor New York, New York 10019 Attn: Gayma Z. Shivnarain Facsimile: (212) 469-8108 Royal Bank of Canada $17,500,000 New York Branch 1 Liberty Plaza, 3rd Floor New York, New York 10006-1404 Attn: Karim Amr Facsimile: (212) 428-2372 with a copy to: Royal Bank of Canada 1 Liberty Plaza, 3rd Floor New York, New York 10006-1404 Attn: G. King Facsimile: (212) 428-6201 Toronto Dominion (Texas), Inc. $17,500,000 909 Fannin Houston, TX 77010 Attn: Alva Jones Facsimile: (713) 951-9921 HSBC Bank USA $17,500,000 Corporate and Institutional Banking 452 Fifth Avenue New York, New York 10018 Attn: Padma Rao Facsimile: (212) 525-8937 Bayerische Hypo-Und Vereinsbank AG $15,000,000 150 East 42nd Street New York, New York 10017-4679 Attn: Sessa von Richthofen Facsimile: (212) 672-5517 State Street Bank and Trust Company $10,000,000 2 Avenue de Lafayette Boston, MA 02111 Attn: Steven Caron Facsimile: (617) 662-2325 Banca Di Roma $10,000,000 One Market, Steuart Tower, Suite 1000 San Francisco, CA 94105 Attn: Rick Dietz Facsimile: (415) 357-9869 SCHEDULE II SAMPLE COMPUTATIONS OF FACILITY AND UTILIZATION FEES Example 1: Average Aggregate Commitment of All Banks: $210,000,000 Facility Fee: $210,000,000 x .00090 (Rating 1) = $189,000 Average Aggregate Loans Over Quarter (under this Agreement and the 364 Day Facility): $0 --- Utilization Fee: $0 Example 2: Average Aggregate Commitment of All Banks: $210,000,000 Facility Fee: $210,000,000 x .00090 (Rating 1) = $189,000 Average Aggregate Loans Over Quarter (under this Agreement and the 364 Day Facility): $300,000,000 --- Utilization Fee: $300,000,000 x .00125 = $375,000 SCHEDULE III - CONSENTS AND AUTHORIZATIONS None. SCHEDULE IV - U.S. INVESTMENT ADVISORS Fiduciary International, Inc. Fiduciary Investment Management International, Inc. Fiduciary Trust International Limited Franklin Advisers, Inc. Franklin Advisory Services, LLC Franklin Investment Advisory Services, Inc. Franklin Private Client Group, Inc. Franklin Mutual Advisers, LLC Franklin Templeton Asset Strategies, LLC Franklin Templeton Investment Management Limited Franklin Templeton Investments (Asia) Limited Franklin Templeton Investments Corporation FTI Institutional, LLC Templeton Asset Management Limited Templeton Global Advisors Limited Templeton Investment Counsel, LLC Templeton/Franklin Investment Services, Inc. Schedule V - U.S. Broker/Dealers Fiduciary Financial Services Corp. Franklin/Templeton Distributors, Inc. Templeton/Franklin Investment Services, Inc. SCHEDULE VI - SUBSIDIARIES Closed Joint-Stock Company Templeton Franklin Templeton Management Luxembourg SA Continental Property Management Company Franklin Templeton NIB Asset Management FCC Receivables Corporation (Proprietary) Limited Fiduciary Financial Services Corp. Franklin Templeton NIB Investments Limited Fiduciary International Holding, Inc. Franklin Templeton NIB Management Company Fiduciary International Ireland Limited Limited Fiduciary International, Inc. Franklin Templeton Services Limited Fiduciary Investment Corporation Franklin Templeton Services, LLC Fiduciary Investment Management International, Inc. Franklin/Templeton Distributors, Inc. Fiduciary Tax Services, Inc. Franklin/Templeton Travel, Inc. Fiduciary Trust (International) S.A. FS Capital Group Fiduciary Trust Company International FS Properties, Inc. Fiduciary Trust International Asia Limited FTCI (Cayman) Ltd. Fiduciary Trust International Australia Limited FTI - Banque Fiduciary Trust Fiduciary Trust International Investment FTI Institutional, LLC Management, Inc. Happy Dragon Holdings Limited Fiduciary Trust International Limited Property Resources, Inc. Fiduciary Trust International of California Templeton (Switzerland) Ltd. Fiduciary Trust International of Delaware Templeton Asian Direct Investments Limited Fiduciary Trust International of the South Templeton Asset Management (India)Private Franklin Advisers, Inc. Limited Franklin Advisory Services, LLC Templeton Asset Management (Labuan) Limited Franklin Agency, Inc. Templeton Asset Management Ltd. Franklin Capital Corporation Templeton Capital Advisors Ltd. Franklin Investment Advisory Services, Inc. Templeton China Research Limited Franklin Private Client Group, Inc. Templeton do Brasil Ltda. Franklin Mutual Advisers, LLC Templeton Franklin Global Distributors Ltd. Franklin Properties, Inc. Templeton Funds Annuity Company Franklin Receivables LLC Templeton Global Advisors Limited Franklin Resources, Inc. Templeton Global Holdings Ltd. Franklin Templeton Asset Management S.A. Templeton Heritage Limited Franklin Templeton Asset Strategies, LLC Templeton International, Inc. Franklin Templeton Bank & Trust, F.S.B. Templeton Investment Counsel, LLC Franklin Templeton Companies, LLC Templeton Investment Holdings (Cyprus) Limited Franklin Templeton Credit Corporation Templeton Research and Management Venezuela, Franklin Templeton France S.A. C.A. Franklin Templeton Global Investors Limited Templeton Research Poland SP.z.o.o. Franklin Templeton Holding Limited Templeton Restuctered Investments, L.L.C. Franklin Templeton International Services S.A. Templeton Trust Services Private Limited Franklin Templeton Investment Management Limited Templeton Worldwide, Inc. Franklin Templeton Investment Services GmbH Templeton/Franklin Investment Services, Inc. Franklin Templeton Investment Trust Management TRFI Investments Limited Company Ltd. Franklin Templeton Investments (Asia) Limited Franklin Templeton Investments Australia Limited Franklin Templeton Investments Corp. Franklin Templeton Investments Japan Limited Franklin Templeton Investor Services, LLC Franklin Templeton Italia Sim S.p.A.
SCHEDULE VII - OUTSTANDING INDEBTEDNESS $877,000,000.00 Face Value Franklin Resources, Inc. Liquid Yield Option Notes due 2031 (Zero Coupon-Senior) Outstanding Indebtedness under the Amended and Restated 364 Day Facility Credit Agreement dated as of June 12, 2001 among the Company, the several banks parties thereto, Bank of America, N.A., as Syndication Agent, The Bank of New York, as Documentation Agent and The Chase Manhattan Bank, as Administrative Agent. SCHEDULE VIII - EXISTING LIENS None. EXHIBIT A TO CREDIT AGREEMENT [FORM OF BID LOAN CONFIRMATION] _____, 200_ JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Dear Sirs: Reference is made to the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. In accordance with subsection 2.3(b) of the Credit Agreement, the undersigned accepts and confirms on behalf of Franklin Resources, Inc. the offers by Bid Loan Bank(s) to make Bid Loans to Franklin Resources, Inc. on _____, 200 [Bid Loan Date] under subsection 2.3 of the Credit Agreement in the [respective] amount(s) set forth on the attached list of Bid Loans offered. Very truly yours, FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: [Borrower to attach Bid Loan offer list prepared by Administrative Agent with accepted amount entered by the Borrower to right of each Bid Loan offer]. EXHIBIT B TO CREDIT AGREEMENT [FORM OF BID LOAN OFFER] _______, 200_ JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Dear Sirs: Reference is made to the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. In accordance with subsection 2.3(b) of the Credit Agreement, the undersigned Bank offers to make Bid Loans thereunder in the following amounts to Franklin Resources, Inc. the following maturity dates: Bid Loan Date: _____, 200 Aggregate Maximum Amount: $_____ Maturity Date 1 _____: Maturity Date 2 _____: Maturity Date 3 _____: Maximum Amount $___ Maximum Amount $___ Maximum Amount $___ Rate * Amount $___ Rate * Amount $___ Rate * Amount $___ - - - Rate * Amount $___ Rate * Amount $___ Rate * Amount $___ - - - Borrower: ______ Borrower: ______ Borrower: ______ [The undersigned Bank hereby waives the requirement, set forth in subsection 2.3(b)(iv)(B) of the Credit Agreement, that the Bid Loans made to the Borrower by any Bid Loan Bank be in a minimum amount of $5,000,000.] Very truly yours, [NAME OF BIDDING BANK] By:_________________________ Name: Title: Tel.: Fax: - ------------ * In the case of LIBOR Bid Loans, insert margin bid. In the case of Absolute Rate Bid Loans, insert fixed rate bid. EXHIBIT C TO CREDIT AGREEMENT [FORM OF BID LOAN REQUEST] _________, 200_ JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Dear Sirs: Reference is made to the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. This is a[n] [LIBOR] [Absolute Rate] Bid Loan Request pursuant to subsection 2.3(b) of the Credit Agreement requesting quotes for the following Bid Loans: Aggregate Principal Amount: $_____ $_____ $___ Bid Loan Date: _____ ___ ___ [Interest Period:]* _____ ___ ___ Maturity Date:** _____ ___ ___ Interest Payment Dates: _____ ___ ___ Borrower: _____ ___ ___ - ------------------------------ * Insert only in a LIBOR Bid Loan Request. ** In a LIBOR Bid Loan Request, insert last day of Interest Period. - ------------ Note:Pursuant to the Credit Agreement, a Bid Loan Request may be transmitted in writing, by telex or by facsimile transmission, or by telephone, immediately confirmed by telex or facsimile transmission. In any case, a Bid Loan Request shall contain the information specified in the second paragraph of this form. Very truly yours, FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: EXHIBIT D TO CREDIT AGREEMENT [ASSIGNMENT AND ASSUMPTION] Reference is made to the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Assignor named below hereby sells and assigns, without recourse, to the Assignee named below, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth below, the interests set forth below (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interests set forth below in the Commitment of the Assignor on the Assignment Date and Bid Loans and Revolving Loans owing to the Assignor which are outstanding on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or with respect to execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Affiliates or any other obligor or the performance or observance by the Borrower, any of its Affiliates or any other obligor of any of their respective obligations under the Credit Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto. This Assignment and Assumption is being delivered to the Administrative Agent together with (i) if the Assignee is a Foreign Lender, any documentation required to be delivered by the Assignee pursuant to Section 2.16(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 9.6(b) of the Credit Agreement. This Assignment and Assumption shall be governed by and construed in accordance with the laws of the State of New York. Date of Assignment: Legal Name of Assignor: Legal Name of Assignee: Assignee's Address for Notices: Effective Date of Assignment ("Assignment Date"): =========================== ======================= =========================== Percentage Assigned of Facility/Commitment (set Principal Amount forth, to at least 8 Assigned (and decimals, as a percentage identifying information of the Facility and the as to individual BID aggregate Commitments of Facility LOANS) all Lenders THEREUNDER) - -------- ------ ------------------------- Commitment Assigned: $ % Revolving Loans: Competitive Loans: ============================ ======================= =========================== The terms set forth above and on the reverse side hereof are hereby agreed to: [Name of Assignor] , as Assignor By:______________________________ Name: Title: [Name of Assignee] , as Assignee By: ______________________________ Name: Title: The undersigned hereby consent to the within assignment: Franklin Resources, Inc., JPMorgan Chase Bank, (if required) as Administrative Agent, (if required) By: ______________________ Name: By: __________________________ Title: Name: Title: EXHIBIT E-1 TO CREDIT AGREEMENT [FORM OF REVOLVING CREDIT NOTE] $__________ New York, New York ________ __, 200_ FOR VALUE RECEIVED, the undersigned, Franklin Resources, Inc., a Delaware corporation (the "BORROWER"), hereby unconditionally promises to pay on the Termination Date to the order of ____________________________________________ (the "BANK") at the office of JPMORGAN CHASE BANK, located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (a) ______________________ DOLLARS ($__________) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the undersigned pursuant to subsection 2.1 of the Credit Agreement referred to below. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the Effective Date at the applicable rates per annum set forth in subsection 2.10 of the Credit Agreement referred to below until any such amount shall become due and payable (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 2.10(d) of the Credit Agreement until paid in full (both before and after judgment). Interest shall be payable in arrears on each applicable Interest Payment Date, commencing on the first such date to occur after the date hereof and terminating upon payment (including prepayment) in full of the unpaid principal amount hereof; provided that interest accruing on any overdue amount shall be payable on demand. The holder of this Note is authorized to record the date and amount of each Revolving Credit Loan made pursuant to subsection 2.1 of the Credit Agreement, its character as an Alternate Base Rate Loan or LIBOR Loan, the date and amount of each payment or prepayment of principal with respect thereto, the length of each Interest Period with respect to the portion of such Revolving Credit Loan made and/or maintained as a LIBOR Loan, and the LIBOR Adjusted Rate with respect thereto and each conversion made pursuant to subsection 2.8 of the Credit Agreement, on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, which recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that failure by the Bank to make any such recordation on this Note shall not affect the obligations of the Borrower under this Note or under the Credit Agreement. This Note is one of the Revolving Credit Notes referred to in the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent, is entitled to the benefits thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: SCHEDULE A to Revolving Credit Note
LOANS, CONVERSIONS AND PAYMENTS OF ALTERNATE BASE RATE LOANS - ------------- ----------- ------------------ ----------------- ---------------- ---------------- ------------ Amount of Amount of Unpaid LIBOR Loans Alternate Base Principal Converted into Rate Loans Amount of Balance of Amount of Alternate Base Converted into Principal Alternate Base Notation Date Loan Rate Loans LIBOR Loans Repaid Rate Loans Made by ---- ---- --------------- ----------- ------ ---------- ------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- --------
SCHEDULE B to Revolving Credit Note
LOANS, CONVERSIONS AND PAYMENTS OF LIBOR LOANS - ------------- ---------- --------------- ---------------- --------------- -------------- ------------- ------------ Amount of Amount of LIBOR Alternate Loans Base Rate Interest Period Converted Unpaid Loans and LIBOR into Principal Converted Adjusted Rate Alternate Amount of Balance of Amount into LIBOR with Respect Base Rate Principal LIBOR Notation Date of Loan Loans Thereto Loans Repaid Loans Made by ---- ------- ----- ------- ----- ------ ----- ------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- --------
EXHIBIT E-2 TO CREDIT AGREEMENT [FORM OF GRID BID LOAN NOTE] PROMISSORY NOTE $______ New York, New York _______, 200_ FOR VALUE RECEIVED, the undersigned, Franklin Resources, Inc. , a Delaware corporation, (the "Borrower"), hereby unconditionally promises to pay to the order of _________________ (the "Bank") at the office of JPMorgan Chase Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of (a) ________DOLLARS ($____), or, if less, (b) the aggregate unpaid principal amount of each Bid Loan which is (i) made by the Bank to the Borrower pursuant to subsection 2.3 of the Credit Agreement hereinafter referred to and (ii) not evidenced by an Individual Bid Loan Note executed and delivered by the Borrower pursuant to subsection 2.4(e) of the Credit Agreement. The principal amount of each Bid Loan evidenced hereby shall be payable on the maturity date therefor set forth on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (the "Grid"). The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount of each Bid Loan evidenced hereby, at the rate per annum set forth in respect of such Bid Loan on the Grid, calculated on the basis of a year of 360 days and actual days elapsed from the date of such Bid Loan until the due date thereof (whether at the stated maturity, by acceleration or otherwise) and thereafter at the rates determined in accordance with subsection 2.3(d) of the Credit Agreement. Interest on each Bid Loan evidenced hereby shall be payable on the date or dates set forth in respect of such Bid Loan on the Grid. Bid Loans evidenced by this Note may not be optionally prepaid. The holder of this Note is authorized to endorse on the Grid the date, amount, interest rate, interest payment dates and maturity date in respect of each Bid Loan made pursuant to subsection 2.3 of the Credit Agreement, each payment of principal with respect thereto and any transfer of such Bid Loan from this Note to an Individual Bid Loan Note delivered to the Bank pursuant to subsection 2.4(e) of the Credit Agreement, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed; provided, however, that the failure to make any such endorsement shall not affect the obligations of the Borrower in respect of such Bid Loan. This Note is one of the Grid Bid Loan Notes referred to in the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent, is entitled to the benefits thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Very truly yours, FRANKLIN RESOURCES, INC. By:_________________________ Name: Title:
SCHEDULE OF BID LOANS Date of Transfer Date Amount Interest to Individ- Loan of of Interest Payment Maturity Payment ual Bid Author- Bid Loan Rate Dates Date Date Loan Note ization - --- ---- ---- ----- ---- ---- --------- ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ -------
EXHIBIT E-3 TO CREDIT AGREEMENT [FORM OF INDIVIDUAL BID LOAN NOTE] NON-NEGOTIABLE BID NOTE $_____ New York, New York ___________, 200_ FOR VALUE RECEIVED, the undersigned, Franklin Resources, Inc., a Delaware corporation (the "Borrower"), promises to pay on _____, 200 to the order of ___________(the "Bank") at the office of JPMorgan Chase Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal sum of _____DOLLARS ($______). The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the rate of _% per annum (calculated on the basis of a year of 360 days and actual days elapsed) until the due date hereof (whether at the stated maturity, by acceleration, or otherwise) and thereafter at the rates determined in accordance with subsection 2.4(e) of the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Interest shall be payable on ________. This Note may not be optionally prepaid. This Note is one of the Individual Bid Loan Notes referred to in, is subject to and is entitled to the benefits of, the Credit Agreement, which Credit Agreement, among other things, contains provisions for acceleration of the maturity and mandatory prepayments hereof upon the happening of certain stated events. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: EX-10 5 exhibit10-65.txt EXHIBIT 10.65-365 DAY CREDIT AGMT EXHIBIT 10.65 ------------- EXECUTION COPY AMENDED AND RESTATED 364 DAY FACILITY CREDIT AGREEMENT dated as of June 5, 2002 among FRANKLIN RESOURCES, INC., THE BANKS PARTIES HERETO, BANK OF AMERICA, N.A. and THE BANK OF NEW YORK, as Co-Syndication Agents, CITICORP USA INC. and BNP PARIBAS, as Co-Documentation Agents, and JPMORGAN CHASE BANK, as Administrative Agent ------------------------------------ J.P. MORGAN SECURITIES INC., as Sole Bookrunner and Sole Lead Arranger TABLE OF CONTENTS SECTION 1. DEFINITIONS......................................................1 1.1 Defined Terms...................................................1 1.2 Other Definitional Provisions..................................15 SECTION 2. AMOUNT AND TERMS OF LOANS.......................................16 2.1 Revolving Credit Commitments...................................16 2.2 Procedure for Revolving Credit Borrowing.......................16 2.3 The Bid Loans..................................................17 2.4 Repayment of Loans; Evidence of Debt...........................19 2.5 Optional Termination or Reduction of Commitments...............21 2.6 Optional Prepayments...........................................21 2.7 Mandatory Prepayments..........................................21 2.8 Conversion and Continuation Options............................22 2.9 Minimum Amounts of Tranches....................................22 2.10 Interest Rates and Payment Dates...............................23 2.11 Computation of Interest and Fees...............................23 2.12 Inability to Determine Interest Rate...........................24 2.13 Pro Rata Treatment and Payments................................24 2.14 Illegality.....................................................25 2.15 Requirements of Law............................................25 2.16 Taxes..........................................................26 2.17 Indemnity......................................................27 2.18 Facility and Utilization Fee...................................28 2.19 Mitigation of Costs............................................29 2.20 New Banks; Exiting Banks.......................................29 SECTION 3. REPRESENTATIONS AND WARRANTIES..................................29 3.1 Financial Condition............................................29 3.2 No Change......................................................30 3.3 Corporate Existence; Compliance with Law.......................30 3.4 Corporate Power; Authorization; Enforceable Obligations........30 3.5 No Legal Bar...................................................30 3.6 No Material Litigation.........................................31 3.7 Ownership of Property; Liens...................................31 3.8 Intellectual Property..........................................31 3.9 Taxes..........................................................31 3.10 Federal Regulations............................................31 3.11 ERISA..........................................................32 3.12 Investment Company Act; Other Regulations......................32 3.13 Investment Advisory Agreements.................................32 3.14 Subsidiaries...................................................33 i PAGE 3.15 Purpose of Loans...............................................33 3.16 Environmental Matters..........................................33 3.17 Accuracy and Completeness of Information.......................33 SECTION 4. CONDITIONS PRECEDENT............................................34 4.1 Conditions to Execution........................................34 4.2 Conditions to Each Loan........................................35 SECTION 5. AFFIRMATIVE COVENANTS...........................................35 5.1 Financial Statements...........................................35 5.2 Certificates; Other Information................................36 5.3 Payment of Obligations.........................................37 5.4 Conduct of Business and Maintenance of Existence...............37 5.5 Maintenance of Property; Insurance.............................37 5.6 Inspection of Property; Books and Records; Discussions.........37 5.7 Notices........................................................38 5.8 Environmental Laws.............................................38 SECTION 6. NEGATIVE COVENANTS..............................................39 6.1 Financial Condition Covenants..................................39 6.2 Limitation on Indebtedness.....................................40 6.3 Limitation on Liens............................................40 6.4 Limitations on Fundamental Changes.............................41 6.5 Limitation on Sale of Assets...................................42 6.6 Limitation on Investments, Loans and Advances..................42 6.7 Transactions with Affiliates...................................43 6.8 Fiscal Year....................................................43 6.9 Restrictions Affecting Subsidiaries............................43 SECTION 7. EVENTS OF DEFAULT...............................................44 SECTION 8. THE AGENTS......................................................46 8.1 Appointment....................................................46 8.2 Delegation of Duties...........................................46 8.3 Exculpatory Provisions.........................................46 8.4 Reliance by Administrative Agent...............................47 8.5 Notice of Default..............................................47 8.6 Non-Reliance on Administrative Agent and Other Banks...........47 8.7 Indemnification................................................48 8.8 The Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents in their Individual Capacities.........48 8.9 Successor Administrative Agent.................................49 8.10 Co-Syndication Agents and Co-Documentation Agents..............49 ii PAGE SECTION 9. MISCELLANEOUS...................................................49 9.1 Amendments and Waivers.........................................49 9.2 Notices........................................................50 9.3 No Waiver; Cumulative Remedies.................................51 9.4 Survival of Representations and Warranties.....................52 9.5 Payment of Expenses and Taxes..................................52 9.6 Successors and Assigns; Participations; Purchasing Banks.......52 9.7 Adjustments; Set-off...........................................55 9.8 Counterparts...................................................56 9.9 Severability...................................................56 9.10 Integration....................................................56 9.11 GOVERNING LAW..................................................56 9.12 Submission To Jurisdiction; Waivers; Appointment of Process Agent..................................................57 9.13 Acknowledgments................................................57 9.14 WAIVERS OF JURY TRIAL..........................................57 9.15 Confidentiality................................................58 SCHEDULES Schedule I Commitments Schedule II Sample Computations of Facility and Utilization Fees Schedule III Required Consents Schedule IV Subsidiary Investment Advisers Schedule V Subsidiary Broker-Dealers Schedule VI List of Subsidiaries of the Borrower Schedule VII Outstanding Indebtedness Schedule VIII Existing Liens EXHIBITS Exhibit A Form of Bid Loan Confirmation Exhibit B Form of Bid Loan Offer Exhibit C Form of Bid Loan Request Exhibit D Form of Assignment and Assumption Exhibit E-1 Form of Revolving Credit Note Exhibit E-2 Form of Grid Bid Loan Note Exhibit E-3 Form of Individual Bid Loan Note iii AMENDED AND RESTATED 364 DAY FACILITY CREDIT AGREEMENT, dated as of June 5, 2002 (as more fully defined below, this "Agreement"), among Franklin Resources, Inc., a Delaware corporation (the "Borrower"), the several banks and other financial institutions from time to time parties to this Agreement (the "Banks"), Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents, and JPMorgan Chase Bank ("JPMCB"), as administrative agent for the Banks hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, this Agreement amends and restates that certain 364 Day Facility Credit Agreement, dated as of June 12, 2001 (as amended, supplemented or otherwise modified prior to the date hereof and in effect immediately prior to the effectiveness of this Agreement, the "Existing Credit Agreement") among the Borrower, the several banks and other financial institutions from time to time parties thereto (the "Existing Banks"), Bank of America, N.A., as Co-Syndication Agents, The Bank of New York, as Co-Documentation Agents, and JPMCB, as Administrative Agent; WHEREAS, certain of the Existing Banks are willing to agree to the amendment and restatement requested by the Borrower and have Commitments (as defined herein) hereunder (the "Continuing Banks"), and the other Existing Banks, (individually, an "Exiting Bank", and collectively, the "Exiting Banks") will cease to be Banks under the Existing Credit Agreement on the Closing Date (as defined herein); and WHEREAS, certain financial institutions that are not now Banks, (individually, a "New Bank", and collectively, the "New Banks") will become Banks and have Commitments hereunder on the Closing Date; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto hereby agree that as of the Closing Date the Existing Credit Agreement shall be amended and restated to read as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ABSOLUTE RATE BID LOAN REQUEST": any Bid Loan Request requesting the Bid Loan Banks to offer to make Absolute Rate Bid Loans. "ABSOLUTE RATE BID LOANS": Bid Loans made at an absolute rate (as opposed to a rate composed of the Applicable Index Rate plus (or minus) a margin). "ADMINISTRATIVE AGENT": as defined in the preamble hereto. "ADMINISTRATIVE QUESTIONNAIRE": an administrative questionnaire in a form supplied by the Administrative Agent. 2 "ADVISERS ACT": as defined in subsection 3.12(b). "AFFILIATE": as to any Person, (a) any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any Person who is a director, officer, shareholder or partner (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in the preceding clause (a). For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "AGREEMENT": this Amended and Restated 364 Day Facility Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "ALTERNATE BASE RATE": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1%, and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. "PRIME RATE" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by JPMCB in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate. "THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve Bank of New York (the "BOARD") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, 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 on the next succeeding 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 the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. 3 "ALTERNATE BASE RATE LOANS": Revolving Credit Loans the rate of interest applicable to which is based upon the Alternate Base Rate. "APPLICABLE INDEX RATE": in respect of any Bid Loan requested pursuant to a LIBOR Bid Loan Request, the LIBOR Adjusted Rate. "APPLICABLE MARGIN": for any day, (a) for each LIBOR Loan 0.375% per annum, and (b) for each Alternate Base Rate Loan, zero; provided that the Applicable Margin for any day after the Termination Date if the Term-Out Maturity Date has been elected shall be (x) for each LIBOR Loan, 0.500% per annum, and (y) for each Alternate Base Rate Loan, 0.125% per annum. "ASSET DISPOSITION": the sale, sale leaseback, exchange or other disposition (including by means of a merger, consolidation or amalgamation) of any property, business or assets (other than marketable securities (including "margin stock" within the meaning of Regulation U), liquid investments and other financial instruments) of the Borrower or any of its Subsidiaries to any Person or Persons other than the Borrower or any of its Subsidiaries. Notwithstanding the foregoing, the consummation by the Borrower or FTC of any transfers or other transactions in connection with any Lease Financing Arrangement or otherwise involving all or any portion of the Designated Property shall not constitute an Asset Disposition. "ASSIGNMENT AND ASSUMPTION": an assignment and assumption entered into by a Bank and an assignee (with the consent of any party whose consent is required by Section 9.6), and accepted by the Administrative Agent, substantially in the form of Exhibit D or any other form approved by the Administrative Agent. "AVAILABLE COMMITMENT": as to any Bank at any time, an amount equal to the excess, if any, of (a) the amount of such Bank's Commitment over (b) the aggregate principal amount of all Revolving Credit Loans made by such Bank then outstanding; collectively, as to all the Banks, the "AVAILABLE COMMITMENTS". "BANKING SUBSIDIARY": at any time, Fiduciary Trust Company International, Franklin Templeton Bank and Trust Company, F.S.B. or any other Subsidiary of the Borrower licensed to engage, and principally engaged, at such time in the banking or trust business or any Subsidiary of any such Subsidiary. "BANKS": as defined in the preamble hereto. "BID LOAN": each Bid Loan made pursuant to subsection 2.3; the aggregate amount advanced by a Bid Loan Bank pursuant to subsection 2.3 on each Bid Loan Date shall constitute one or more Bid Loans, as specified by such Bid Loan Bank pursuant to subsection 2.3(b)(vi). "BID LOAN BANKS": Banks from time to time designated as Bid Loan Banks by the Borrower, by written notice to the Administrative Agent (which notice the Administrative Agent shall transmit to each such Bid Loan Bank). 4 "BID LOAN NOTES": the collective reference to the Grid Bid Loan Notes and the Individual Bid Loan Notes. "BID LOAN CONFIRMATION": each confirmation by the Borrower of its acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be substantially in the form of Exhibit B and shall be delivered to the Administrative Agent in writing, by telex or by facsimile transmission. "BID LOAN OFFER": each offer by a Bid Loan Bank to make Bid Loans pursuant to a Bid Loan Request, which Bid Loan Offer shall contain the information specified in Exhibit B and shall be delivered to the Administrative Agent by telephone, immediately confirmed by telex or facsimile transmission. "BID LOAN REQUEST": each request by the Borrower for Bid Loan Banks to submit bids to make Bid Loans, which shall contain the information in respect of such requested Bid Loans specified in Exhibit C and shall be delivered to the Administrative Agent in writing, by telex or facsimile transmission, or by telephone, immediately confirmed by telex or facsimile transmission. "BORROWER": as defined in the preamble hereto. "BORROWING DATE": any Business Day or Working Day, as applicable, specified in a notice pursuant to subsection 2.2 or 2.3 as a date on which the Borrower requests the Banks to make Loans. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close. "CAPITALIZATION RATIO": at a particular date, the ratio of (a) Indebtedness of the Borrower and its Included Subsidiaries at such date to (b) the sum of (i) Indebtedness of the Borrower and its Included Subsidiaries at such date and (ii) the Consolidated Net Worth at such date. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "C/D ASSESSMENT RATE": for any day as applied to any C/D Rate Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation ("FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss. 327.3(d) (or any successor provision) to the FDIC (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D RATE LOANS": Loans the rate of interest applicable to which is based upon the Base C/D Rate. 5 "C/D RESERVE PERCENTAGE": for any day as applied to any C/D Rate Loan, that percentage which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor)(the "BOARD"), for determining the maximum reserve requirement for a Depository Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity comparable to the Interest Period for such C/D Rate Loan. "CHANGE IN CONTROL": any purchase or other acquisition of more than 50% of the shares of the common stock of the Borrower by any Person or "group" of related Persons, within the meaning of Section 13(d)(3) under the Securities and Exchange Act of 1934, as amended, other than Charles B. Johnson and members of his family and Affiliates thereof. "CLOSING DATE": the date on which each of the conditions set forth in subsection 4.1 shall have been satisfied. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COMMITMENT": as to any Bank, the obligation of such Bank to make Revolving Credit Loans to the Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name on Schedule I, as such amount may be reduced pursuant to the terms hereof. The initial aggregate amount of the Banks' Commitments is $210,000,000. "COMMITMENT PERCENTAGE": as to any Bank at any time, the percentage of the aggregate Commitments then constituted by such Bank's Commitment. "COMMITMENT PERIOD": the period from and including the Closing Date to but excluding the Termination Date or such earlier date as the Commitments shall terminate as provided herein. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "CONSOLIDATED CURRENT ASSETS": at a particular date, all cash and marketable securities owned by the Borrower and its Included Subsidiaries and all liquid investments of such Person in the Funds as at such date. "CONSOLIDATED CURRENT LIABILITIES": at a particular date, all amounts which would, in conformity with GAAP, be included under current liabilities on a consolidated balance sheet of the Borrower and its Included Subsidiaries as at such date, excluding, however, the current maturities under the Five Year Facility. "CONSOLIDATED INTEREST EXPENSE": for any period, the aggregate interest expense of the Borrower and its Included Subsidiaries for such period, as determined in accordance with GAAP, including, without limitation, (a) all commissions, discounts and other fees and charges owed with respect to letters of credit allocable to or amortized over such period, (b) net costs 6 under Interest Rate Agreements allocable to or amortized over such period and (c) the portion of any amount payable under Financing Leases that is, in accordance with GAAP, allocable to interest expense. "CONSOLIDATED NET INCOME": for any period, the consolidated net income (or deficit) of the Borrower and its Included Subsidiaries for such period (taken as a cumulative whole), determined in accordance with GAAP, excluding, however: (a) any gains or losses from the sale or other disposition of assets (including any such sale or other disposition of marketable securities, liquid investments or other financial instruments but excluding any such sale of obsolete or worn-out assets in the ordinary course of business consistent with past practice) and any other non-cash extraordinary or non-recurring gains or losses; and (b) the equity interest of the Borrower and its Included Subsidiaries in the net income (or deficit) of any Joint Venture except to the extent of the actual receipt or payment by the Borrower and its Subsidiaries thereof or therefor. "CONSOLIDATED NET WORTH": at a particular date, all amounts which would be included, under stockholders' equity, on a consolidated balance sheet of the Borrower and its Included Subsidiaries determined on a consolidated basis in accordance with GAAP as at such date. "CONSOLIDATED WORKING CAPITAL": at a particular date, the excess, if any, of Consolidated Current Assets over Consolidated Current Liabilities at such date. "CONTINUING BANK": as defined in the recitals hereto. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "DEFAULT": any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "DESIGNATED PROPERTY": All right, title and interest of the Borrower or any Affiliate in the real property and related improvements consisting of approximately 32 acres in Phase I of the Bay Meadows development located in the general vicinity of Franklin Parkway and Saratoga Avenue in San Mateo, California, which includes without limitation Borrower's corporate campus and other developed or undeveloped, contiguous or non-contiguous property located thereon. "DOLLARS" and "$": dollars in lawful currency of the United States of America. "EFFECTIVE DATE": shall be June 5, 2002. 7 "ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or requirements of law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "EVENT OF DEFAULT": any of the events specified in Section 7, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXCLUDED TAXES": with respect to the Administrative Agent, any Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income, net worth or capital (including taxes based on capital gains, minimum taxes and alternative minimum taxes) by the United States of America or any political subdivision thereof, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Bank, in which its applicable Lending Office is located and, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Bank (including for purposes of this definition a Participant claiming the benefits of subsection 2.16 pursuant to subsection 9.6(c)(ii) that would be a Foreign Bank if it were a Bank), any withholding tax that is imposed on amounts payable to such Foreign Bank at the time such Foreign Bank becomes a party to this Agreement (or designates a new lending office other than at the request of the Borrower) or is attributable to such Foreign Bank's failure to comply with Section 2.16(e), except to the extent that such Foreign Bank (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(a). "EXISTING BANK": as defined in the recitals hereto. "EXISTING CREDIT AGREEMENT": as defined in the recitals hereto. "FEDERAL FUNDS EFFECTIVE RATE": as defined in the definition of "ALTERNATE BASE RATE" contained in this subsection 1.1. "FINANCE SUBSIDIARY": Franklin Capital Corporation. "FINANCING LEASE": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "FIVE YEAR FACILITY": the Amended and Restated Five Year Facility Credit Agreement, dated as of June 5, 2002, among the Borrower, the several banks and other financial institutions from time to time parties thereto and JPMCB, as administrative agent, as the same may be amended, supplemented or otherwise modified from time to time. 8 "FOREIGN BANK": any Bank that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "FTC": Franklin Templeton Companies, LLC, a Delaware limited liability company (formerly known as Franklin Templeton Corporate Services, Inc., a Delaware Corporation). "FUNDS": the collective reference to all investment companies advised by the Borrower or any of its Subsidiaries. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. If, at any time, GAAP changes in a manner which will materially affect the calculations determining compliance by the Borrower with any of its covenants in subsection 6.1, either the Borrower or the Majority Banks may request an amendment to such covenant (or the definitions related thereto) and the Majority Banks or the Borrower, as the case may be, shall negotiate in good faith with the requesting party to agree upon such amendment to adjust such covenant to give to each of the parties hereto substantially the same protection and benefits as were contemplated prior to such changes. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GRID BID LOAN NOTE": as defined in subsection 2.4(e). "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such 9 Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "INCLUDED SUBSIDIARY": any Subsidiary of the Borrower other than any Banking Subsidiary, Finance Subsidiary, Insurance Subsidiary or Real Estate Subsidiary. "INDEBTEDNESS": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Financing Leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (e) all obligations of such Person, whether absolute or contingent, in respect of letters of credit opened for the account of such Person (other than any such letters of credit opened for the purpose of facilitating the purchase of goods and services in the ordinary course of business and having a term of not more than 360 days) and (f) all Guarantee Obligations of such Person in respect of any indebtedness, obligations or liabilities of any other Person of the type referred to in clauses (a) through (e) of this definition. "INDEMNIFIED TAXES": Taxes other than Excluded Taxes. "INDIVIDUAL BID LOAN NOTE": as defined in subsection 2.4(e). "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INSURANCE SUBSIDIARY": at any time, ILA Financial Services, Inc., or any other Subsidiary of the Borrower licensed to engage, and principally engaged, at such time in the insurance business or any Subsidiary of such Subsidiary. "INTEREST PAYMENT DATE": (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December, (b) as to any LIBOR Loan or LIBOR Bid Loan having an Interest Period of three months or less or any Absolute Rate Bid Loan having an interest period of 90 days or less, the last day of such Interest Period, and (c) as to any LIBOR Loan or Bid Loan having an Interest Period longer than three months (in the case of LIBOR Loans and LIBOR Bid Loans) or 90 days (otherwise), each day which is three months or 90 days, as the case may be, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and, in each case, on the day on which a Loan becomes due and is payable in full and is paid or prepaid in full. "INTEREST PERIOD": (a) with respect to any LIBOR Loans: 10 (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such LIBOR Loans and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing as provided in subsection 2.2 or its notice of conversion as provided in subsection 2.8(a), as the case may be; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBOR Loans and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than four Working Days prior to the last day of the then current Interest Period with respect to such LIBOR Loans; (b) with respect to any Bid Loan, the period commencing on the Borrowing Date in respect of such Bid Loan and ending on the scheduled maturity date thereof; PROVIDED that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a LIBOR Loan or a LIBOR Bid Loan would otherwise end on a day which is not a Working Day, such Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; (2) if any Interest Period pertaining to an Absolute Rate Bid Loan would otherwise end on a day that is not a Business Day such Interest Period shall be extended to the next succeeding Business Day; (3) any Interest Period pertaining to a LIBOR Loan or a LIBOR Bid Loan that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Working Day of a calendar month; (4) any Interest Period that would otherwise end after the Termination Date (or, in the case of Revolving Credit Loans, if applicable, the Term-Out Maturity Date) shall end on the Termination Date or the Term-Out Maturity Date, as the case may be; and (5) the Borrower shall use its best efforts to select Interest Periods so as not to require a payment or prepayment of any LIBOR Loan during an Interest Period for such Loan. "INTEREST RATE AGREEMENT": any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement under which the Borrower or any of its Subsidiaries is a party or a beneficiary. "INVESTMENT COMPANY ACT": as defined in subsection 3.12(a). 11 "JOINT VENTURE": any corporation, partnership or other entity (other than a Subsidiary of the Borrower) as to which the Borrower, directly or indirectly, owns 33% or more of the shares of any class of its capital stock or of its other ownership interests, whether voting or non-voting, and as to which the Borrower (or any relevant Subsidiary of the Borrower) is not simply a passive investor. "JPMCB": as defined in the preamble hereto. "LEASE FINANCING ARRANGEMENT": any indebtedness, obligation, contingent liability, guaranty, pledge, lien, lease, sublease, ground lease, synthetic lease, financing, re-financing, sale, sale-leaseback, exchange, disposition, acquisition or other transaction incurred, granted or entered into by Borrower or FTC pursuant to (or as a result of the rights or options available to Borrower or FTC under) (i) the Participation Agreement, dated September 27, 1999, entered into by FTC, First Security Bank, National Association, as owner trustee under the FRI Trust 1999-1, Bank of America, N.A., as the agent for certain lenders and holders, and certain banks and other lending institutions, as the same may be amended, supplemented or extended from time to time, (ii) the leases and other documents entered into in connection therewith, in each case as part of the lease financing transaction relating to the Designated Property, as the same may be amended, supplemented or extended from time to time, or (iii) any transaction entered into by Borrower, FTC or any affiliate thereof from time to time to substitute, refinance, replace discharge, reconvey, restructure or release or enter into any other related transactions with respect to any of the foregoing with respect to all or a portion of the Designated Property. "LENDING OFFICE": as defined in subsection 2.1(b). "LIBOR": with respect to each day during each Interest Period pertaining to a LIBOR Loan or a LIBOR Bid Loan, the rate per annum equal to the rate that appears with respect to such Interest Period on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page for such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) as of 11:00 A.M., London time, two Working Days prior to the beginning of such Interest Period (or, if such rate is not available on any such page, the average (rounded upward to the nearest 1/16th of 1%)of the respective rates notified to the Administrative Agent by each of the Reference Banks as the rate at which such Reference Bank is offered Dollar deposits at or about 11:00 A.M. London time, two Working Days prior to the beginning of such Interest Period in the London interbank eurodollar market for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its LIBOR Loan to be outstanding during such Interest Period or, in the case of a LIBOR Bid Loan, in an amount approximately equal to such LIBOR Bid Loan). "LIBOR ADJUSTED RATE": with respect to each day during each Interest Period pertaining to a LIBOR Loan or LIBOR Bid Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): 12 LIBOR --------------------------------- 1.00 - LIBOR Reserve Requirements "LIBOR BID LOAN REQUEST": any Bid Loan Request requesting the Bid Loan Banks to offer to make Bid Loans at an interest rate equal to the Applicable Index Rate plus (or minus) a margin. "LIBOR BID LOANS": Bid Loans made at a rate of interest based on the Applicable Index Rate. "LIBOR LOANS": Revolving Credit Loans the rate of interest applicable to which is based upon LIBOR. "LIBOR RESERVE REQUIREMENTS": for any day as applied to a LIBOR Loan or LIBOR Bid Loan, as the case may be, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. As at the Signing Date, there are no such reserve requirements. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "LOANS": the collective reference to the Revolving Credit Loans and the Bid Loans. "LOAN DOCUMENTS": this Agreement and any Note. "MAJORITY BANKS": at any time, Banks the Commitment Percentages of which aggregate more than 50%. If the Commitments are terminated, Majority Banks shall mean Banks holding more than 50% of the outstanding Loans. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower and its Subsidiaries to perform the obligations of the Borrower under this Agreement or the Notes, or (c) the validity or enforceability of this Agreement, any of the Notes or the rights or remedies of the Administrative Agent or the Banks hereunder or thereunder. 13 "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NET PROCEEDS": with respect to any Asset Disposition, the net amount equal to the aggregate amount received in cash (including any cash received by way of deferred payment pursuant to a note receivable, other non-cash consideration or otherwise, but only as and when such cash is so received) in connection with such Asset Disposition MINUS the sum of (a) the reasonable fees, commissions and other out-of-pocket expenses incurred by the Borrower or any Subsidiary, as applicable, in connection with such Asset Disposition (other than amounts payable to Affiliates of the Person making such disposition) and (b) federal, state and local taxes incurred in connection with such Asset Disposition, whether payable at such time or thereafter. "NEW BANK": as defined in the recitals hereto. "NON-MATERIAL SUBSIDIARY": as to any Person at any time of determination, a Subsidiary of such Person in which such Person and its other Subsidiaries have made an aggregate investment of not more than $2,000,000. "NOTES": the collective reference to the Revolving Credit Notes and the Bid Loan Notes. "OBLIGATIONS": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Notes and all other obligations and liabilities of the Borrower to the Administrative Agent or to the Banks, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, any other Loan Document and any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel, and the allocated cost of internal counsel, to the Administrative Agent or to the Banks that are required to be paid by the Borrower pursuant to the terms of this Agreement) or otherwise. "OTHER TAXES": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PARTICIPANT": as defined in subsection 9.6(c). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PERSON": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. 14 "PLAN": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PROPERTIES": the collective reference to the real and personal property owned, leased or operated by the Borrower or any of its Subsidiaries. "REAL ESTATE SUBSIDIARY": at any time, Franklin Properties, Inc. or any other Subsidiary of the Borrower principally engaged at such time in the real estate investment and property management business or any Subsidiary of any such Subsidiary. "REFERENCE BANKS": JPMCB, Bank of America, N.A., The Bank of New York, Citicorp USA Inc., and BNP Paribas. "REGISTER": as defined in subsection 9.6(b)(iv). "REGULATION U": Regulation U of the Board of Governors of the Federal Reserve System. "REGULATION X": Regulation X of the Board of Governors of the Federal Reserve System. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER": the chief executive officer, the president, any senior vice president or any vice president of the Borrower or, with respect to financial matters, the chief financial officer, treasurer or controller of the Borrower. "REVOLVING CREDIT LOANS": as defined in subsection 2.1(a). "REVOLVING CREDIT NOTES": as defined in subsection 2.4(e). "SEC": the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority. "SIGNING DATE": the date hereof. 15 "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "SUBSIDIARY": as to any Person at any time of determination, a corporation, partnership or other entity (other than any Fund or any other investment company or similar investment entity existing under foreign law substantially equivalent to an investment company) of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries or Subsidiaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "TAXES": any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "TERM-OUT MATURITY DATE": if so selected by the Borrower pursuant to subsection 2.4(a), the first anniversary of the Termination Date. "TERMINATION DATE": the date that is 364 days after the Effective Date. "TRANCHE": the collective reference to LIBOR Loans the Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such LIBOR Loans shall originally have been made on the same day). "TRANSFEREE": as defined in subsection 9.6(g). "TYPE": as to any Revolving Credit Loan, its nature as an Alternate Base Rate Loan or a LIBOR Loan. "WORKING DAY": any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. 16 (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF LOANS 2.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof, each Bank severally agrees to make revolving credit loans (the "REVOLVING CREDIT LOANS") to the Borrower from time to time during the Commitment Period in an aggregate principal amount not to exceed the amount of such Bank's Commitment, PROVIDED that the aggregate principal amount of Revolving Credit Loans and Bid Loans outstanding at any one time shall not exceed the aggregate amount of the Commitments at such time. During the Commitment Period the Borrower may use the Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may from time to time be (i) LIBOR Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Administrative Agent in accordance with subsections 2.2 and 2.8, PROVIDED that no Revolving Credit Loan shall be made as a LIBOR Loan after the day that is one month prior to the Termination Date unless at the time such Revolving Credit Loan is requested, the Borrower has irrevocably and in writing selected the Term-Out Maturity Date. Each Bank may make or maintain its Revolving Credit Loans to the Borrower by or through any branch or other affiliate as determined by it from time to time and notified to the Administrative Agent (any such branch or affiliate being herein called a "LENDING OFFICE"). 2.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may borrow under the Commitments during the Commitment Period on any Working Day if the borrowing is a LIBOR Loan or on any Business Day if the borrowing is an Alternate Base Rate Loan, provided that the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent (a) prior to 10:00 A.M., New York City time four Working Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially LIBOR Loans or (b) prior to 10:30 A.M., New York City time, on the requested Borrowing Date, otherwise), specifying (i) the aggregate amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of LIBOR Loans, Alternate Base Rate Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of LIBOR Loans, the amounts of such Type of Loan and the lengths of the initial Interest Periods therefor. Each borrowing under the Commitments shall be in an amount equal to (x) in the case of Alternate Base Rate Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then Available Commitments are less than $5,000,000, such lesser amount) and (y) in the case of LIBOR Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Bank thereof. Each Bank will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in subsection 9.2 prior to 2:00 P.M., New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such amount will then be made available to the relevant Borrower by the Administrative Agent crediting the account of such Borrower on 17 the books of such office with such amount made available to the Administrative Agent by such Bank for such Borrower and in like funds as received by the Administrative Agent. 2.3 THE BID LOANS. (a) The Borrower may borrow Bid Loans from time to time on any Business Day (in the case of Bid Loans made pursuant to an Absolute Rate Bid Loan Request) or on any Working Day (in the case of Bid Loans made pursuant to a LIBOR Bid Loan Request) during the period from the Closing Date until the date occurring 7 days prior to the Termination Date in the manner set forth in this subsection 2.3 and in amounts such that the aggregate amount of Loans outstanding at any time shall not exceed the aggregate amount of the Commitments at such time. (b) (i) The Borrower shall request Bid Loans by delivering a Bid Loan Request to the Administrative Agent, not later than 12:00 Noon (New York City time) four Working Days prior to the proposed Borrowing Date (in the case of a LIBOR Bid Loan Request), and not later than 10:00 A.M. (New York City time) one Business Day prior to the requested Borrowing Date (in the case of an Absolute Rate Bid Loan Request). Each Bid Loan Request may solicit bids for Bid Loans in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and for not more than three alternative maturity dates for such Bid Loans. The maturity date for each Bid Loan shall be not less than 7 days nor more than 360 days after the Borrowing Date therefor (and in any event not after the Termination Date). The Administrative Agent shall promptly notify each Bid Loan Bank by telex or facsimile transmission of the contents of each Bid Loan Request received by it. (ii) In the case of a LIBOR Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Bank that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans at the Applicable Index Rate plus or minus a margin for each such Bid Loan determined by such Bid Loan Bank in its sole discretion. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Administrative Agent, before 10:30 A.M. (New York City time) three Working Days before the proposed Borrowing Date, setting forth the maximum amount of Bid Loans for each maturity date, and the aggregate maximum amount for all maturity dates, which such Bid Loan Bank would be willing to make (which amounts may, subject to subsection 2.3(a), exceed such Bid Loan Bank's Commitment) and the margin above or below the Applicable Index Rate at which such Bid Loan Bank is willing to make each such Bid Loan; the Administrative Agent shall advise the Borrower before 11:15 A.M. (New York City time) three Working Days before the proposed Borrowing Date, of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Bank shall, in its sole discretion, elect to make any such offer, it shall advise the Borrower of the contents of its Bid Loan Offer before 10:15 A.M. (New York City time) three Working Days before the proposed Borrowing Date. (iii) In the case of an Absolute Rate Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Bank that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans at a rate or rates of interest for each such Bid Loan determined by such Bid Loan Bank in its sole discretion. Any such irrevocable offer shall be made by 18 delivering a Bid Loan Offer to the Administrative Agent, before 9:30 A.M. (New York City time) on the proposed Borrowing Date, setting forth the maximum amount of Bid Loans for each maturity date, and the aggregate maximum amount for all maturity dates, which such Bid Loan Bank would be willing to make (which amounts may, subject to subsection 2.3(a), exceed such Bid Loan Bank's Commitment) and the rate or rates of interest at which such Bid Loan Bank is willing to make such Bid Loan; the Administrative Agent shall advise the Borrower before 10:15 A.M. (New York City time) on the proposed Borrowing Date of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Bank shall, in its sole discretion, elect to make any such offer, it shall advise the Borrower of the contents of its Bid Loan Offer before 9:15 A.M. (New York City time) on the proposed Borrowing Date. (iv) The Borrower shall before 11:30 A.M. (New York City time) three Working Days before the proposed Borrowing Date (in the case of Bid Loans requested by a LIBOR Bid Loan Request) and before 10:30 A.M. (New York City time) on the proposed Borrowing Date (in the case of Bid Loans requested by an Absolute Rate Bid Loan Request) either, in its absolute discretion: (A) cancel such Bid Loan Request by giving the Administrative Agent telephone notice to that effect; or (B) accept one or more of the offers made by any Bid Loan Bank or Bid Loan Banks pursuant to clause (ii) or clause (iii) above, as the case may be, by giving telephone notice to the Administrative Agent (immediately confirmed by delivery to the Administrative Agent of a Bid Loan Confirmation) of the amount of Bid Loans for each relevant maturity date to be made by each Bid Loan Bank (which amount for each such maturity date shall be equal to or less than the maximum amount for such maturity date specified in the Bid Loan Offer of such Bid Loan Bank, and for all maturity dates included in such Bid Loan Offer shall be equal to or less than the aggregate maximum amount specified in such Bid Loan Offer for all such maturity dates) and reject any remaining offers made by Bid Loan Banks pursuant to clause (ii) or clause (iii) above, as the case may be; PROVIDED, HOWEVER, that (x) the Borrower may not accept offers for Bid Loans for any maturity date in an aggregate principal amount in excess of the maximum principal amount requested in the related Bid Loan Request, (y) if the Borrower accepts any of such offers, it must accept offers strictly based upon pricing for such relevant maturity date and not any other criteria whatsoever and (z) if two or more Bid Loan Banks submit offers for any maturity date at identical pricing and the Borrower accepts any of such offers but does not wish to borrow the total amount offered by such Bid Loan Banks with such identical pricing, the Borrower shall accept offers from all of such Bid Loan Banks in amounts allocated among them PRO RATA as shall be practicable after giving effect to the requirement that Bid Loans made by a Bid Loan Bank on a Borrowing Date for each relevant maturity date shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof). (v) If the Borrower notifies the Administrative Agent that a Bid Loan Request is cancelled pursuant to clause (iv) (A) above, the Administrative Agent shall give 19 prompt telephone notice thereof to the Bid Loan Banks, and the Bid Loans requested thereby shall not be made. (vi) If the Borrower accepts pursuant to clause (iv) (B) above one or more of the offers made by any Bid Loan Bank or Bid Loan Banks, the Administrative Agent shall promptly notify each Bid Loan Bank which has made such an offer, of the aggregate amount of such Bid Loans to be made on such Borrowing Date for each maturity date and of the acceptance or rejection of any offers to make such Bid Loans made by such Bid Loan Bank. Each Bid Loan Bank which is to make a Bid Loan shall, before 12:00 Noon (New York City time) on the Borrowing Date specified in the Bid Loan Request applicable thereto, make available to the Administrative Agent at its office set forth in subsection 9.2 the amount of Bid Loans to be made by such Bid Loan Bank, in immediately available funds. The Administrative Agent will make such funds available to the Borrower as soon as practicable on such date at the Administrative Agent's aforesaid address. As soon as practicable after each Borrowing Date, the Administrative Agent shall notify each Bank of the aggregate amount of Bid Loans advanced on such Borrowing Date and the respective maturity dates thereof. (c) Within the limits and on the conditions set forth in this subsection 2.3, the Borrower may from time to time borrow under this subsection 2.3, repay pursuant to subsection 2.4, and reborrow under this subsection 2.3. The Borrower shall not have the right to prepay any principal amount of any Bid Loan. (d) The Borrower shall pay interest on the unpaid principal amount of each Bid Loan made to it from the Borrowing Date to the stated maturity date thereof, at the rate of interest determined pursuant to subsection 2.4 below (calculated on the basis of a 360 day year for actual days elapsed), payable on each Interest Payment Date for such Bid Loan. If all or a portion of the principal amount of any Bid Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue principal amount shall, without limiting any rights of any Bank under this Agreement, bear interest from the date on which such payment was due at a rate per annum which is 2% above the rate which would otherwise be applicable pursuant to such Bid Loan until the scheduled maturity date with respect thereto, and for each day thereafter at a rate per annum which is 2% above the Alternate Base Rate until paid in full (as well after as before judgment). Interest accruing pursuant to the immediately preceding sentence shall be payable on demand. 2.4 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Bank the then unpaid principal amount of each Revolving Credit Loan on the Termination Date (or any earlier date on which, subject to the terms and conditions of this Agreement, such payment shall become due and payable, by acceleration or otherwise) and (ii) to the Administrative Agent for the account of each relevant Bid Loan Bank the then unpaid principal amount of each Bid Loan on the maturity date for such Loan (such maturity date being that specified by the Borrower for the repayment of such Bid Loan in the related Bid Loan Request). Notwithstanding clause (i) above, the Borrower may, upon written notice to the Administrative Agent given at least three Business Days prior to the Termination Date, extend the date upon which the principal amount of the Revolving Credit Loans outstanding as of the Termination Date will be due and payable to 20 the Term-Out Maturity Date; PROVIDED that no Default or Event of Default shall have occurred and be continuing on the Termination Date and the representations and warranties set forth in Section 3 shall be true and correct in all material respects on and as of the Termination Date as if made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. If the Borrower gives notice to the Administrative Agent in accordance with the preceding sentence, the Borrower hereby agrees that the outstanding principal balance of each Revolving Credit Loan outstanding on the Termination Date shall be payable on the Term Out Maturity Date or such earlier date as may be required hereunder, due to accelerations or otherwise. It is understood that, whether or not the Term-Out Maturity Date is selected, (x) the Commitments shall automatically terminate on the Termination Date and (y) no maturity date for any Bid Loan may be extended beyond the Termination Date. (b) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Bank resulting from each Loan made by such Bank, including the amounts of principal and interest payable and paid to such Bank from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, whether such Loan is a Revolving Credit Loan or a Bid Loan, the Type thereof and the Interest Period or, in the case of Bid Loans, the maturity date applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Banks and each Bank's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Bank or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. The Administrative Agent shall provide such back-up information and supporting documentation that is reasonably requested by the Borrower from time to time to support entries made in said accounts. (e) Any Bank may request that Loans made by it be evidenced by a promissory note. In such event, the Administrative Agent shall prepare and the Borrower shall execute and deliver to such Bank, a promissory note payable to the order of such Bank (or, if requested by such Bank, to such Bank and its registered assigns) substantially in the form of Exhibit E-1, in the case of Revolving Loans (a "Revolving Credit Note"), or Exhibit E-2, in the case of any Bid Loans (a "Grid Bid Loan Note"); provided that any Bid Loan Bank may request that any individual Bid Loan (or portion thereof) made by it in an amount of at least $5,000,000 be evidenced by an individual note in the form of Exhibit E-3 (an "Individual Bid Loan Note"). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.6) be represented by one or more promissory notes in substantially such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 21 2.5 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower shall have the right, upon not less than five Business Days' notice to the Administrative Agent, to terminate the Commitments or, from time to time, to reduce the amount of the Commitments, provided that no such reduction or termination shall be permitted if, after giving effect thereto, and to any prepayment of the Revolving Credit Loans made on the effective date therein, the then outstanding principal amount of Loans (including, without limitation, Bid Loans) would exceed the aggregate amount of the Commitments as so reduced. Any such reduction shall be in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Commitments then in effect. 2.6 OPTIONAL PREPAYMENTS. Subject to subsection 2.17, the Borrower may, at any time and from time to time, prepay the Revolving Credit Loans, in whole or in part, without premium or penalty, upon at least four Business Days' irrevocable notice from the Borrower to the Administrative Agent, specifying the date and amount of prepayment and whether the prepayment is of LIBOR Loans, Alternate Base Rate Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Bank thereof. If any such notice is given, the amount specified in such notice shall be due and payable by the Borrower on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof and may only be made, if after giving effect thereto, subsection 2.9 shall not have been contravened. The Borrower shall not have the right to prepay the principal amount of any Bid Loan. 2.7 MANDATORY PREPAYMENTS. (a) Upon receipt by the Borrower or any of its Subsidiaries of any Net Proceeds with respect to an Asset Disposition, (i) if such Net Proceeds exceed $10,000,000 or (ii) if such Net Proceeds do not exceed $10,000,000 but such Net Proceeds, together with all other Net Proceeds from other, prior Asset Dispositions in the same fiscal year of the Borrower, which, in each case, have not exceeded $10,000,000, exceed $25,000,000, then on the first Business Day after the receipt of Net Proceeds from such Asset Disposition, the Revolving Credit Loans shall be prepaid, without an accompanying reduction of the Commitments, in an amount equal to 100% of such Net Proceeds (or, in the case of Net Proceeds described in clause (ii) of this paragraph (a), if less, the amount by which such Net Proceeds, together with such other Net Proceeds, exceed $25,000,000). To the extent that the Borrower makes mandatory prepayments with such Net Proceeds under subsection 2.7(a) of the Five Year Facility Credit Agreement, no mandatory prepayment shall be due under this subsection 2.7(a). (b) In the event of any Change in Control, if the Majority Banks give the Borrower a notice within 30 days of the announcement of such Change in Control requiring the Borrower to prepay the Loans in full, then the Borrower shall prepay the Loans in full on a date determined by the Borrower and notified by the Borrower pursuant to the procedures of subsection 2.6 which is not more than 90 days after such Change in Control. If the Loans are required to be prepaid in full pursuant to this subsection 2.7(b), such Loans shall not be permitted to be reborrowed and the Commitments shall be deemed to be terminated as of the date of such prepayment. 22 (c) If, after giving effect to any termination or reduction of any Commitments pursuant to subsection 2.5 or this subsection 2.7, the outstanding aggregate principal amount of the Loans exceeds the aggregate amount of such Commitments then in effect, the Borrower shall pay or prepay such Loans (including, without limitation, the Bid Loans) on the date of such termination or reduction in an aggregate principal amount at least equal to such excess, together with interest thereon accrued to the date of such payment or prepayment. All prepayments made pursuant to this subsection 2.7(c) shall be applied first to the Revolving Credit Loans until such Loans are paid in full and second to the Bid Loans. (d) Each prepayment of the Loans pursuant to this subsection 2.7 shall be accompanied by payment in full of all accrued interest thereon to and including the date of such prepayment, together with any additional amounts owing pursuant to subsection 2.17. 2.8 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect from time to time to convert LIBOR Loans to Alternate Base Rate Loans, by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of LIBOR Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Alternate Base Rate Loans to LIBOR Loans by giving the Administrative Agent at least three Working Days' prior irrevocable notice of such election. Any such notice of conversion to LIBOR Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Bank thereof. All or any part of outstanding LIBOR Loans and Alternate Base Rate Loans may be converted as provided herein, provided that (i) any such conversion may only be made if, after giving effect thereto, subsection 2.9 shall not have been contravened and (ii) no Revolving Credit Loan may be converted into a LIBOR Loan after the date that is one month prior to the Termination Date (or, if applicable, the Term-Out Maturity Date). (b) Any LIBOR Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such LIBOR Loans, PROVIDED that no LIBOR Loan may be continued as such (i) if, after giving effect thereto, subsection 2.9 would be contravened or (ii) after the date that is one month prior to the Termination Date (or, if applicable, the Term-Out Maturity Date) and PROVIDED, FURTHER, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Revolving Credit Loans shall be automatically converted to Alternate Base Rate Loans on the last day of such then expiring Interest Period. 2.9 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and continuations of Revolving Credit Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Revolving Credit Loans comprising each Tranche shall be equal to $15,000,000 or a whole multiple of $1,000,000 in excess thereof. 23 2.10 INTEREST RATES AND PAYMENT DATES. (a) Each LIBOR Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the LIBOR Adjusted Rate determined for such day plus the Applicable Margin. (b) Each Alternate Base Rate Loan shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. (c) Each Bid Loan shall bear interest as provided in subsection 2.3. (d) If all or a portion of the principal amount of any Revolving Credit Loan or any interest payable on the Loans shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal to the last day of any Interest Period then applicable thereto, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) otherwise, the rate described in paragraph (b) of this subsection plus 2%, in each case from the date of such non-payment until such amount is paid in full (as well after as before judgment). (e) Interest on each LIBOR Loan and Alternate Base Rate Loan shall be payable in arrears on each Interest Payment Date, provided in each case that interest accruing pursuant to paragraph (d) of this subsection shall be payable on demand. 2.11 COMPUTATION OF INTEREST AND FEES. (a) Interest on Alternate Base Rate Loans, facility fees and utilization fees shall be calculated on the basis of a 360 day year for the actual days elapsed, PROVIDED that interest on Alternate Base Rate Loans the rate of interest on which are based on the Prime Rate shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. Interest on LIBOR Loans and Bid Loans shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Banks of each determination of a LIBOR Adjusted Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate or the LIBOR Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced or such change in the LIBOR Reserve Requirements becomes effective, as the case may be. The Administrative Agent shall as soon as practicable notify the Borrower and the Banks of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Banks in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to subsection 2.10(a) and the calculations made by the Administrative Agent in determining any interest rate pursuant to subsection 2.10(b). (c) If any Reference Bank's Commitment shall terminate or all its Loans shall be assigned for any reason whatsoever, such Reference Bank shall thereupon cease to be a Reference Bank, and if, as a result of the foregoing, there shall only be one Reference Bank 24 remaining, the Administrative Agent (after consultation with the Borrower and the Banks) shall, by notice to the Borrower and the Banks, designate another Bank as a Reference Bank so that there shall at all times be at least two Reference Banks. (d) Each Reference Bank shall use its best efforts to furnish quotations of rates to the Administrative Agent as contemplated hereby. If any of the Reference Banks shall be unable or shall otherwise fail to supply such rates to the Administrative Agent upon its request, the rate of interest shall, subject to the provisions of subsection 2.12, be determined on the basis of the quotations of the remaining Reference Banks or Reference Bank. 2.12 INABILITY TO DETERMINE INTEREST RATE. In the event that prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR Adjusted Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Majority Banks that the LIBOR Adjusted Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Banks (as conclusively certified by such Banks) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telex, telecopy or telephonic notice thereof to the Borrower and the Banks as soon as practicable thereafter. If such notice is given (x) any LIBOR Loans requested to be made on the first day of such Interest Period shall be made as Alternate Base Rate Loans, (y) any Revolving Credit Loans that were to have been converted on the first day of such Interest Period to LIBOR Loans shall be converted to or continued as Alternate Base Rate Loans and (z) any outstanding LIBOR Loans shall be converted, on the first day of such Interest Period, to Alternate Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further LIBOR Loans shall be made or continued as such, nor shall the Borrower have the right to convert Alternate Base Rate Loans to LIBOR Loans. 2.13 PRO RATA TREATMENT AND PAYMENTS. Each borrowing of Revolving Credit Loans by the Borrower from the Banks hereunder, each payment by the Borrower of any facility, utilization or other fee hereunder, and any reduction of the Commitments of the Banks shall be made pro rata according to the respective Commitment Percentages of the Banks. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Banks. All payments (including prepayments) to be made by the Borrower hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the appropriate Banks, at the Administrative Agent's office specified in subsection 9.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to such Banks promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Loans or LIBOR Bid Loans) becomes 25 due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Loan or LIBOR Bid Loan becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Working Day. 2.14 ILLEGALITY. Notwithstanding any other provision herein, if any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Bank or Lending Office to make or maintain LIBOR Loans as contemplated by this Agreement, (a) the commitment of such Bank hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert Alternate Base Rate Loans to LIBOR Loans shall forthwith be cancelled and (b) the Loans of such Bank or Lending Office then outstanding as LIBOR Loans, if any, shall be converted automatically to Alternate Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a LIBOR Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Bank such amounts, if any, as may be required pursuant to subsection 2.17. 2.15 REQUIREMENTS OF LAW. (a) In the event that any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law but, if not having the force of law, generally applicable to and complied with by banks of the same general type as such Bank in the relevant jurisdiction) from any central bank or other Governmental Authority made subsequent to the Effective Date: (i) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Bank or Lending Office which is not otherwise included in the determination of the LIBOR Adjusted Rate hereunder; or (ii) shall impose on such Bank or Lending Office any other condition; and the result of any of the foregoing is to increase the cost to such Bank or Lending Office, by an amount which such Bank deems to be material, of making, converting into, continuing or maintaining LIBOR Loans or Bid Loans or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Borrower shall promptly pay such Bank or Lending Office, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable. If any Bank or any Lending Office becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrower, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Bank or Lending Office, through the Administrative Agent, to the Borrower shall be prima facie evidence of the accuracy of the information so recorded. This covenant shall survive the 26 termination of this Agreement and the payment of the Notes and all other amounts payable hereunder for one year. (b) If, after the date of this Agreement, the introduction of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, affects the amount of capital required or expected to be maintained by any Bank or any corporation controlling any Bank, and such Bank or such corporation (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) determines that the amount of capital maintained by such Bank or such corporation which is attributable to or based upon the Loans, the Commitments or this Agreement must be increased as a consequence of such introduction or change, then, upon demand of the Administrative Agent at the request of such Bank, the Borrower shall immediately pay to the Administrative Agent on behalf of such Bank, additional amounts sufficient to compensate such Bank or such corporation for the increased costs to such Bank or corporation of such increased capital. Any such demand shall be accompanied by a certificate of such Bank setting forth in reasonable detail the computation of any such increased costs. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder for one year. (c) Each Bank will promptly notify the Borrower, through the Administrative Agent, of any event of which it has knowledge that will entitle such Bank to compensation pursuant to subsection 2.15(a) or (b) above. No failure by any Bank to give (or delay in giving) such notice shall adversely affect such Bank's rights to such compensation, except that the Borrower shall have no obligation to compensate any Bank for any cost or reduction incurred or accrued by it more than one year before such Bank gives notice of the event giving rise to such cost or reduction as required by the preceding sentence. 2.16 TAXES. (a) Any and all payments by or on account of any obligation of the Borrower hereunder or under any Note shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this subsection) the Administrative Agent or Bank receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Bank, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether 27 or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Bank, or by the Administrative Agent on its own behalf or on behalf of a Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Bank hereby agrees that it shall deliver to the Administrative Agent and the Borrower: (i) two copies of Internal Revenue Service Form W-8-BEN or Form W-8-ECI (or appropriate successor form), properly completed and duly executed by such Foreign Bank claiming complete exemption from U.S. Federal withholding tax on payments by the Borrower or the Administrative Agent under this Agreement and the other Loan Documents; (ii) any other documentation as may be required under applicable U.S. tax law and regulations to evidence complete exemption from U.S. Federal withholding tax on all payments by the Borrower or the Administrative Agent under this Agreement and the Loan Documents. Such forms and other documentation shall be delivered by each Foreign Bank on or before the Initial Date (as defined below) and on or before the date, if any, such Foreign Bank changes its applicable Lending Office by designating a different Lending Office or selecting an additional office. In addition, each Foreign Bank shall deliver appropriate replacements to such forms previously delivered by it promptly upon the obsolescence or invalidity of any form or other documentation previously delivered by such Foreign Bank unless an event beyond the control of such Foreign Bank (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Foreign Bank from duly completing and delivering any such form with respect to it and such Foreign Bank so advises the Borrower and the Administrative Agent. (f) For purposes of subsection (e), the term "Initial Date" shall mean (i) with respect to each Foreign Bank that is a party hereto on the date hereof, the date hereof, (ii) with respect to each Participant, the effective date of the grant of a participation to such Participant, and (ii) with respect to each transferee, the date of such transfer or assignment of an interest hereunder to such transferee. 2.17 INDEMNITY. The Borrower agrees to indemnify each Bank and to hold each Bank harmless from any loss or expense which such Bank may sustain or incur as a consequence of (a) default by the Borrower in payment when due of the principal amount of or interest on any LIBOR Loan or Bid Loan, (b) default by the Borrower in making a borrowing of, conversion 28 into or continuation of Bid Loans or LIBOR Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement (and, in the case of Bid Loans, so long as the Borrower has accepted a Bid Loan offered in connection with any such notice), (c) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (d) the making by the Borrower of a prepayment of LIBOR Loans or (without prejudice to the last sentence of subsection 2.3(c)) Bid Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder for one year. 2.18 FACILITY AND UTILIZATION FEE. (a) During the Commitment Period (and, if the Term-Out Maturity Date has been selected, during the period from and including the Termination Date to but excluding the Term-Out Maturity Date), the Borrower agrees to pay to the Administrative Agent for the account of each Bank a facility fee equal to the product of 0.090% per annum and the daily average amount of the Commitment of such Bank during the quarter (or such other period) for which such fee is to be paid (without regard to the principal amount of Loans from time to time made by such Bank) (or, if the Commitments have been terminated (including, without limitation, during any period after the Termination Date if the Term-Out Maturity Date is selected), on the daily average outstanding principal amount of the Loans of such Bank during the quarter (or such other period) for which such fee is to be paid). Such facility fee shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing June 30, 2002, and on the Termination Date and, if applicable, the Term-Out Maturity Date (or, in any case, any earlier date on which all amounts outstanding hereunder shall become due and payable by acceleration or otherwise). (b) During the Commitment Period (and, if the Term-Out Maturity Date has been selected, during the period from and including the Termination Date to but excluding the Term-Out Maturity Date), the Borrower agrees to pay to the Administrative Agent for the account of each Bank a utilization fee computed at the rate of 0.125% per annum on the aggregate average amount of the Revolving Credit Loans under this Agreement and the Five Year Facility outstanding during the quarter for which such fee is to be paid; PROVIDED, that no such fee shall be required to be paid with respect to any quarter in which the aggregate average amount of the Revolving Credit Loans and Bid Loans then outstanding under this Agreement and the Five Year Facility ("TOTAL USAGE") does not exceed 50% of the aggregate Commitments of the Banks under this Agreement and the Five Year Facility (the "UTILIZATION THRESHOLD"); PROVIDED, FURTHER, that if the Borrower shall have selected the Term-Out Maturity Date, Total Usage shall be deemed to exceed the Utilization Threshold during any period after the Termination Date when Loans are outstanding under this Agreement. Such utilization fee, to the extent payable, shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on June 30, 2002 and on the Termination Date, and, if applicable, the Term-Out Maturity Date (or, in any case, any earlier date on which all amounts outstanding hereunder shall become due and payable by acceleration or otherwise). Sample computations of the facility fee and the utilization fee are given in Schedule II hereto. 29 2.19 MITIGATION OF COSTS. If any Bank, by changing its Lending Office or taking any other reasonable action, so long as making such change or taking such other action is not, in the reasonable judgment of such Bank, disadvantageous to it in any financial, regulatory or other respect, can mitigate any adverse effect on the Borrower under subsections 2.14, 2.15 or 2.16, such Bank shall take such action. 2.20 NEW BANKS; EXITING BANKS. (a) As of the Closing Date, the New Banks shall become Banks parties to this Agreement, and the terms "Bank" and "Banks" as used in this Agreement shall be deemed to include each New Bank. Each New Bank (i) hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as provided by the terms thereof and in accordance with Section 8 hereof and (ii) agrees that as of the Closing Date it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Bank. As of the Closing Date, each New Bank shall have all the rights of a Bank under this Agreement. (b) As of the Closing Date, the Commitments of each of the Exiting Banks shall be terminated, and the Exiting Banks shall no longer be parties to this Agreement, provided that any indemnities or other agreements under this Agreement or any other Loan Document which by their terms survive repayment of amounts payable thereunder shall survive repayment pursuant hereto with respect to the Exiting Banks. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Banks to enter into this Agreement, and to make the Loans the Borrower hereby represents and warrants to the Administrative Agent and each Bank that: 3.1 FINANCIAL CONDITION. (a) The consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at September 30, 2000, and September 30, 2001, and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by PricewaterhouseCoopers LLP, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at March 31, 2002 and the related unaudited consolidated statements of income and of cash flows for the six-month period ended on such date, certified to the best of their knowledge by a Responsible Officer of the Borrower, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither the Borrower nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any 30 interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto and which is material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at such date. During the period from March 31, 2002 to and including the Closing Date there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at March 31, 2002. 3.2 NO CHANGE. Since March 31, 2002 there has been no Material Adverse Effect. 3.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged and in which it proposes to be engaged after the Closing Date, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents and to borrow hereunder and has taken all necessary corporate action to authorize (i) the borrowings on the terms and conditions of this Agreement and the Notes and (ii) the execution, delivery and performance of the Loan Documents. Except as set forth on Schedule III hereto, no consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or the Notes. This Agreement has been and each of the Notes will be duly executed and delivered. This Agreement constitutes, and each of the Notes when executed and delivered will constitute, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 NO LEGAL BAR. The execution, delivery and performance of this Agreement and the Notes, the borrowings hereunder and the use of the proceeds thereof will not (a) violate, to the knowledge of the Borrower, any Requirement of Law or Contractual Obligation of the Borrower, any of its Subsidiaries or any of the Funds, or (b) violate any Requirement of Law or Contractual Obligation of the Borrower, any of its Subsidiaries or any of the Funds which could reasonably be expected to have a Material Adverse Effect and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 31 3.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues or by or against any "affiliated person" of the Borrower or any of its Subsidiaries, within the meaning of the Investment Company Act, (a) with respect to this Agreement or the Notes or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 3.7 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to all its other property which is material to its business, and none of such property, and none of the investment advisory agreements to which the Borrower or any of its Subsidiaries is a party or any of the revenues thereunder, is subject to any Lien except as permitted by subsection 6.3. 3.8 INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "INTELLECTUAL PROPERTY"). To the knowledge of the Borrower, no claim which could reasonably be expected to have a Material Adverse Effect has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Borrower know of any valid basis for any such claim. To the knowledge of the Borrower, the use of such Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.9 TAXES. Each of the Borrower and its Subsidiaries has filed or caused to be filed all material tax returns which, to the knowledge of the Borrower, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); to the knowledge of Borrower, no tax Lien has been filed, and no claim is being asserted with respect to any such tax, fee or other charge which could reasonably be expected to have a Material Adverse Effect. 3.10 FEDERAL REGULATIONS. No part of the proceeds of any Loans are intended to be or will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulations U and X, or for any purpose which violates the provisions of the Regulations of the Board of Governors of the Federal Reserve System. If requested by any Bank or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Bank a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 32 3.11 ERISA. No Reportable Event has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. The present value of all accrued benefits under each Single Employer Plan maintained by the Borrower or any Commonly Controlled Entity (based on those assumptions used to fund the Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits. There are no Multiemployer Plans. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Borrower and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount in excess of $0. 3.12 INVESTMENT COMPANY ACT; OTHER REGULATIONS. (a) The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"). (b) Each of the Subsidiaries of the Borrower listed on Schedule IV hereto is duly registered as an investment adviser under the Investment Advisers Act of 1940 (the "ADVISERS ACT"). None of the other Subsidiaries of the Borrower or the Borrower is an "investment adviser" within the meaning of the Advisers Act and the rules and regulations promulgated thereunder. Each entity for which any Subsidiary of the Borrower acts as an investment adviser and which is required to be registered as an "investment company" under the Investment Company Act is duly registered as such thereunder. (c) Except for the Subsidiaries of the Borrower listed on Schedule V hereto, neither the Borrower nor any of its Subsidiaries is required to be duly registered as a broker-dealer under the Securities and Exchange Act of 1934, as amended, and such Subsidiaries so listed are duly registered as such. (d) Each of the Borrower and its Subsidiaries is duly registered, licensed or qualified as an investment adviser or broker-dealer in each State of the United States where the conduct of its business requires such registration, licensing or qualification and is in compliance in all material respects with all Federal and State laws requiring such registration, licensing or qualification, except to the extent where the failure to be so registered, licensed or qualified or to be in such compliance will not have a Material Adverse Effect. 3.13 INVESTMENT ADVISORY AGREEMENTS. Each of the investment advisory agreements, distribution agreements and shareholder servicing contracts to which the Borrower or any of its Subsidiaries is a party is a legal, valid and binding obligation of the parties thereto enforceable against such parties in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law); and neither the Borrower nor 33 any of its Subsidiaries is in breach or violation of or in default under any such agreement or contract in any material respect which would individually or in the aggregate have a Material Adverse Effect. 3.14 SUBSIDIARIES. The Subsidiaries listed on Schedule VI hereto constitute all the Subsidiaries of the Borrower at the Closing Date, other than any Subsidiary having a net worth of less than $5,000,000; PROVIDED, that the aggregate net worth of all Subsidiaries not listed on Schedule VI may not exceed $25,000,000. 3.15 PURPOSE OF LOANS. The proceeds of the Revolving Credit Loans and the Bid Loans, if any, shall be used for general corporate purposes, including commercial paper backup. 3.16 ENVIRONMENTAL MATTERS. To the best knowledge of the Borrower: (a) The Properties and all operations at the Properties are in compliance in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties, or violation of any Environmental Law with respect to the Properties or the business conducted at the Properties which could materially interfere with the continued operation of the Properties. (b) Neither the Borrower nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business conducted at the Properties, nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened except insofar as such notice or threatened notice, or any aggregation thereof, does not involve a matter or matters that is or are reasonably likely to cause a Material Adverse Effect. (c) No judicial proceedings or governmental or administrative action is pending, or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any of its Subsidiaries is or will be named as a party with respect to the Properties or the business conducted at the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or such business except insofar as such proceeding, action, decree, order or other requirement, or any aggregation thereof, is not reasonably likely to cause a Material Adverse Effect. 3.17 ACCURACY AND COMPLETENESS OF INFORMATION. To the best of the Borrower's knowledge, the documents furnished and the statements made in writing to the Banks by the Borrower in connection with the negotiation, preparation or execution of this Agreement taken as a whole do not contain any untrue statement of fact material to the credit worthiness of the Borrower or omit to state any such material fact necessary in order to make the statements contained therein not misleading, in either case which has not been corrected, supplemented or remedied by subsequent documents furnished or statements made in writing to the Banks prior to the date hereof. 34 SECTION 4. CONDITIONS PRECEDENT 4.1 CONDITIONS TO EXECUTION. The parties acknowledge that the execution, delivery and effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent: (a) CREDIT AGREEMENT. The Administrative Agent shall have received this Agreement, executed and delivered by a Responsible Officer of the Borrower with a counterpart for each Bank, and such officer shall be covered by an incumbency certificate which has been executed and delivered to the Administrative Agent. (b) Incumbency Certificates. The Administrative Agent shall have received an Incumbency Certificate of the Borrower as of the Closing Date, dated the Closing Date, executed by one of its Responsible Officers and its Secretary or Assistant Secretary. (c) Corporate Proceedings. The Administrative Agent shall have received a copy of the resolutions of the Board of Directors of the Borrower as of the Closing Date authorizing (i) the execution, delivery and performance of this Agreement and (ii) the borrowings contemplated hereunder, certified by the Secretary or an Assistant Secretary as of the Closing Date, which certificate states that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (d) Corporate Documents. The Administrative Agent shall have received copies of the certificate of incorporation and by-laws of the Borrower as of the Closing Date, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of the Borrower. (e) FEES. The Banks, the Administrative Agent and J.P. Morgan Securities Inc. shall have received all fees required to be paid, and all expenses for which invoices have been presented. (f) LEGAL OPINIONS. The Administrative Agent shall have received the executed legal opinions of (i) Morrison & Foerster, counsel to the Borrower and (ii) Murray L. Simpson, General Counsel to the Borrower, and each such legal opinion shall be satisfactory in form and substance to the Administrative Agent and its counsel. (g) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing as of the Closing Date. (h) REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in Section 3 shall be true and correct in all material respects on the Closing Date as if made on the Closing Date. (i) EXISTING CREDIT AGREEMENT. The Administrative Agent shall have received evidence reasonably satisfactory to it that all amounts outstanding, if any, under the Existing Credit Agreement have been repaid in full as of the Closing Date. 35 (j) REVOLVING CREDIT NOTES. The Administrative Agent shall have received, for the account of each Bank that has requested a Revolving Credit Note pursuant to subsection 2.4(e), a Revolving Credit Note conforming to the requirements of this Agreement, and executed by a duly authorized officer of the Borrower. 4.2 CONDITIONS TO EACH LOAN. The agreement of each Bank to make any Loan requested to be made by it on any date is subject to the satisfaction of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents (or, in the case of any Loan requested to be made hereunder the proceeds of which are solely to be used to repay any then outstanding Loans, solely the representation contained in subsection 3.2), shall be true and correct in all material respects on and as of such date as if made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date. (b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. (c) BID LOAN CONFIRMATION. With respect to any Bid Loan, a Bid Loan Confirmation shall have been delivered in accordance with subsection 2.3(b)(iv). Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such Loan that the conditions contained in this subsection 4.2 have been satisfied. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that from and after the Closing Date, so long as the Commitments remain in effect, any Loan remains outstanding or any other amount is owing to any Bank or the Administrative Agent hereunder: 5.1 FINANCIAL STATEMENTS. The Borrower shall furnish to the Administrative Agent (for distribution to each Bank): (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by PricewaterhouseCoopers LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event within 10 days after delivery of the financial statements described in paragraph (a) above, the corresponding consolidating balance 36 sheet as at the end of such year and the related consolidating statements of income and retained earnings and of cash flows for such year, all showing separately the principal lines of business conducted by separate Subsidiaries or groups of Subsidiaries to the extent requested by the Administrative Agent, certified by a Responsible Officer of the Borrower as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its consolidated Subsidiaries, taken as a whole; (c) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and retained earnings and of cash flows of the Borrower and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its consolidated Subsidiaries (subject to normal year-end audit adjustments); and (d) as soon as available, but in any event within 10 days after delivery of the financial statements described in paragraph (c) above, the corresponding consolidating balance sheet as at the end of such quarter and the related consolidating statements of income and retained earnings and of cash flows for the portion of the fiscal year through such date, all showing separately the entities described in paragraph (b) above, certified by a Responsible Officer of the Borrower as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower for such quarter taken as a whole; all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). Any delivery required to be made pursuant to subsections 5.1(a), (b), (c) or (d) shall be deemed to have been made on the date on which the Borrower posts such delivery on the Internet at the website of the Borrower or when such delivery is posted on the SEC's website on the Internet at www.sec.gov; PROVIDED that the Borrower shall have given notice of any such posting to the Banks, which notice shall include a link to the applicable website to which such posting was made; PROVIDED, FURTHER, that the Borrower shall deliver paper copies of any delivery referred to in subsections 5.1(a), (b), (c) or (d) to any Bank that requests the Borrower to deliver such paper copies until notice to cease delivering such paper copies is given by such Bank. 5.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall furnish to the Administrative Agent (for distribution to each Bank): (a) concurrently with the delivery of the financial statements referred to in subsections 5.1(a) and 5.1(c), a certificate of a Responsible Officer of the Borrower (i) stating that, to the best of such officer's knowledge, the Borrower during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in 37 this Agreement to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) with respect to the covenants contained in subsection 6.1, setting forth such calculations as are necessary to demonstrate compliance with such covenants; (b) within five days after the same are sent, copies of all financial statements and reports which the Borrower sends to its stockholders, and within five days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the SEC or any successor or analogous Governmental Authority; and (c) promptly, such additional financial and other information as any Bank may from time to time reasonably request. 5.3 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each of its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Borrower shall, and shall cause each of its Subsidiaries to, continue to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, registrations, licenses, privileges and franchises necessary or desirable in the normal conduct of its business (including, without limitation, all such registrations under the Advisers Act and all material investment advisory agreements, distribution agreements and shareholder servicing contracts), except as otherwise permitted pursuant to subsection 6.5; comply, and to the extent reasonably within its control cause each Fund to comply, with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 5.5 MAINTENANCE OF PROPERTY; INSURANCE. The Borrower shall, and shall cause each of its Subsidiaries to, keep all property useful and necessary in its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. 5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower shall, and shall cause each of its Subsidiaries to, keep proper books of records and account in which full, true and correct entries in conformity with GAAP or with respect to foreign Subsidiaries in conformity with appropriate local accounting practices, and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of any Bank to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may 38 reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants. 5.7 NOTICES. The Borrower shall promptly give notice to the Administrative Agent, which shall promptly give notice to each Bank, of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries, which default or event of default could reasonably be expected to have a Material Adverse Effect, or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority or any Fund, which in either case, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of its Subsidiaries or any "affiliated person" of the Borrower or any of its Subsidiaries, within the meaning of the Investment Company Act, in which the amount involved is $10,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought or which could reasonably be expected to have a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; (e) any suspension or termination of the registration of any Subsidiary of the Borrower as an investment adviser under the Advisers Act or any cancellation or expiration without renewal of any investment advisory agreement, distribution agreement or shareholder servicing contract to which the Borrower or any of its Subsidiaries is a party the revenues under which have exceeded in the most recent fiscal year of the Borrower $25,000,000; and (f) a development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. 5.8 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each of its Subsidiaries to: (a) Comply with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and 39 maintain, and ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so could not be reasonably expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not be reasonably expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless the Administrative Agent and the Banks, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Laws applicable to the operations of the Borrower or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. This indemnity shall continue in full force and effect regardless of the termination of this Agreement. SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that from and after the Closing Date, so long as the Commitments remain in effect, any Loan remains outstanding or any other amount is owing to any Bank or the Administrative Agent hereunder: 6.1 FINANCIAL CONDITION COVENANTS. The Borrower shall not: (a) Interest Coverage. Permit for any period of four consecutive fiscal quarters of the Borrower commencing on or after the Closing Date (or for any of the periods of one, two and three consecutive fiscal quarters of the Borrower commencing on or immediately after the Closing Date) the ratio of (i) the sum of Consolidated Net Income for such period plus income taxes deducted in determining such Consolidated Net Income plus Consolidated Interest Expense for such period to (ii) Consolidated Interest Expense for such period to be less than 4.0 to 1. (b) MAINTENANCE OF CONSOLIDATED WORKING CAPITAL. Permit Consolidated Working Capital on any date on or after the Closing Date to be less than $100,000,000. (c) MAXIMUM CAPITALIZATION RATIO. Permit the Capitalization Ratio at any time to be greater than 55%. 40 6.2 LIMITATION ON INDEBTEDNESS. The Borrower shall not create, incur, assume or suffer to exist any secured Indebtedness, and shall not permit any of its Included Subsidiaries to create, incur, assume or suffer to exist any Indebtedness, except for: (a) Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount not exceeding as to the Borrower and its Included Subsidiaries $50,000,000 at any time outstanding; (b) Indebtedness outstanding on the Closing Date and listed on Schedule VII or reflected in the financial statements referred to in subsection 3.1; (c) Indebtedness of a corporation which becomes a Subsidiary after the date hereof, PROVIDED that (i) such Indebtedness existed at the time such corporation became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation by the Borrower or any existing Subsidiary no Default or Event of Default shall have occurred and be continuing; (d) unsecured Indebtedness of any Subsidiary owing to the Borrower or any other Subsidiary or secured Indebtedness of any Subsidiary owing to the Borrower; (e) Indebtedness created by this Agreement and by the Five Year Facility; and (f) Indebtedness consisting of the obligations of the Borrower and FTC under any Lease Financing Arrangement. 6.3 LIMITATION ON LIENS. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or 41 materially interfere with the ordinary conduct of the business of the Borrower or such Subsidiary; (f) Liens in existence on the Closing Date listed on Schedule VIII or described in the financial statements referred to in subsection 3.1 or in any notes thereto, securing Indebtedness permitted by subsection 6.2(b), provided that no such Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Borrower and its Subsidiaries permitted by subsection 6.2(a) incurred to finance the acquisition of fixed or capital assets, PROVIDED that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the purchase price of such property; (h) Liens on the property or assets of a corporation which becomes a Subsidiary after the date hereof securing Indebtedness permitted by subsection 6.2(c), PROVIDED that (i) such Liens existed at the time such corporation became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such corporation after the time such corporation becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not increased; (i) Liens (not otherwise permitted hereunder) which secure obligations in an aggregate amount at any one time outstanding not exceeding as to the Borrower and its Included Subsidiaries an amount equal to 5% of the Consolidated Net Worth, measured at the time of the creation, incurrence or assumption of any such Lien and based upon the Consolidated Net Worth as at the end of the most recently completed fiscal quarter of the Borrower for which financial statements have been furnished to the Administrative Agent pursuant to subsection 5.1; (j) Liens on "margin stock" within the meaning of Regulation U to the extent that margin stock would, but for this paragraph (j), represent more than 25% of the value of the assets subject to this subsection 6.3; (k) Liens on cash or cash equivalents to secure obligations of the Borrower and its Subsidiaries in respect of any interest rate and currency hedging agreements entered into in the ordinary course of business and not for speculative purposes, and Liens with respect to hedging accounts maintained with dealers of NYMEX or similar contracts which require the maintenance of cash margin account balances; and (l) Liens provided for or required to be granted by the Borrower or FTC under any Lease Financing Arrangement, which Liens shall not limit or apply against the right of the Borrower and its Included Subsidiaries to create, incur, assume or permit to exist Liens that comply with the provisions of paragraphs (a) through (k) of this subsection 6.3. 6.4 LIMITATIONS ON FUNDAMENTAL CHANGES. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any merger, consolidation or amalgamation, or 42 liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, except, so long as no Default or Event of Default has occurred and is continuing or would result therefrom: (a) that the Borrower may enter into any merger, consolidation or amalgamation for the purpose of effecting any corporate or tax reorganization of the Borrower and the Subsidiaries or for the purpose of effecting any investment permitted under subsection 6.6, PROVIDED that such merger, consolidation or amalgamation is not with any Banking Subsidiary, Insurance Subsidiary or Real Estate Subsidiary (or with any other Person which is principally engaged in the banking or trust, insurance or real estate business), that the ownership of the Borrower (or its successor) is not materially different after such transaction from what it was prior thereto, that the Borrower (or its successor) remains the holding company for the Subsidiaries of the Borrower prior thereto, and that, if the Borrower is not the successor corporation in such transaction, such successor corporation is a corporation organized and validly existing under the laws of the United States or any state thereof and, by operation of law or otherwise, assumes the obligations of the Borrower hereunder and such organization and assumption are evidenced by an opinion of counsel to such successor satisfactory in form and substance to the Administrative Agent; and (b) that any Subsidiary of the Borrower may enter into any such transaction for the purpose of effecting any corporate or tax reorganization of the Borrower and its Subsidiaries or for the purpose of effecting any sale or other disposition of any of its property, business or assets permitted under subsection 6.5 or any investment permitted under subsection 6.6, PROVIDED that such merger, consolidation or amalgamation is not with any Banking Subsidiary, Insurance Subsidiary or Real Estate Subsidiary (or with any other Person which is principally engaged in the banking or trust, insurance or real estate business), unless such Subsidiary is also a Banking Subsidiary, Insurance Subsidiary or Real Estate Subsidiary, as the case may be. 6.5 LIMITATION ON SALE OF ASSETS. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, make any Asset Disposition, unless the Revolving Credit Loans are reduced to the extent required pursuant to subsection 2.7 and the Borrower makes the mandatory prepayment, if any, required in connection therewith pursuant to subsection 2.7. 6.6 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in (any of the foregoing, an "INVESTMENT"), any Person, except for: (a) investments in marketable securities, liquid investments and other financial instruments that are acquired for investment purposes and that have a value which may be readily established, including any such investment that may be readily sold or otherwise liquidated in any Fund or in any investment company managed by any Joint Venture pursuant to an investment advisory agreement; 43 (b) any investment in any Included Subsidiary of the Borrower or in any other Person principally engaged in the business of providing investment advisory services and related (including distribution and shareholder servicing) services, PROVIDED that, after giving effect to any such investment in any such other Person, such other Person is a Subsidiary or a Joint Venture; (c) any investment in any Banking Subsidiary or in any other Person which, after giving effect to any such investment, is a Banking Subsidiary; (d) extensions of trade credit in the ordinary course of business; (e) loans to officers of the Borrower or any of its Subsidiaries consistent with past practices of the Borrower and its Subsidiaries, and advances to employees of the Borrower or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; (f) investments in the Finance Subsidiary; (g) investments constituting non-cash consideration received in connection with an Asset Disposition, PROVIDED that such non-cash consideration shall not exceed 25% of the aggregate consideration received for such Asset Disposition; and PROVIDED FURTHER that the aggregate amount of any such non-cash consideration with respect to Asset Dispositions shall not exceed $10,000,000 at any one time outstanding; and (h) other investments in an aggregate amount as to the Borrower and its Subsidiaries (other than the Banking Subsidiaries and the Finance Subsidiary) not exceeding $125,000,000 for the period since the Closing Date. 6.7 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate or any Subsidiary less than 80% owned, directly or indirectly, by the Borrower, unless such transaction is otherwise permitted under this Agreement, is in the ordinary course of the Borrower's or such Subsidiary's business and is upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. 6.8 FISCAL YEAR. The Borrower shall not permit the fiscal year of the Borrower to end on a day other than September 30, except with the consent of the Majority Banks (which consent shall not be unreasonably withheld and which consent may be conditioned upon adjusting the covenants in a manner to give each of the parties hereto substantially the same protection and benefits as were in effect prior to any such change in the fiscal year of the Borrower). 6.9 RESTRICTIONS AFFECTING SUBSIDIARIES. The Borrower shall not, and shall not permit any of its Included Subsidiaries to, enter into, or suffer to exist, any agreement with any Person other than the Banks which prohibits or limits the ability of any Included Subsidiary to (a) pay dividends or make other distributions or pay any Indebtedness owed to the Borrower or 44 any other Included Subsidiary, (b) make loans or advances to the Borrower or any other Included Subsidiary or (c) transfer any of its properties or assets to the Borrower or any other Included Subsidiary. Notwithstanding the foregoing, the provisions of this subsection shall not apply to the obligations of the Borrower and FTC under any Lease Financing Arrangement. SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by the Borrower herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Borrower shall default in the observance or performance of any agreement contained in subsection 6.1 or 6.4; or (d) The Borrower shall default in the observance or performance of any other agreement contained in this Agreement or the Notes (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days or, if longer, a period ending 15 days after the giving of notice of such default by the Administrative Agent to the Borrower (or, in the case of any such default in the observance or performance of subsection 5.7(a), for a period of 30 days after a Responsible Officer has knowledge of a Default or Event of Default as to which notice is required by said subsection); or (e) The Borrower or any of its Subsidiaries shall (i) default in any payment of principal of or interest, regardless of the amount, due in respect of any Indebtedness other than amounts due hereunder, including all of the Indebtedness issued under the same indenture or other agreement, of $75,000,000 or greater or in the payment of any Guarantee Obligation with respect to an amount of $75,000,000 or greater, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; or (f) (i) The Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall commence any case, proceeding or other action (A) under any existing or 45 future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries, except for Non-Material Subsidiaries, shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Banks is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Borrower or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of the Borrower and its Subsidiaries taken as a whole; or (h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $75,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments to the 46 Borrower shall immediately terminate and the Loans made to such Borrower hereunder (with accrued interest thereon) and all other amounts owing by the Borrower under this Agreement and the Notes shall immediately and automatically become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Banks, the Administrative Agent may, or upon the request of the Majority Banks, the Administrative Agent shall, by notice to the Borrower declare the Commitments of the Borrower to be terminated forthwith, whereupon such Commitments shall immediately terminate; and (ii) with the consent of the Majority Banks, the Administrative Agent may, or upon the request of the Majority Banks, the Administrative Agent shall, by notice of default to the Borrower, declare the Loans hereunder made (with accrued interest thereon) and all other amounts owing by the Borrower under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 8. THE AGENTS 8.1 APPOINTMENT. Each Bank hereby irrevocably designates and appoints JPMCB as Administrative Agent, Bank of America, N.A. and The Bank of New York as Co-Syndication Agents and Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents of such Bank under this Agreement, and each such Bank irrevocably authorizes JPMCB, as the Administrative Agent, Bank of America, N.A. and The Bank of New York, as the Co-Syndication Agents and Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents for such Bank, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, as the case may be, by the terms of this Agreement , together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, neither the Administrative Agent, the Co-Syndication Agents nor the Co-Documentation Agents shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents in such respective capacities. 8.2 DELEGATION OF DUTIES. The Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents may execute any of their respective duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent, the Co-Syndication Agents nor the Co-Documentation Agents shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful 47 misconduct) or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or for any failure of the Borrower to perform its obligations hereunder or thereunder. Neither the Administrative Agent, the Co-Syndication Agents nor the Co-Documentation Agents shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. 8.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by any of them to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks. 8.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Banks. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Banks; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 8.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER BANKS. Each Bank expressly acknowledges that none of the Administrative Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Bank. Each Bank represents to the Administrative 48 Agent that it has, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement or its Note(s), and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 INDEMNIFICATION. The Banks agree to indemnify the Administrative Agent in its respective capacities as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to the respective amounts of their original Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs (including, without limitation, the allocated cost of internal counsel), expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the repayment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement, the Notes or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the repayment of the Loans and all other amounts payable hereunder. 8.8 THE ADMINISTRATIVE AGENT, THE CO-SYNDICATION AGENTS AND THE CO-DOCUMENTATION AGENTS IN THEIR INDIVIDUAL CAPACITIES. The Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and their respective Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents were not the Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents, respectively, hereunder. With respect to the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, such Loans made or renewed by the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, as the case may be, shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents, as the case may be, and the terms "Bank" and "Banks" shall include the Administrative 49 Agent, the Co-Syndication Agents and the Co-Documentation Agents in their individual capacities. 8.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Banks. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Majority Banks shall appoint from among the Banks a successor administrative agent for the Banks, which successor administrative agent shall be approved by the Borrower, whereupon such successor administrative agent shall succeed to the rights, powers and duties of the Administrative Agent and the term "Administrative Agent" shall mean such successor administrative agent effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 8.10 CO-SYNDICATION AGENTS AND CO-DOCUMENTATION AGENTS. Without limiting any provision contained in this Section 8, none of the Banks identified in this Agreement as the Co-Syndication Agents or the Co-Documentation Agents shall have, except as and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Banks as such. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. SECTION 9. MISCELLANEOUS 9.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any Note, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Majority Banks, the Administrative Agent and the Borrower may, from time to time, enter into written amendments, supplements or modifications hereto and to the Notes for the purpose of adding any provisions to this Agreement or the Notes or changing in any manner the rights of the Banks or the Borrower hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) reduce the amount or extend the maturity of any Loan, or reduce the rate or extend the time of payment of interest thereon, or reduce or extend the time of payment of any fee payable to any Bank hereunder, or change the amount of any Bank's Commitment, in each case without the written consent of the Bank affected thereby, or (b) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Majority Banks, or consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement , in each case without the written consent of all the Banks, or (c) amend, modify or waive any provision of Section 8 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Borrower, the Banks and the Administrative Agent. In the case of any waiver, 50 the Borrower, the Banks and the Administrative Agent shall be restored to their former position and rights hereunder, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 9.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy or other electronic transmission), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or 3 days after being deposited in the mail, postage prepaid, or, in the case of telecopy or other electronic notice, when received, addressed as follows in the case of the Borrower, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Borrower: Franklin Resources, Inc. One Franklin Parkway San Mateo, California 94403-1906 Attention: Martin L. Flanagan President, Member Office of the President Telecopy: 650-312-3528 With a copy to: Attention: Leslie M. Kratter Senior Vice President Telecopy: 650-312-2804 51 JPMCB, as JPMorgan Chase Bank Administrative Agent: 270 Park Avenue New York, New York 10017 Attention: Elisabeth Schwabe Telecopy: 212-270-1511 With a copy to: Roberta Whittington (212) 270-0670 With a copy to: JPMorgan Chase Bank Agency Services Corporation One Chase Manhattan Plaza Eighth Floor New York, New York 10081 Attention: Laura Rebecca or Maxeen Pinnock Telecopy: 212-552-7490 Bank of America, N.A., as Co-Syndication Agent: The Bank of New York, as Co-Syndication Agent: Citicorp USA Inc., as Co-Documentation Agent: BNP Paribas, as Co-Documentation Agent PROVIDED that any notice, request or demand to or upon the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or the Banks pursuant to subsection 2.2, 2.6, 2.7 or 2.8 or any notice to the Borrower pursuant to Section 7 shall not be effective until received. 9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or any Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 52 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement . 9.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or reimburse the Administrative Agent, the Co-Syndication Agents and the Co-Documentation Agents for all their reasonable costs and out-of-pocket expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of one external counsel to the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Banks, (b) after the occurrence of an Event of Default, to pay or reimburse each Bank, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and any such other documents, including, without limitation, fees and disbursements of counsel to the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and to the several Banks and the allocated cost of internal counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Bank, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and any such other documents, and (d) to pay, indemnify, and hold each Bank, the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Borrower shall have no obligation hereunder to the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or any Bank with respect to indemnified liabilities arising from (i) the negligence or willful misconduct of the Administrative Agent or any such Bank or their agents or attorneys-in-fact, (ii) legal proceedings commenced against the Administrative Agent or any such Bank by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such or (iii) legal proceedings commenced against any such Bank, the Administrative Agent, the Co-Syndication Agents or the Co-Documentation Agents by any other Bank or the Administrative Agent with respect to fee arrangements and other payment obligations between the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Banks. The agreements in this subsection shall survive repayment of all amounts payable hereunder. The Administrative Agent and the Banks agree to provide reasonable details and supporting information concerning any costs and expenses required to be paid by the Borrower pursuant to the terms hereof. 9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING BANKS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Banks, the Co- 53 Syndication Agents, the Co-Documentation Agents and the Administrative Agent, all future holders of Loans or Commitments and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. (b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Bank may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (any such consent not to be unreasonably withheld or delayed) of: (A) the Borrower, PROVIDED that no consent of the Borrower shall be required for an assignment to an assignee that is a Bank immediately prior to giving effect to such assignment, an Affiliate of a Bank, an Approved Fund (as defined below) or, if an Event of Default has occurred and is continuing, any other assignee; and (B) the Administrative Agent, PROVIDED that no consent of the Administrative Agent shall be required for an assignment to an assignee that is a Bank immediately prior to giving effect to such assignment. (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Bank or an Affiliate of a Bank or an assignment of the entire remaining amount of the assigning Bank's Commitment, the amount of the Commitment of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, PROVIDED that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing; (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Bank's rights and obligations under this Agreement, PROVIDED that this clause shall not apply to rights in respect of outstanding Bid Loans; (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; (D) the assignee, if it shall not be a Bank prior to such assignment, shall deliver to the Administrative Agent an Administrative Questionnaire; and (E) in the case of an assignment to a CLO (as defined below), the assigning Bank shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, PROVIDED that the Assignment and Assumption between such Bank and such CLO may provide that such Bank will not, without the consent of such CLO, agree to any amendment, modification or waiver described in clause (a) or (b) of the proviso to subsection 9.1 that affects such CLO, PROVIDED FURTHER that nothing in this subsection 9.6 shall be construed to waive the requirement that mutual consent of the 54 appropriate parties in accordance with subsection 9.1 is required in order to amend or modify the terms of this Agreement. For the purposes of this subsection 9.6, the terms "Approved Fund" and "CLO" have the following meanings: "APPROVED FUND" means (a) a CLO and (b) with respect to any Bank that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Bank or by an Affiliate of such investment advisor. "CLO" means any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Bank or an Affiliate of such Bank. (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this subsection, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Bank under this Agreement, and the assigning Bank thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto but shall continue to be entitled to the benefits of subsections 2.15, 2.16, 2.17 and 9.5). Any assignment or transfer by a Bank of rights or obligations under this Agreement that does not comply with this subsection 9.6 shall be treated for purposes of this Agreement as a sale by such Bank of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitment of, and principal amount of the Loans owing to, each Bank pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Bank, at any reasonable time and from time to time upon reasonable prior notice. (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Bank and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Bank hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall 55 promptly accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (c) (i) Any Bank may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of such Bank's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); PROVIDED that (A) such Bank's obligations under this Agreement shall remain unchanged, (B) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Bank sells such a participation shall provide that such Bank shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such agreement or instrument may provide that such Bank will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clause (a) or (b) of subsection 9.1 that affects such Participant. Subject to paragraph (c)(ii) of this subsection, the Borrower agrees that each Participant shall be entitled to the benefits of subsections 2.15, 2.16 and 2.17 to the same extent as if it were a Bank and had acquired its interest by assignment pursuant to paragraph (b) of this subsection. To the extent permitted by law, each Participant also shall be entitled to the benefits of subsection 9.7(b) as though it were a Bank, provided such Participant agrees to be subject to subsection 9.7(a) as though it were a Bank. (ii) A Participant shall not be entitled to receive any greater payment under subsection 2.15, 2.16 or 2.17 than the applicable Bank would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. Subject to the preceding sentence, a Participant that would be a Foreign Bank if it were a Bank shall not be entitled to the benefits of subsection 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with subsection 2.16(e) as though it were a Bank and for purposes of claiming any benefit under subsection 2.16, any reference to a Foreign Bank shall be deemed to refer to such Participant. (d) Any Bank may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including any Note) to secure obligations of such Bank, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; PROVIDED that no such pledge or assignment of a security interest shall release a Bank from any of its obligations hereunder or substitute any such pledgee or assignee for such Bank as a party hereto. 9.7 ADJUSTMENTS; SET-OFF. (a) If any Bank (a "BENEFITTED BANK") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other 56 Bank's Loans, or interest thereon, such Benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loans, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Bank so purchasing a portion of another Bank's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. (b) In addition to any rights and remedies of the Banks provided by law, each Bank shall have the right, exercisable upon the occurrence of an Event of Default and acceleration of the obligations of the Borrower owing in connection with this Agreement, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set-off and appropriate and apply against any such obligations any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Bank or any branch or agency thereof to or for the credit or the account of the Borrower (except for any such deposits, credits, indebtedness or claims held in any accounts maintained at any Bank as to which such Bank has waived its right of set-off). Each Bank agrees promptly to notify the Borrower, and the Administrative Agent after any such set-off and application made by such Bank, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. 9.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 9.9 SEVERABILITY. 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, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.10 INTEGRATION. This Agreement represents the agreement of the Borrower, the Administrative Agent and the Banks with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or any Bank relative to subject matter hereof not expressly set forth or referred to herein. 9.11 GOVERNING LAW. THIS AGREEMENT (INCLUDING SECTION 9) AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND 57 CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). 9.12 SUBMISSION TO JURISDICTION; WAIVERS; APPOINTMENT OF PROCESS AGENT. (a) The Borrower, to the extent permitted by applicable law, hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or any Note 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 appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in 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; (iii) 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 subsection 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; and (iv) 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. 9.13 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement; (b) neither the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents nor any Bank has any fiduciary relationship to the Borrower, solely by virtue of any of the Loan Documents, and the relationship pursuant to the Loan Documents between the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Banks, on one hand, and the Borrower, on the other hand, is solely that of creditor and debtor; and (c) no joint venture exists among the Banks or among the Borrower and the Banks. 9.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT, THE CO-SYNDICATION AGENTS, THE CO-DOCUMENTATION AGENTS AND THE BANKS HEREBY IRREVOCABLY AND 58 UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 9.15 CONFIDENTIALITY. Each of the Administrative Agent and the Banks agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a known breach of this Section or (ii) becomes available to the Administrative Agent or any Bank on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received whether on or prior to the date hereof or hereafter from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Bank on a nonconfidential basis prior to disclosure by the Borrower. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. FRANKLIN RESOURCES, INC. By: /s/ Leslie M. Kratter --------------------- Name: Leslie M. Kratter Title: Senior Vice President and Secretary JPMORGAN CHASE BANK, as Administrative Agent and a Bank By: /s/ Marybeth Mullen ------------------- Name: Marybeth Mullen Title: Vice President CITICORP USA INC., as Co-Documentation Agent and a Bank By: /s/ Alex Duka ------------- Name: Alex Duka Title: Director BNP PARIBAS, as Co-Documentation Agent and a Bank By: /s/ Marguerite L. Lebon ----------------------- Name: Marguerite L. Lebon Title: Vice President BNP PARIBAS, as Co-Documentation Agent and a Bank By: /s/ Barry K. Chung ------------------ Name: Barry K. Chung Title: V.P. THE BANK OF NEW YORK, as Co-Syndication Agent and a Bank By: /s/ Scott Buitekant ------------------- Name: Scott Buitekant Title: Vice President BANK OF AMERICA, N.A., as Co-Syndication Agent and a Bank By: /s/ Elizabeth W. F. Bishop -------------------------- Name: Elizabeth W. F. Bishop Title: Managing Director DEUTSCHE BANK AG, NEW YORK BRANCH By: /s/ Gayma Z. Shivnarain ----------------------- Name: Gayma Z. Shivnarain Title: Director By: /s/ Elizabeth Zieglmeier ------------------------ Name: Elizabeth Zieglmeier Title: Managing Director ROYAL BANK OF CANADA By: /s/ Gabriella King ------------------ Name: Gabriella King Title: Senior Manager TORONTO DOMINION (TEXAS), INC. By: /s/ Alva J. Jones ----------------- Name: Alva J. Jones Title: Vice President HSBC BANK USA By: /s/ L. Sue Lomax ---------------- Name: L. Sue Lomax Title: Senior Vice President BAYERISCHE HYPO-UND VEREINSBANK AG NEW YORK BRANCH By: /s/ David A. Lefkovits ---------------------- Name: David A. Lefkovits Title: Managing Director By: /s/ Sessa von Richthofen ------------------------ Name: Sessa von Richthofen Title: Associate STATE STREET BANK AND TRUST COMPANY By: /s/ Steven G. Caron ------------------- Name: Steven G. Caron Title: Vice President BANCA DI ROMA By: /s/ Luca Belestra Name: Luca Belestra (#25050) Title: Senior Vice President and Manager By: /s/ Richard G. Dietz --------------------- Name: Richard G. Dietz (#97271) Title: Vice President SCHEDULE I - COMMITMENTS Name and Address of Lender Commitment Amount - -------------------------- ----------------- JPMorgan Chase Bank $21,000,000 270 Park Avenue New York, New York 10017 Attn: Elisabeth Schwabe Facsimile: (212) 270-1511 Citicorp USA Inc $21,000,000 399 Park Avenue, 12th Floor New York, New York 10043 Attn: Alexander Duka Facsimile: (212) 371-6309 BNP Paribas $21,000,000 499 Park Avenue, 3rd Floor New York, New York 10022-1278 Attn: Laurent Vanderzyppe Facsimile: (212) 841-2299 The Bank of New York . $21,000,000 One Wall Street, 17th Floor New York, New York 10286 Attn: Scott Buitekant Facsimile: (212) 635-6348 Bank of America, N.A. $21,000,000 231 South LaSalle Street, Suite 1044 Chicago, IL 60697 Attn: Elizabeth Bishop Facsimile: (312) 987-0889 Deutsche Bank AG $17,500,000 31 West 52nd Street, 20th Floor New York, New York 10019 Attn: Gayma Z. Shivnarain Facsimile: (212) 469-8108 Royal Bank of Canada $17,500,000 New York Branch 1 Liberty Plaza, 3rd Floor New York, New York 10006-1404 Attn: Karim Amr Facsimile: (212) 428-2372 with a copy to: Royal Bank of Canada 1 Liberty Plaza, 3rd Floor New York, New York 10006-1404 Attn: G. King Facsimile: (212) 428-6201 Toronto Dominion (Texas), Inc. $17,500,000 909 Fannin Houston, TX 77010 Attn: Alva Jones Facsimile: (713) 951-9921 HSBC Bank USA $17,500,000 Corporate and Institutional Banking 452 Fifth Avenue New York, New York 10018 Attn: Padma Rao Facsimile: (212) 525-8937 Bayerische Hypo-Und Vereinsbank AG $15,000,000 150 East 42nd Street New York, New York 10017-4679 Attn: Sessa von Richthofen Facsimile: (212) 672-5517 State Street Bank and Trust Company $10,000,000 2 Avenue de Lafayette Boston, MA 02111 Attn: Steven Caron Facsimile: (617) 662-2325 Banca Di Roma $10,000,000 One Market, Steuart Tower, Suite 1000 San Francisco, CA 94105 Attn: Rick Dietz Facsimile: (415) 357-9869 SCHEDULE II SAMPLE COMPUTATIONS OF FACILITY AND UTILIZATION FEES Example 1: Average Aggregate Commitment of All Banks: $210,000,000 Facility Fee: $210,000,000 x .00090 (Rating 1) = $189,000 Average Aggregate Loans Over Quarter (under this Agreement AND the Five Year Facility): $0 Utilization Fee: $0 Example 2: Average Aggregate Commitment of All Banks: $210,000,000 Facility Fee: $210,000,000 x .00090 = $189,000 Average Aggregate Loans Over Quarter (under this Agreement AND the Five Year Facility): $300,000,000 Utilization Fee: $300,000,000 x .00125 = $375,000 SCHEDULE III - CONSENTS AND AUTHORIZATIONS None. SCHEDULE IV - U.S. INVESTMENT ADVISORS Fiduciary International, Inc. Fiduciary Investment Management International, Inc. Fiduciary Trust International Limited Franklin Advisers, Inc. Franklin Advisory Services, LLC Franklin Investment Advisory Services, Inc. Franklin Private Client Group, Inc. Franklin Mutual Advisers, LLC Franklin Templeton Asset Strategies, LLC Franklin Templeton Investment Management Limited Franklin Templeton Investments (Asia) Limited Franklin Templeton Investments Corporation FTI Institutional, LLC Templeton Asset Management Limited Templeton Global Advisors Limited Templeton Investment Counsel, LLC Templeton/Franklin Investment Services, Inc. SCHEDULE V - U.S. BROKER/DEALERS Fiduciary Financial Services Corp. Franklin/Templeton Distributors, Inc. Templeton/Franklin Investment Services, Inc. SCHEDULE VI - SUBSIDIARIES Closed Joint-Stock Company Templeton Franklin Templeton Investor Services, LLC Continental Property Management Company Franklin Templeton Italia Sim S.p.A. FCC Receivables Corporation Franklin Templeton Management Luxembourg SA Fiduciary Financial Services Corp. Franklin Templeton NIB Asset Management Fiduciary International Holding, Inc. (Proprietary) Limited Fiduciary International Ireland Limited Franklin Templeton NIB Investments Limited Fiduciary International, Inc. Franklin Templeton NIB Management Company Fiduciary Investment Corporation Limited Fiduciary Investment Management International, Franklin Templeton Services Limited Inc. Franklin Templeton Services, LLC Fiduciary Tax Services, Inc. Franklin/Templeton Distributors, Inc. Fiduciary Trust (International) S.A. Franklin/Templeton Travel, Inc. Fiduciary Trust Company International FS Capital Group Fiduciary Trust International Asia Limited FS Properties, Inc. Fiduciary Trust International Australia Limited FTCI (Cayman) Ltd. Fiduciary Trust International Investment FTI - Banque Fiduciary Trust Management, Inc. FTI Institutional, LLC Fiduciary Trust International Limited Happy Dragon Holdings Limited Fiduciary Trust International of California Property Resources, Inc. Fiduciary Trust International of Delaware Templeton (Switzerland) Ltd. Fiduciary Trust International of the South Templeton Asian Direct Investments Limited Franklin Advisers, Inc. Templeton Asset Management (India) Private Limited Franklin Advisory Services, LLC Templeton Asset Management (Labuan) Limited Franklin Agency, Inc. Templeton Asset Management Ltd. Franklin Capital Corporation Templeton Capital Advisors Ltd. Franklin Investment Advisory Services, Inc. Templeton China Research Limited Franklin Private Client Group, Inc. Templeton do Brasil Ltda. Franklin Mutual Advisers, LLC Templeton Franklin Global Distributors Ltd. Franklin Properties, Inc. Templeton Funds Annuity Company Franklin Receivables LLC Templeton Global Advisors Limited Franklin Resources, Inc. Templeton Global Holdings Ltd. Franklin Templeton Asset Management S.A. Templeton Heritage Limited Franklin Templeton Asset Strategies, LLC Templeton International, Inc. Franklin Templeton Bank & Trust, F.S.B. Templeton Investment Counsel, LLC Franklin Templeton Companies, LLC Templeton Investment Holdings (Cyprus) Limited Franklin Templeton Credit Corporation Templeton Research and Management Venezuela, C.A. Franklin Templeton France S.A. Templeton Research Poland SP.z.o.o. Franklin Templeton Global Investors Limited Templeton Restuctered Investments, L.L.C. Franklin Templeton Holding Limited Templeton Trust Services Private Limited Franklin Templeton International Services S.A. Templeton Worldwide, Inc Franklin Templeton Investment Management Templeton/Franklin Investment Services, Inc. Limited TRFI Investments Limited Franklin Templeton Investment Services GmbH Franklin Templeton Investment Trust Management Company Ltd. Franklin Templeton Investments (Asia) Limited Franklin Templeton Investments Australia Limited Franklin Templeton Investments Corp. Franklin Templeton Investments Japan Limited
SCHEDULE VII - OUTSTANDING INDEBTEDNESS $877,000,000.00 Face Value Franklin Resources, Inc. Liquid Yield Option Notes due 2031 (Zero Coupon-Senior) Outstanding Indebtedness under the Amended and Restated 364 Day Facility Credit Agreement dated as of June 12, 2001 among the Company, the several banks parties thereto, Bank of America, N.A., as Syndication Agent, The Bank of New York, as Documentation Agent and The Chase Manhattan Bank, as Administrative Agent. SCHEDULE VIII - EXISTING LIENS None. EXHIBIT A TO CREDIT AGREEMENT [FORM OF BID LOAN CONFIRMATION] _____, 200_ JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Dear Sirs: Reference is made to the Amended and Restated 364 Day Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. In accordance with subsection 2.3(b) of the Credit Agreement, the undersigned accepts and confirms on behalf of Franklin Resources, Inc. the offers by Bid Loan Bank(s) to make Bid Loans to Franklin Resources, Inc. on _____, 200 [Bid Loan Date] under subsection 2.3 of the Credit Agreement in the [respective] amount(s) set forth on the attached list of Bid Loans offered. Very truly yours, FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: [Borrower to attach Bid Loan offer list prepared by Administrative Agent with accepted amount entered by the Borrower to right of each Bid Loan offer]. EXHIBIT B TO CREDIT AGREEMENT [FORM OF BID LOAN OFFER] _______, 200_ JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Dear Sirs: Reference is made to the Amended and Restated 364 Day Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. In accordance with subsection 2.3(b) of the Credit Agreement, the undersigned Bank offers to make Bid Loans thereunder in the following amounts to Franklin Resources, Inc. the following maturity dates: Bid Loan Date: _____, 200 Aggregate Maximum Amount: $_____ Maturity Date 1 _____: Maturity Date 2 _____: Maturity Date 3 _____ Maximum Amount $___ Maximum Amount $___ Maximum Amount $___ Rate * Amount $___ Rate * Amount $___ Rate * Amount $___ Rate * Amount $___ Rate * Amount $___ Rate * Amount $___ Borrower: ______ Borrower: ______ Borrower: ______ [The undersigned Bank hereby waives the requirement, set forth in subsection 2.3(b)(iv)(B) of the Credit Agreement, that the Bid Loans made to the Borrower by any Bid Loan Bank be in a minimum amount of $5,000,000.] Very truly yours, [NAME OF BIDDING BANK] By:_________________________ Name: Title: Tel.: Fax: - ------------ * In the case of LIBOR Bid Loans, insert margin bid. In the case of Absolute Rate Bid Loans, insert fixed rate bid. EXHIBIT C TO CREDIT AGREEMENT [FORM OF BID LOAN REQUEST] _________, 200_ JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Dear Sirs: Reference is made to the Amended and Restated 364 Day Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. This is a[n] [LIBOR] [Absolute Rate] Bid Loan Request pursuant to subsection 2.3(b) of the Credit Agreement requesting quotes for the following Bid Loans: Aggregate Principal Amount: $_____ $_____ $___ Bid Loan Date: _____ ___ ___ [Interest Period:]* _____ ___ ___ Maturity Date:** _____ ___ ___ Interest Payment Dates: _____ ___ ___ Borrower: _____ ___ ___ - ------------------------------ * Insert only in a LIBOR Bid Loan Request. ** In a LIBOR Bid Loan Request, insert last day of Interest Period. - ------------ Note:Pursuant to the Credit Agreement, a Bid Loan Request may be transmitted in writing, by telex or by facsimile transmission, or by telephone, immediately confirmed by telex or facsimile transmission. In any case, a Bid Loan Request shall contain the information specified in the second paragraph of this form. Very truly yours, FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: EXHIBIT D TO CREDIT AGREEMENT [ASSIGNMENT AND ASSUMPTION] Reference is made to the Amended and Restated 364 Day Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Assignor named below hereby sells and assigns, without recourse, to the Assignee named below, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth below, the interests set forth below (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interests set forth below in the Commitment of the Assignor on the Assignment Date and Bid Loans and Revolving Loans owing to the Assignor which are outstanding on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or with respect to execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Affiliates or any other obligor or the performance or observance by the Borrower, any of its Affiliates or any other obligor of any of their respective obligations under the Credit Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto. This Assignment and Assumption is being delivered to the Administrative Agent together with (i) if the Assignee is a Foreign Lender, any documentation required to be delivered by the Assignee pursuant to Section 2.16(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 9.6(b) of the Credit Agreement. This Assignment and Assumption shall be governed by and construed in accordance with the laws of the State of New York. Date of Assignment: Legal Name of Assignor: Legal Name of Assignee: Assignee's Address for Notices: Effective Date of Assignment ("Assignment Date"): =========================== ======================= =========================== Percentage Assigned of Facility/Commitment (set Principal Amount forth, to at least 8 Assigned (and decimals, as a percentage identifying information of the Facility and the as to individual BID aggregate Commitments of Facility LOANS) all Lenders THEREUNDER) - -------- ------ ------------------------- Commitment Assigned: $ % Revolving Loans: Competitive Loans: ============================ ======================= =========================== The terms set forth above and on the reverse side hereof are hereby agreed to: [Name of Assignor] , as Assignor By:______________________________ Name: Title: [Name of Assignee] , as Assignee By: ______________________________ Name: Title: The undersigned hereby consent to the within assignment: Franklin Resources, Inc., JPMorgan Chase Bank, (if required) as Administrative Agent, (if required) By: ______________________ Name: By: __________________________ Title: Name: Title: EXHIBIT E-1 TO CREDIT AGREEMENT [FORM OF REVOLVING CREDIT NOTE] $__________ New York, New York ________ __, 200_ FOR VALUE RECEIVED, the undersigned, Franklin Resources, Inc., a Delaware corporation (the "Borrower"), hereby unconditionally promises to pay on the Termination Date to the order of ____________________________________________ (the "Bank") at the office of JPMORGAN CHASE BANK, located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (a) ______________________ DOLLARS ($__________) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the undersigned pursuant to subsection 2.1 of the Credit Agreement referred to below. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the Effective Date at the applicable rates per annum set forth in subsection 2.10 of the Credit Agreement referred to below until any such amount shall become due and payable (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 2.10(d) of the Credit Agreement until paid in full (both before and after judgment). Interest shall be payable in arrears on each applicable Interest Payment Date, commencing on the first such date to occur after the date hereof and terminating upon payment (including prepayment) in full of the unpaid principal amount hereof; provided that interest accruing on any overdue amount shall be payable on demand. The holder of this Note is authorized to record the date and amount of each Revolving Credit Loan made pursuant to subsection 2.1 of the Credit Agreement, its character as an Alternate Base Rate Loan or LIBOR Loan, the date and amount of each payment or prepayment of principal with respect thereto, the length of each Interest Period with respect to the portion of such Revolving Credit Loan made and/or maintained as a LIBOR Loan, and the LIBOR Adjusted Rate with respect thereto and each conversion made pursuant to subsection 2.8 of the Credit Agreement, on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, which recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that failure by the Bank to make any such recordation on this Note shall not affect the obligations of the Borrower under this Note or under the Credit Agreement. This Note is one of the Revolving Credit Notes referred to in the Amended and Restated 364 Day Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent, is entitled to the benefits thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: SCHEDULE A to Revolving Credit Note
LOANS, CONVERSIONS AND PAYMENTS OF ALTERNATE BASE RATE LOANS - ------------- ----------- ------------------ ----------------- ---------------- ---------------- ------------ Amount of Amount of Unpaid LIBOR Loans Alternate Base Principal Converted into Rate Loans Amount of Balance of Amount of Alternate Base Converted into Principal Alternate Base Notation Date Loan Rate Loans LIBOR Loans Repaid Rate Loans Made by ---- ---- --------------- ----------- ------ ---------- ------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- -------- ------- ------- --------- ---------- --------- ---------- --------
SCHEDULE B to Revolving Credit Note
LOANS, CONVERSIONS AND PAYMENTS OF LIBOR LOANS - ------------- ---------- --------------- ---------------- --------------- -------------- ------------- ------------ Amount of Amount of LIBOR Alternate Loans Base Rate Interest Period Converted Unpaid Loans and LIBOR into Principal Converted Adjusted Rate Alternate Amount of Balance of Amount into LIBOR with Respect Base Rate Principal LIBOR Notation Date of Loan Loans Thereto Loans Repaid Loans Made by ---- ------- ----- ------- ----- ------ ----- ------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- -------- ------- ------- --------- ---------- --------- ---------- ---------- --------
EXHIBIT E-2 TO CREDIT AGREEMENT [FORM OF GRID BID LOAN NOTE] PROMISSORY NOTE $______ New York, New York _______, 200_ FOR VALUE RECEIVED, the undersigned, Franklin Resources, Inc. , a Delaware corporation, (the "Borrower"), hereby unconditionally promises to pay to the order of _________________ (the "Bank") at the office of JPMorgan Chase Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of (a) ________DOLLARS ($____), or, if less, (b) the aggregate unpaid principal amount of each Bid Loan which is (i) made by the Bank to the Borrower pursuant to subsection 2.3 of the Credit Agreement hereinafter referred to and (ii) not evidenced by an Individual Bid Loan Note executed and delivered by the Borrower pursuant to subsection 2.4(e) of the Credit Agreement. The principal amount of each Bid Loan evidenced hereby shall be payable on the maturity date therefor set forth on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (the "Grid"). The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount of each Bid Loan evidenced hereby, at the rate per annum set forth in respect of such Bid Loan on the Grid, calculated on the basis of a year of 360 days and actual days elapsed from the date of such Bid Loan until the due date thereof (whether at the stated maturity, by acceleration or otherwise) and thereafter at the rates determined in accordance with subsection 2.3(d) of the Credit Agreement. Interest on each Bid Loan evidenced hereby shall be payable on the date or dates set forth in respect of such Bid Loan on the Grid. Bid Loans evidenced by this Note may not be optionally prepaid. The holder of this Note is authorized to endorse on the Grid the date, amount, interest rate, interest payment dates and maturity date in respect of each Bid Loan made pursuant to subsection 2.3 of the Credit Agreement, each payment of principal with respect thereto and any transfer of such Bid Loan from this Note to an Individual Bid Loan Note delivered to the Bank pursuant to subsection 2.4(e) of the Credit Agreement, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed; provided, however, that the failure to make any such endorsement shall not affect the obligations of the Borrower in respect of such Bid Loan. This Note is one of the Grid Bid Loan Notes referred to in the Amended and Restated 364 Day Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent, is entitled to the benefits thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Very truly yours, FRANKLIN RESOURCES, INC. By:_________________________ Name: Title:
SCHEDULE OF BID LOANS Date of Transfer Date Amount Interest to Individ- Loan of of Interest Payment Maturity Payment ual Bid Author- Bid Loan Rate Dates Date Date Loan Note ization - --- ---- ---- ----- ---- ---- --------- ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ ------- - ----- ----- ------ ------ ------ ------ ------ -------
EXHIBIT E-3 TO CREDIT AGREEMENT [FORM OF INDIVIDUAL BID LOAN NOTE] NON-NEGOTIABLE BID NOTE $_____ New York, New York ___________, 200_ FOR VALUE RECEIVED, the undersigned, Franklin Resources, Inc., a Delaware corporation (the "Borrower"), promises to pay on _____, 200 to the order of ___________(the "Bank") at the office of JPMorgan Chase Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal sum of _____DOLLARS ($______). The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the rate of _% per annum (calculated on the basis of a year of 360 days and actual days elapsed) until the due date hereof (whether at the stated maturity, by acceleration, or otherwise) and thereafter at the rates determined in accordance with subsection 2.4(e) of the Amended and Restated 364 Day Facility Credit Agreement, dated as of June 5, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Banks parties thereto, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, Citicorp USA Inc. and BNP Paribas, as Co-Documentation Agents and JPMorgan Chase Bank, as Administrative Agent. Interest shall be payable on ________. This Note may not be optionally prepaid. This Note is one of the Individual Bid Loan Notes referred to in, is subject to and is entitled to the benefits of, the Credit Agreement, which Credit Agreement, among other things, contains provisions for acceleration of the maturity and mandatory prepayments hereof upon the happening of certain stated events. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. FRANKLIN RESOURCES, INC. By:_________________________ Name: Title: EX-10 6 exh_10-66.txt EXHIBIT 10.66-SETTLE AGMT EXHIBIT 10.66 ------------- SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS This Settlement Agreement and Release of All Claims (this "Agreement") is made and entered into as of the date of the parties' signatures noted below, by and between Allen J. Gula, Jr., (hereinafter referred to as "Employee" and Franklin Resources, Inc. together with its subsidiaries, and affiliates, and each of their officers, agents, directors, employees, successors and assigns (hereinafter collectively referred to as the "Company"). WITNESSETH WHEREAS, the Company and Employee wish to change the status of Employee's employment with the Company; and WHEREAS, Employee does not have pending against the Company or any employee, agent, official, or director of the Company any claim, charge, or action in or with any federal, state, or local court or administrative agency; and WHEREAS, the Company does not have any disputes with or claims against the Employee; and WHEREAS, Employee and the Company desire to document in writing Employee's revised relationship with the Company and to make clear that there are no disputes, differences, claims or outstanding items arising out of Employee's employment with the Company prior to the Effective Date of this Agreement (as hereinafter defined); NOW THEREFORE in consideration of the mutual covenants and promises herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, and to avoid unnecessary litigation, it is hereby agreed by and between the parties as follows: FIRST: This Agreement and compliance with this Agreement shall not be construed as an admission by the Company of any liability whatsoever, or as an admission by the Company of any violation of the rights of Employee or any other person, or of the violation of any order, law, statute, duty, or contract whatsoever against Employee or any person. The Company specifically disclaims any liability to Employee or any other person for any alleged violation of the rights of Employee or any other person, or for any alleged violation of any order, law, statute, duty, or contract on the part of the Company, its employees or agents or related companies or their employees or agents. SECOND: Employee understands and agrees that he has not executed this Agreement without first having had a full twenty-one (21) days from receipt of this Agreement to consider it and that he did not execute this Agreement without first being advised to consult with an attorney. So long as Employee delivers to the Company an executed copy of this Agreement, and so long as Employee has not exercised his right of revocation as described in paragraph Thirteenth G below, A. Employee hereby resigns from all positions as an officer and director of the Company. B. The Company agrees to keep Employee as an employee and consultant to the Company and will pay Employee commencing June 1, 2002 and through May 31st, 2004 (the "Employment Term") at an annual pay rate of 2 $750,000 per annum, which amount includes salary and housing allowance, subject to normal payroll and benefit withholding and on the same payroll cycle as other employees in the San Mateo location. C. The first paycheck to Employee following the Effective date will include retroactive pay for the period from June 1, 2002 to July 1, 2002 to reflect the pay rate provided for above. D. During the Employment Term, Employee shall be entitled to the normal benefits and insurance coverage (subject to normal employee paid contributions) for employees at such compensation levels, including medical, dental, vision and life insurance coverage, long term disability, the Company's 401(k)/profit sharing plan (the "Profit Plan") and the Company's 1998 Employee Stock Investment Plan (the "ESIP"). Employee will be entitled to a profit sharing contribution, if one is made for employees generally and a 401(k) matching contribution, if applicable, for the plan years ending September 30, 2002 and September 30, 2003. Provided, however, Employee acknowledges and agrees that no contribution will be made on Employee's behalf to the Profit Plan for the plan year commencing on October 1, 2003 and ending on September 30, 2004. Upon termination of employment on May 31st, 2004 as provided for herein, pursuant to its terms, Employee shall be fully vested in the Profit Plan. Employee shall be entitled to participate in the ESIP through the period ending January 31, 2004, but shall not be entitled to any accelerated vesting of match grants under such plan. Employee shall immediately cease to be a participant in the Company's Annual Incentive Compensation Plan and all other bonus compensation plan arrangements and will not receive any bonus, restricted stock grant option grant or other form of bonus or stock award for the fiscal year ending September 30, 3 2002 or thereafter, notwithstanding Employee's participation in any such bonus plans for a portion of the fiscal year ending September 30, 2002. E. On the eighth day following the execution of this Agreement by Employee or the next business day following such date, if such date is not a day on which the Company's stock is traded on the New York Stock Exchange (the "Effective Date"), the Company shall cause 10,574 restricted shares of the Company's $.10 par value stock granted to Employee on November 19, 2001 to be vested and transferred to Employee, subject to payment of all applicable taxes by Employee. F. On May 31st, 2004, the Company shall cause options held by Employee for 16,666 shares of the Company's $.10 par value Common Stock, which would otherwise have terminated on the termination of Employee's employment with the Company on such date to vest and become immediately exercisable. Such options shall remain exercisable for a ninety (90) day period after May 31st, 2004 in accordance with their existing terms. All other terms and conditions of options held by Employee shall remain in full force and effect and such options, except as otherwise specified above, shall vest and become exercisable in accordance with their existing terms and conditions. G. A schedule of Employee's existing stock option grants is attached to this Agreement as Exhibit "A". H. Subject to the agreement of Ruby Hill Development Joint Venture, L. P. and affiliated entities to waive their respective rights of first refusal, repurchase and real estate commissions on Lot 1, Tract 6556 in the Ruby Hill residential development (the "Lot") in connection with the purchase by the Company as hereinafter provided for in this subparagraph, the Company shall purchase the Lot from Employee for One Million and 4 Fourteen Thousand Dollars ($1,014,000.). Employee will deliver good title to the Lot with no encumbrances, restrictions or liens other than those that Employee took subject to when Employee acquired title to the Lot. Closing costs shall be paid by the Company. Escrow shall close within ten (10) days of the Effective Date of this Agreement. The net proceeds of such purchase, otherwise payable to Employee, shall be paid to the Company as a credit against the Company's existing loan to Employee referenced in Exhibit "B" attached hereto, to reduce the principal balance thereof by such credit amount. I. Employee's promissory note to the Company in the original principal sum of One Million Nine Hundred Thousand Dollars ($1,900,000.) shall be amended as set forth in the form attached as Exhibit "B" hereto. J. The Company will provide secretarial services to Employee similar to those presently being provided during the Employment Term. The Company will also provide a managers level office to Employee at One Franklin Parkway, San Mateo, California. K. Employee shall be entitled to retain his existing cell phone, home computer, printer and ISDN connection to the Company's network and the Company shall pay for the costs of reasonable use thereof during the term of Employee's employment in a manner similar to that presently existing. Employee has already returned and the Company has cancelled, Employee's American Express card and A.T.&T. calling card. Employee represents that he has no other credit cards or Company paid accounts. L. Upon the Effective Date, the Company shall make a one-time payment to Employee in the amount of Seven Hundred and Forty-Two Thousand Dollars ($742,000), subject to and net of applicable tax withholding. Employee shall be responsible for the payment of all taxes in connection 5 with the receipt of monies thereunder and shall indemnify and hold the Company harmless from any and all taxes due in connection with the receipt of such payments by Employee. This payment is in lieu of and all obligations of the Company under a Supplemental Executive Retirement Plan for the benefit of Employee effective as of September 1, 1999 shall cease and such plan shall be deemed to be cancelled and of no further force and effect and no payments shall be made either now or in the future to Employee or to any of Employee's beneficiaries under such Plan. This payment shall also be in lieu of any and all other expense reimbursements and payments currently being received by or paid on behalf of Employee. M. Upon the termination of Employee's employment as mutually agreed upon herein or the cancellation of benefits provided for in Section Fourth below, the Employee or Employee's spouse, Marilyn B. Gula, as applicable, will have the opportunity at the applicable costs then in effect to continue health benefits (medical, dental and vision) through the Company's standard COBRA arrangements then in effect. THIRD: Employee agrees and acknowledges that in course of rendering services to the Company, he has had access to and become acquainted with confidential information about the professional, business and financial affairs of the Company and its clients and may have contributed to such information. Employee recognizes that in order to guard the legitimate interests of the Company, it is necessary to protect all such confidential information, goodwill and reputation. In the course of his service as an executive of the Company, Employee has had access to confidential business documents and information, marketing data and client lists regarding the Company, its information 6 systems, software and related intellectual property developed by the Company. All such information enumerated in the previous sentence shall hereinafter called "Proprietary Information". Proprietary Information shall not include information that becomes generally available to the public other than as a result of a disclosure directly or indirectly by Employee. Employee shall not at any time, whether during the Employment Term or thereafter, disclose directly, directly or indirectly any Proprietary Information, unless specifically required to by law or regulation and only after obtaining the written opinion of counsel that such disclosure is required and only after having notified the Company as far in advance of such proposed disclosure as is feasible. FOURTH: If during the Employment Term, Employee without the express written consent of the Company, which may be granted or withheld in its sole discretion, accepts employment or compensation from or perform services of any nature for any business enterprises other than the Company; the salary payments by the Company to Employee provided for in Section Second B shall be reduced by Fifty Percent (50%) effective as of the date such employment or compensation payments commence. The benefits provided for in Sections Second J and K shall also cease effective as of the commencement of such employment or compensation. All other rights and benefits provided for in this Agreement shall remain in full force and effect. Notwithstanding the foregoing, nothing in this Agreement shall cause the reduction of payments and benefits provided for above solely as a result of Employee's service on the boards of other corporations and organizations, whether paid or so long as such service is in the form of a normal board of directors or advisory panel part-time service and is not the equivalent of full time employment. 7 FIFTH: During the Employment Term and for a period of one (1) year thereafter, Employee shall not directly or indirectly, by use of an executive recruiter or otherwise (i) induce or attempt to induce any employee of the Company or any person who has been employed by the Company within a six month period of such employment to leave the employ of the Company, to become employed by a person or entity with whom Employee is in any way associated or affiliated or in any other manner, directly or indirectly interfere with the relationship between the Company and any employee thereof. SIXTH: If Employee dies prior to the end of the Employment Term, the following shall occur: a) all monies not as yet paid and otherwise payable to Employee as salary during the remaining period of the Employment Term shall be accelerated and paid to Marilyn B. Gula (or to Employee's estate in the event that Marilyn B. Gula pre-deceases Employee), subject to applicable withholding; b) no further office or secretarial services will be provided; c) employee's cell phone account will be terminated and the phone returned to the Company and the ISDN connection to the Company's network will no longer be provided by the Company; d) any outstanding options previously granted to Employee shall immediately vest and be exercisable in accordance with their terms; 8 e) Employee's beneficiaries shall be eligible for Cobra benefits as well as payments under the Profit Plan, the ESIP and the Company's life, health and other benefit programs in which Employee was a participant in accordance with their respective terms. In addition, during the period from the date of Employee's death until what would otherwise have been the end of the Employment Term, the Company shall pay the cost of Cobra benefits for Marilyn B. Gula. SEVENTH: During the Employment Term, Employee shall be available for limited consultation by the Company at such times as are mutually convenient for Employee and the Company and which do not unreasonably interfere with Employee's other activities, including assistance in the health care of Marilyn B. Gula. It is the intent of the parties that such consulting services required to be rendered by the Employee shall be limited in scope and nature. Such services are not in any way intended to be the equivalent of full-time employment. All payments and benefits otherwise payable under this Agreement shall be made in the manner provided for herein even in the event of a disability of Employee's making it impossible for the consulting services to be provided for herein to be rendered by Employee. EIGHTH: Employee represents that he has not filed any complaints, claims, or actions against the Company, its officers, agents, directors, supervisors, employees, or representatives with any state, federal, or local agency or court and, except as otherwise provided by law, that he will not do so at any time hereafter. 9 NINTH: Employee agrees that he will keep the fact, terms, and amount of this Agreement completely confidential and that he will not hereafter disclose any information concerning this Agreement to anyone, provided that any party hereto may make such disclosures as are required by law and as are necessary for legitimate law enforcement or compliance purposes. TENTH: The parties hereto hereby agree that the parties hereby waive all rights under section 1542 of the Civil Code of the State of California. Section 1542 provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. ELEVENTH: Notwithstanding the provisions of section 1542 of the Civil Code of the State of California, Employee hereby irrevocably and unconditionally releases and forever discharges the Company and each and all of its officers, agents, directors, supervisors, employees, representatives, and their successors and assigns and all persons acting by, through, under, or in concert with any of them from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as "claim" or "claims") which Employee at any time heretofore had or claimed to have or which Employee may have or claim to have regarding events that have occurred as of the date of this Agreement, including, without limitation, any and all claims related or in any manner incidental to Employee's employment with the Company or his termination therefrom. It is expressly understood by Employee that among the various rights and claims being waived in this release are those arising under the Age Discrimination in Employment Act of 1967 (29 U.S.C. ss.621, et seq.). 10 TWELVTH: The parties understand the word "claims" to include all actions, claims, and grievances, whether actual or potential, known or unknown, and specifically but not exclusively all claims arising out of Employee's employment with the Company and his termination. All such claims (including related attorneys' fees and costs) are forever barred by this Agreement and without regard to whether those claims are based on any alleged breach of a duty arising in contract or tort or any alleged unlawful act, including, without limitation, age discrimination as well as any other claim or cause of action, regardless of the forum or form in which it might be brought. THIRTEENTH: Employee understands and agrees that he: A. Has been offered a full twenty-one (21) days within which to consider this Agreement before executing it. B. Has carefully read and fully understands all of the provisions of this Agreement. C. Is, through this Agreement, releasing the Company from any and all claims he may have against the Company. D. Knowingly and voluntarily agrees to all of the terms set forth in this Agreement. E. Knowingly and voluntarily intends to be legally bound by the same. F. Was advised and hereby is advised in writing to consider the terms of this Agreement and consult with an attorney of his choice prior to executing their Agreement. G. Has a full seven (7) days following the execution of this Agreement to revoke this Agreement and has been and hereby is advised in writing that this Agreement shall not become effective or enforceable until the revocation period has expired. 11 H. Understands that rights or claims under the Age Discrimination in Employment Act of 1967 (29 U.S.C. ss.621, et seq.) that may arise after the date this agreement is executed are not waived. I. Employee agrees that he will neither seek nor accept employment with the Company in the future and that the Company is entitled to reject any application for employment with the Company made by Employee. FOURTEENTH: The parties hereto represent and acknowledge that in executing this Agreement they do not rely and have not relied upon any representation or statement made by any of the parties or by any of the parties' agents, attorneys, or representatives with regard to the subject matter, basis, or effect of the Agreement or otherwise, other than those specifically stated in this written Agreement. FIFTEENTH: This agreement shall be binding upon the parties hereto and upon their heirs, administrators, representatives, executors, successors, and assigns, and shall inure to the benefit of said parties and each of them and to their heirs, administrators, representatives, executors, successors, and assigns. Employee expressly warrants that he has not transferred to any person or entity any rights, causes of action, or claims released in the Agreement. SIXTEENTH: Should any provision of this Agreement be declared or be determined to be illegal, invalid, or unenforceable, the legality, validity, and enforceability of the remaining parts, terms, or provision shall not be affected thereby, and said illegal, unenforceable, or invalid part, term or provision shall be deemed not to be a part of this Agreement. 12 SEVENTEENTH: This Agreement sets forth the entire agreement between the parties hereto and fully supersedes any and all prior agreements or understandings, written or oral, between the parties hereto pertaining to the subject matter hereof. EIGHTEENTH: This Agreement shall be interpreted in accordance with the plain meaning of its terms and not strictly for or against any of the parties hereto. NINETEENTH: It is further understood and agreed that if, at any time, a violation of any term of this Agreement is asserted by any party, hereto, that party shall have the right to seek specific performance of that term and/or any other necessary and proper relief, including but not limited to damages, and the prevailing party shall be entitled to recover its reasonable cost and attorneys' fees. Dated: July 8, 2002 /s/ Allen J. Gula, Jr. -------------- ------------------ Allen J. Gula, Jr. Dated: July 8, 2002 Franklin Resources, Inc. -------------- By: Charles E. Johnson ------------------ Charles E. Johnson Member, Office of the President I have reviewed the provisions of the above agreement and hereby consent thereto. Dated: July 8, 2002 /s/ Marilyn Barry Gula --------------- ----------------------- Marilyn Barry Gula EXHIBIT "A" TO SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS TABLE I The following options are not yet exercisable but will become exercisable during the Employment Term in accordance with their existing terms as shown below and will remain exercisable for a period of Ninety (90) days after the Employment Term. - ------------------- ----------------- ----------------- ---------------- ----------------- GRANT DATE GRANT PRICE NUMBER OF SHARES EXERCISABLE EXPIRATION DATE DATE - ------------------- ----------------- ----------------- ---------------- ----------------- 09/15/99 $30.8750 1,079 8/30/02 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 09/15/99 $30.8750 15,587 8/30/02 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 11/21/00 $37.5000 1,632 9/30/02 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 11/21/00 $37.5000 1,632 9/30/03 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 11/21/00 $37.5000 26,035 9/30/02 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 11/21/00 $37.5000 26,034 9/30/03 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 12/15/00 $34.5000 25,000 9/30/02 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 12/15/00 $34.5000 25,000 9/30/03 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 11/19/01 $37.3800 16,667 9/30/02 8/29/04 - ------------------- ----------------- ----------------- ---------------- ----------------- 11/19/01 $37.3800 16,667 9/30/03 8/29/04 - ------------------- ----------------- ----------------- ---------------- -----------------
TABLE II The following option grant is not yet exercisable but will, as a result of action of the Compensation Committee of the Board of Directors of Franklin Resources Inc., become exercisable on May 31, 2004 and will remain exercisable for a period of Ninety (90) days after the Employment Term. - ------------------- ----------------- ----------------- ---------------- ----------------- Grant Date Grant Price Number of Shares Exercisable Expiration Date Date - ------------------- ----------------- ----------------- ---------------- ----------------- 11/19/01 $37.3800 16,666 5/31/04 8/29/04 - ------------------- ----------------- ----------------- ---------------- -----------------
EXHIBIT "B" TO SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS AMENDMENT NUMBER ONE TO PROMISSORY NOTE THIS Amendment Number One To Promissory (this "Amendment") is entered into by and between FRANKLIN RESOURCES, INC. ("Lender") and ALLEN J. GULA and MARILYN BARRY GULA ("BORROWERS") as of this 8 day of July, 2002. RECITALS A. Borrowers are indebted to Lender under the terms of a promissory note ("Note") executed by Borrowers in favor of Lender dated May 8, 2001, in the original principal sum of U.S. One Million Nine Hundred Thousand and 00/100 Dollars ($1,900,000.00) B. Borrowers' obligations under the Note are secured by a deed of trust ("Deed of Trust") given by Borrowers in favor of Lender dated May 8, 2001 granting a lien of first priority on the real property located at 804 Corriente Point Drive, Redwood City, California. C. For consideration given by Lender, the receipt of which is hereby acknowledged, Borrowers agree to amend the terms of the Note in order to: (1) provide for a new Maturity Date of May 31st, 2004; and (2) to cancel Lender's' remaining obligations to reduce the outstanding principal balance owing on the Note. NOW THEREFORE, Borrowers and Lender agree as follows: 1. The above recitals are incorporated herein by this reference and represent the understandings and agreements of the parties. All capitalized terms not otherwise defined in this amendment shall have the meaning given such terms in the Note. 2. The third paragraph of Section 3(A) of the Note shall be amended in its entirety to read as follows: "All amounts of principal and accrued by unpaid interest owing under the terms of this Note shall be due and payable on May 31st, 2004 (which date is called the "Maturity Date"). 3. Paragraph 3(B)(iii) is deleted in its entirety. 4. Except as specifically amended herein, all other terms and conditions of the Note and Deed of Trust remain unchanged and are hereby reaffirmed. IN WITNESS WHEREOF, Lender and Borrowers have executed this Amendment as of the date first above written. FRANKLIN RESOURCES, INC. By: /s/ Charles E. Johnson ---------------------- Charles E. Johnson Member, Office of the President /s/ Allen J. Gula, Jr. /s/ Marilyn Barry Gula - ---------------------------------- ---------------------------------- ALLEN J. GULA, JR. MARILYN BARRY GULA EX-10 7 exhibit10_67.txt EXHIBIT 10.67-PIONEER ACQ EXHIBIT 10.67 ------------- THIS AGREEMENT is made at Mumbai as of the day 23 of July 2002 AMONG: TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE LIMITED, a company incorporated under the laws of India and having its registered office at 1st Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021, ("PURCHASER" which expression shall unless repugnant to the context thereof include its successors and permitted assigns); and PIONEER INVESTMENT MANAGEMENT, INC. a company incorporated under the laws of Delaware and having its principal office at 60, State Street, Boston, Massachusetts, U.S.A (hereinafter referred to as "VENDOR" or "PIONEER" which expression shall unless repugnant to the context thereof include its successors). 1 WHEREAS: A. The Pioneer ITI AMC Limited a company incorporated under the Companies Act 1956 and having its registered office at Century Centre 75 TTK Road, Chennai - 600018 (the AMC), is the asset management company to the Pioneer ITI Mutual Fund, a mutual fund set up and registered with the Securities and Exchange Board of India ("SEBI") under the SEBI (Mutual Funds) Regulations, 1996. B. The Investment Trust of India Limited, a company incorporated under the provisions of the Indian Companies Act, 1913 and having its registered office at "Mashkur", 1, Krishnama Road, Nungambakkam Chennai - 600 034, India ("ITI") and Pioneer, collectively as on the date hereof hold 95.3 % of the shares of AMC and the Employee Shareholders hold 4.7 % of the shares of AMC. C. Pursuant to a Memorandum of Understanding dated 17th March 2002 entered into amongst the Purchaser, ITI and Pioneer (the "MOU"), ITI and Pioneer agreed to sell and the Purchaser agreed to purchase the AMC Shares held by ITI and Pioneer on certain terms and conditions and the manner set out herein. It was also agreed that the Trustee Shareholders would be procured to sell to the Purchaser, or its nominee, the Trustee Company Shares at the same time or immediately after the Completion. 2 D. Simultaneously the Purchaser had also entered into a memorandum of understanding dated 17th March 2002 with the Employee Shareholders (defined herein below) of the AMC (the "Employees MOU") for the purchase of their shares in the AMC. E. Subsequently the Purchaser also entered into an escrow agreement dated 20th March 2002 with ITI, Pioneer and the Escrow Agent (the "MOU Escrow Agreement") and pursuant thereto deposited the MOU Escrow Amount by way of earnest money with the Escrow Agent on the terms and conditions set out therein. F. The Purchaser has conducted a due diligence of the affairs of the AMC and the Trustee Company pursuant to and in accordance with the terms of the MOU and is desirous of acquiring the Vendor's AMC Shares held by the Vendor in the AMC on the terms and conditions set out herein. G. Simultaneously the Purchaser has also entered into separate Share Purchase Agreements each dated 23 July 2002 with ITI and the Employee Shareholders for the purchase of the respective shares held by them in the AMC. 3 NOW IT IS HEREBY AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this Agreement, the following terms shall have the following meaning: "ACCOUNTS" means the unaudited balance sheet of the AMC and its Subsidiary, for the period ending the Accounts Date which shall be audited prior to Completion, and the audited statements of profit and loss and cash flows of the AMC and its Subsidiary, ended on such date and as disclosed; "ACCOUNTS DATE" means March 31, 2002; "AFFILIATE" of a Person (the "Subject Person") means (i) in the case of a Subject Person other than a natural Person, any other Person that, either directly or indirectly through one or more intermediate Persons, controls, is controlled by or is under common control with the Subject Person, and (ii) in the case of a Subject Person that is a natural Person, any other Person that, either directly or indirectly through one or more intermediate Persons, is controlled by the Subject Person. For purposes of this definition, "control" means the power to direct the management or policies of a Person, whether through the ownership of over 50% of the voting power of such Person, through the power to appoint over half of the members of the board of directors or similar governing body of such Person, through contractual arrangements or otherwise; "AMC SHARES" means collectively the: (i) Vendor's AMC Shares; and (ii) ITI's AMC Shares; and (iii) Employee Shares; "AMC PURCHASE PRICE" means Rs. 1,038,676,652.00 (Rupees One thousand thirty eight million six seventy six thousand six hundred fifty two only) payable to the Vendor; "ARBITRATION BOARD" shall have the meaning set forth in Clause 14.2; "ASSETS" means all assets, rights and privileges of any nature and all goodwill associated therewith of the AMC, all Intellectual Property, Equipment and Software, and rights in respect of the Immovable property; "BASIC DOCUMENTS" means, collectively, the Charter Documents, the Memorandum of Association and Articles of Association of the Trustee Company, the Investment Management Agreement dated 23rd July 1993 4 executed amongst the AMC and the Trustee Company, the Trust Deed dated 29th July 1993 amongst ITI and the Trustees including the variations thereto, and the Custodian Agreement dated 19th April 2001 amongst the AMC and the Trustee Company and Deutsche Bank AG; "BOARD" means the board of directors of the AMC; "CLAIMS" means the reimbursement and or payment of claims that have arisen or may arise to the AMC, and which have been agreed to be set off against the Retention Amount in accordance with the SPA Escrow Agreement; "CHARTER DOCUMENTS" means the Articles of Association and the Memorandum of Association of the AMC; "COMPLETION" means the completion of the sale and purchase of the Vendor's AMC Shares pursuant to Clause 4.1, which completion shall occur simultaneous with the completion of sale and purchase of the ITI's AMC Shares, the Employee Shares and the Trustee Company Shares; "COMPLETION DATE" shall have the same meaning as set out in Clause 4; "CONTRACTS" means all contracts, agreements, licenses, engagements, leases, financial instruments, purchase orders, commitments and other contractual arrangements entered into by the AMC; "DISCLOSURE LETTER" shall have the same meaning as ascribed to in Clause 6.3; "EMPLOYEE SHAREHOLDERS" means the other shareholders of the AMC who hold shares of the AMC and whose names have been listed in Schedule 1 hereto; "EMPLOYEE SHARES" means 3,69,600 fully paid equity shares of Rs 10/- each, representing 4.7% of the issued capital of the AMC, held by the Employee Shareholders; "ENCUMBRANCE" means (i) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, title retention, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including without limitation any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the granting of security under applicable law, (ii) any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, or refusal or transfer restriction in favour of any Person, and (iii) any adverse claim as to title, possession or use; "EQUIPMENT" means all the plant and machinery, tools and equipment, vehicles and office furniture, computer equipment (including without limitation servers, personal computers, mainframes, modems, screens, terminals, keyboards, 5 disks, printers, cabling and associated and peripheral electronic equipment) and other tangible assets, but excluding Software; "ESCROW AGENT" means Mr Anand Bhatt/ Hamid A Moochhala, Senior Partners, Wadia Ghandy & Co., having offices at 2nd floor, N.M. Wadia building, 123 M. G. Road, Mumbai 400 023 (which expression shall mean to include their respective successors); "FIPB" means the Foreign Investment Promotion Board of the Ministry of Industry of India; "FUND" means the Pioneer ITI Mutual Fund, a mutual fund set up and registered with the Securities and Exchange Board of India, and includes all the mutual fund schemes floated there under; "GOVERNMENTAL AUTHORITY" means any government or political subdivision thereof; any supranational or trade agency, department, agency or instrumentality of any government or political subdivision thereof; departments, bodies, regulatory authorities, government authorities, any court or arbitral tribunal; and the governing body of any -securities exchange or other securities self-regulatory body; "IMMOVABLE PROPERTY" means the immovable properties owned, leased, licensed and or occupied by the AMC; "INTELLECTUAL PROPERTY" means all letters patent, trademarks, service marks, registered designs, domain names and utility models, copyrights, inventions, confidential information, brand names, database rights, know-how and business names and any similar rights situated in any country and the benefit (subject to the burden) of any of the foregoing (in each case whether registered or unregistered and including applications for the grant of any of the foregoing and the right to apply for any of the foregoing in any part of the world) owned by the AMC, Trustee or the Fund; "IP LICENSES" shall have the meaning set forth in Clause 10.9 of Schedule 3; "ITI'S AMC SHARES" means, 37,65,762 fully paid equity shares of Rs 10/- each, representing 47.7 % of the issued capital of the AMC; "LIABILITIES" means all indebtedness and other liabilities of any nature whatsoever, actual or contingent, and whether or not of a nature required to be disclosed in the accounts of the AMC and its Subsidiary; "LITIGATION" shall have the meaning set forth in Clause 6.3 of Schedule 3; "MANAGEMENT ACCOUNTS" means the un-audited balance sheet of the AMC and its Subsidiary and the un-audited statements of income and cash flows for period ending June 30, 2002; 6 "MATERIAL CONTRACTS" shall have the meaning set forth in Clause 7.2 of Schedule 3; "MOU ESCROW AGREEMENT" means the escrow agreement dated 20 th March 2002 between the Vendor, ITI, the Purchaser and the Escrow Agent; "MOU ESCROW AMOUNT" means the rupee equivalent of Rs. 28,27,50,000/- (Rupees Twenty eight crores twenty seven lakhs and fifty thousand only) deposited with the Escrow Agent under the MOU Escrow Agreement; "OWNERSHIP" means, at any time ownership of the Shares on a fully diluted basis, assuming the exercise, conversion or exchange of all options, warrants and other securities exercisable for or convertible or exchangeable into Shares regardless of whether such options, warrants or other securities are currently exercisable, convertible or exchangeable at such time; "PARTIES" means the Vendor and the Purchaser and "PARTY" means any of them; "PERSON" means any individual, firm, company, Governmental Authority, joint venture, association, partnership or other entity (whether or not having separate legal personality); "PURCHASER'S WARRANTIES" means the representations, warranties and undertakings of the Purchaser set forth in Schedule 2; "REGULATIONS" means the SEBI (Mutual Fund) Regulations 1996 and as amended from time to time; "RELATED PARTY" means with respect to the AMC or a Subsidiary, as the case may be, (i) any shareholder of the AMC or such Subsidiary, (ii) any director of the AMC or such Subsidiary, (iii) any Senior Executive of the AMC or such Subsidiary, (iv) any Person in which any shareholder, director or Senior Executive of the AMC or such Subsidiary has any shareholding interest, other than a passive shareholding of less than 10% in a publicly listed company, and (vi) any other Affiliate of the AMC or such Subsidiary or of a shareholder or director of the AMC or such Subsidiary; "RETENTION AMOUNT" means an amount of Rs. 462,982,500.00 (Rupees Four sixty two million nine eighty two thousand five hundred only) to be used for setting off and or reimbursing the AMC against the Claims in accordance with the SPA Escrow Agreement; "RETENTION PERIOD" means the period commencing from the Completion and ending at the later of 30 days after (i) the completion and communication to the Purchaser of the findings of the SEBI appointed external audit for the period ending 31st March 2003 or (ii) the statutory annual financial audit for the financial period ending 31st March 2003, which shall be completed no later than September 30 2003; 7 "Rs." means Indian Rupees, the lawful currency of India; "SEBI" means Securities Exchange Board of India; "SENIOR EXECUTIVE" means the employees of the AMC whose names have been set out in Schedule 4; "SHAREHOLDERS' AGREEMENT" means the shareholders' agreement, entered into by the AMC, Pioneering Management Corporation and ITI dated 8th October 1993; "SHARES" means the equity shares of the par value Rs. 10/- per share in the issued and paid up capital of the AMC; "SOFTWARE" means any set of instructions for execution by microprocessor, irrespective of application, language or medium; "SPA ESCROW AGENT" means Mr Anand Bhatt/ Hamid A Moochhala, Senior Partners, Wadia Ghandy & Co., having offices at 2nd floor, N.M. Wadia building, 123 M. G. Road, Mumbai 400 023 (which expression shall mean to include their respective successors); "SPA ESCROW ACCOUNT" means the fixed deposit account opened by the SPA Escrow Agent with the SPA Escrow Bank designated as "Anand S Bhatt a/c Templeton- Pioneer" in accordance with the terms of the SPA Escrow Agreement; "SPA ESCROW AMOUNT" means a sum of Rs. 220,442,758 (Rupees Two hundred twenty million four forty two thousand seven hundred fifty eight only) deposited by the Purchaser with the SPA Escrow Agent that shall be an amount equal to 47.6% of the Retention Amount; "SPA ESCROW AGREEMENT" means the agreement in an agreed form to be entered into, on the Completion, by the Purchaser with ITI, the Vendor, The Employee Shareholders and the SPA Escrow Agent; "SPA ESCROW BANK" means Citibank NA, D.N. Road, Mumbai 400 001; "SUBSIDIARY" means any company, partnership or other legal entity in which the AMC owns, directly or indirectly, greater than 50% of the equity interest or voting power; "TAXATION" means all forms of taxation and statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions and levies of India whenever imposed and whether chargeable directly or primarily against or attributable directly or primarily to the AMC or its subsidiary and all penalties, charges, costs and interest relating thereto; 8 "TRANSACTION" means the acquisition of the AMC Shares by the Purchaser and the Trustee Company Shares by the nominee of the Purchaser; "TRUSTEE OR TRUSTEE COMPANY" means the Pioneer ITI Mutual Fund Private Limited a private company incorporated under the Companies Act 1956 and having its registered address at 117, Nungambakkam High Road, Chennai -600 034 and which is the trustee of the Mutual Fund; "TRUSTEE COMPANY SHARES" means the shares of the Trustee Company held by the Trustee Shareholders; "TRUSTEE SHAREHOLDERS" means the shareholders of the Trustee Company; "VENDOR'S AMC SHARES": means 37,58,603 fully paid equity shares of Rs 10/- each, representing 47.6% of the issued capital of the AMC held by Pioneer; "VENDOR'S WARRANTIES" means the representations, warranties and undertakings of the Vendor as set forth in Schedule 3; "WARRANTIES" means collectively the Vendor Warranties set out in the Schedule 3 and the Purchaser's Warranties set out in Schedule 2 and "Warranty" means any of them; "WARRANTY PERIOD" means a period of 2 years from the Completion Date. 1.2 INTERPRETATION In this Agreement (a) Any reference herein to any Clause, Schedule, Exhibit or Annex is to such Clause, Schedule, Exhibit or Annex to this Agreement unless the context otherwise requires. The Schedules, Exhibits and Annexes to this Agreement including this interpretation Clause shall be deemed to form part of this Agreement; (b) References to a Party shall, where the context permits, include such Party's respective successors, legal representatives and permitted assigns; (c) The headings are inserted for convenience only and shall not affect the construction of this Agreement; (d) Unless the context requires otherwise, words importing the singular include the plural and vice versa, and pronouns importing a gender include each of the masculine, feminine and neuter genders; (e) References to the knowledge, information, belief or awareness of any Person shall be deemed to include the knowledge, information, belief or 9 awareness such Person would have if such Person had made reasonable inquiries; (f) Any reference to a statutory provision shall include any subordinate legislation and such provision as from time to time modified or re-enacted or consolidated whether before or after the date of this Agreement so far as such modification, re-enactment or consolidation applies or is capable of applying to any transactions entered into under this Agreement prior to Completion and (as from time to time modified, re-enacted or consolidated) which such provision has directly or indirectly replaced; (g) Any reference to "accounts" shall include the directors' and auditors' reports, relevant balance sheets and profit and loss accounts and related notes together with all documents which are or would be required by law to be annexed to such accounts before such accounts are laid before the company in general meeting in respect of the accounting reference period in question; and (h) References to this Agreement shall include the Recitals and Schedules to it and references to Clauses and Schedules are to Clauses of and schedules to this Agreement. 2. SALE AND PURCHASE OF SHARES 2.1 Subject to the terms of this Agreement, the Vendor hereby agrees to sell and the Purchaser agrees to purchase on the Completion Date, the Vendor's AMC Shares, free from all Encumbrances and together with all rights and advantages now and hereafter attaching thereto and relying on Warranties contained in this Agreement. 2.2 Subject to the terms of this Agreement, in consideration for the sale of the Vendor's AMC Shares, the Purchaser will pay the AMC Purchase Price to the Vendor in the manner set out hereinafter. 2.3 The Claims shall be adjusted in accordance with the provisions of the SPA Escrow Agreement. The Parties hereby agree that if any part of the SPA Escrow Amount remains un-adjusted/un-utilised after the Retention Period not earmarked for a specific claim under the SPA Escrow Agreement, it shall paid to the Vendor as an additional purchase price at the end of the Retention Period together with interest accrued thereon. 2.4 The AMC purchase price may stand increased by the balance of SPA Escrow Amount, which shall not exceed an amount of Rs. 220,442,758 (Rupees Two hundred twenty million four forty two thousand seven hundred fifty eight only) (equivalent of USD 47.6% of 9.5 million), depending upon the occurrence of the events laid down in the SPA Escrow Agreement, and shall to that extent be contingent. 10 2.5 Within seven (7) days of the satisfaction or waiver of the conditions set out in Clause 3, the Vendor will cause the meeting of the Board to be called and the Completion shall occur as indicated in Clause 4. 2.6 On the execution of this Agreement, the Vendor and the Purchaser shall instruct the Escrow Agent to return the MOU Escrow Amount to the Purchaser and retain the interest accrued thereon and pay the same to the Vendor in accordance with clause 4.2.1(v). 3. CONDITIONS PRECEDENT TO COMPLETION 3.1 The obligation of the Purchaser to purchase the Vendor's AMC Shares is subject to the fulfillment, by the Vendor prior to or simultaneously on the Completion Date (or at the time specified below), of the following conditions: (a) the Vendor's AMC Shares are converted into electronic form and dematerialized and sufficient evidence have been produced from the depository in that regards; (b) a letter from the Depository to the effect that the depository shall, upon receiving irrevocable instructions from the vendor, transfer the shares standing in the name of the Vendor to the name of the Purchaser; (c) Subject to the Disclosure Letter the Vendor's Warranties remaining true and correct in all material respects on the Completion; (d) confirmation from the Vendor that the Shareholders Agreement has been duly terminated and that there are no surviving obligations or rights there under; (e) there having been, since the date of this Agreement: (i) nomaterial adverse change in the operations, financial position of the AMC and its Subsidiary or the Fund whether arising out of additional disclosure notified to the Purchaser or not; or (ii) no receipt of any notice of any action or investigation by any Governmental Authority or any Person which would restrain, prohibit or otherwise challenge the Transaction; (f) there being no order of any Governmental Authority, or Court since the date of this Agreement that has, as against the AMC or the Trustee Company as the case may be, been instituted or any action or investigation to restrain, prohibit or otherwise challenge the Transaction been taken; g) the Vendor shall have caused the employees of the AMC who have availed housing loans to execute housing loan agreements in the form agreed; 11 (h) the Vendor shall have caused identification of the Assets in relation to the Fixed Asset Register; (i) the Vendor having obtained the consent of Unicredito for the sale of the Vendor's AMC shares to the Purchaser; (j) all consents and approvals required for the purpose of execution, delivery or performance and the consummation in each case by the Vendor, of the Transactions contemplated in this Agreement shall have been duly obtained; (k) the Vendor shall have ensured that the Trustee Company has written to SEBI seeking its confirmation of the Transaction. The Parties hereby acknowledge that the SEBI "no objection letter" has been procured by the Purchaser vide letter dated May 7, 2002; (l) the Vendor shall have caused the AMC to deliver to the Purchaser a certificate duly certified by its company secretary, dated the Completion Date, certifying that the conditions set forth in paragraph(e) and (f) of this Clause 3 have been satisfied; (m) the Vendor has delivered to the Purchaser a certificate dated the Completion Date, certifying that the conditions set forth in paragraphs (a) to (d), and (g) to (k) of this Clause 3.1 have been satisfied; (n) the Purchaser having been given a reasonable opportunity to conduct a limited high level review, the agreed scope of which is set out in Schedule 4 relating to the AMC prior to Completion, provided such review shall have been completed at least 2 days prior to the Completion Date; and (o) the Vendors shall have caused the AMC to adopt the Accounts. 3.2 The Completion is subject to the fulfillment by the Purchaser, prior to or on the Completion Date (or at the time specified below), of the following conditions: (a) all consents and approvals of, notices to and filings or registrations with any Governmental Authority or any other Person required pursuant to any applicable law or regulation of any Governmental Authority, in connection with the Transaction; (b) all corporate and other proceedings by the Purchaser in connection with the Transaction contemplated at or prior to the Completion Date pursuant to this Agreement shall have been procured, and the Vendors having received all such counterpart originals and certified or other copies of such documents as they may reasonably request, including without limitation a copy of the resolutions of the board of directors of the Purchaser, and evidencing the approval of the Transaction; 12 (c) the Purchaser's Warranties as stated in Schedule 2 remaining true and correct in all material respects on the Completion; and (d) the Purchaser has delivered to the Vendor a certificate dated the Completion Date certifying that the conditions set forth in paragraphs (a), to (c) of this Clause 3.2 have been satisfied. 3.3 The Vendor hereby undertakes to use its best endeavors to ensure the satisfaction of each of the conditions set out in Clause 3.1. Without prejudice to the foregoing, it is agreed that all requests and enquiries from any government, governmental, supranational or trade agency, court or regulatory body shall be dealt with the Vendor in consultation with the Purchaser and each of them shall promptly co-operate with and provide all necessary information and assistance reasonably required by such government, agency, court or body upon being requested to do so by the other. 3.4 The Purchaser hereby undertakes to use its best endeavors to ensure the satisfaction of each of the conditions set out in Clause 3.2. Without prejudice to the foregoing, it is agreed that all requests and enquiries from any government, governmental, supranational or trade agency, court or regulatory body shall be dealt with the Purchaser in consultation with the Vendor and each of them shall promptly co-operate with and provide all necessary information and assistance reasonably required by such government, agency, court or body upon being requested to do so by the other. 3.5 The Party responsible for the satisfaction of each condition as specified in Clauses 3.1 and 3.2 shall promptly give notice to the other Parties of the satisfaction of the relevant conditions within (2) two Business Days of becoming aware of the same. If the conditions of the Vendor in Clause 3.1 or those of the Purchaser in Clause 3.2 are not satisfied in full by them are waived by the Purchaser (incase of Clause 3.1) or the Vendor (in case of Clause 3.2), by 31st July 2002 or such other extended date as may be mutually agreed, the Purchaser or the Vendor (as the case may be) may, in its sole discretion, terminate this Agreement at any time thereafter in accordance with Clause 10. 3.6 The Purchaser or the Vendor (as the case may be) shall have the sole right to waive in whole or in part, conditionally or unconditionally, any of the conditions in Clause 3.1 or Clause 3.2 by notice in writing to the Vendor or the Purchaser (as the case may be), which shall be deemed notification to the other parties hereto. 4. COMPLETION AND POST-COMPLETION ACTIONS 4.1 Subject to Clause 3, the Completion shall take place simultaneously with the Completion of the SPA with ITI and the SPA with the Employee Shareholders at the registered office of the AMC at Chennai or at Mumbai, within seven (7) days after the conditions set out in Clause 3.1 and Clause 3.2 are satisfied or 13 waived (the "Completion Date") or on such other date and place as the Parties may agree. 4.2 OBLIGATIONS OF THE PARTIES Simultaneously on, or before Completion all and not some only of the following events shall take place: 4.2.1 the Vendor shall: (i) procure that the written resignations of each of the directors of the AMC nominated by the Vendor take effect on the Completion Date, with acknowledgments signed by each of them in a form satisfactory to the Purchaser to the effect that he has no claim against the AMC for compensation, for the loss of office (whether contractual, statutory or otherwise), redundancy or otherwise except only for any accrued remuneration and reimbursable business expenses incurred down to the Completion Date; (ii) procure that the appointment of the new directors of the AMC nominated by the Purchaser occurs with effect from the Completion Date; (iii) procure that a list of statutory registers maintained by the AMC, indicating therein the location where they have been kept, is handed over; (iv) execute the SPA Escrow Agreement and such other agreement as may be mutually agreed to give effect to the Transaction; (v) issue the instruction to the Escrow Agent to release to the Vendor its proportionate share of interest accrued on the MOU Escrow Amount till the date of payment; (vi) deliver signed irrevocable instructions directing the depository to transfer the Vendor's AMC Shares in to the depository account of the Purchaser; and (vii) procure the delivery by the Trustee Shareholder to the nominee of the Purchaser, the Trustee Company Shares together with the share transfer forms executed by the Trustee Shareholders in favor of the Purchaser. (viii) execute the Deed of Variation effective as of the Completion Date and such other documents as may be necessary to transfer the sponsorship and the trusteeship functions related to the Fund in favor of the appropriate Purchaser entities and take such actions as may be required for completing all formalities 14 including providing an exit option to the existing unit holders of the Fund; 4.2.2 the Vendor shall cause the Trustee Shareholders to procure that as of the Completion: (i) a meeting of the board of the Trustee Company be held transferring the Trustee Company Shares in favor of the nominees of the Purchaser; (ii) the written resignations of each of the directors of the Trustee Company take effect on the Completion Date with acknowledgments signed by each of them to the effect that either of them has no claim against the Trustee Company for compensation for the loss of office (whether contractual, statutory or otherwise), redundancy or otherwise except only for any accrued remuneration and reimbursable business expenses incurred down to the Completion Date; (iii) appointment of the new directors of the Trustee Company nominated by the Purchaser take effect from the Completion Date; and (iv) a list of statutory registers maintained by the AMC, indicating therein the location where they have been kept, is handed over. 4.2.3 Simultaneously with the compliance to the satisfaction of the Purchaser of the provisions in Clause 3.1, 4.2.1 and 4.2.2 on Completion: (i) the Purchaser will execute the SPA Escrow Agreement and deposit the SPA Escrow Amount in the SPA Escrow Account; (ii) the Purchaser will on the Completion Date pay to the Vendor the AMC Purchase Price in the manner indicated by the Vendor; and (iii) the Purchaser shall offer/have taken irrevocable steps jointly with the AMC or to offer an exit option to the existing unit holders of the Fund to redeem their units without imposition of any exit load in compliance with the Regulations. 4.3 The Warranties and, subject to the Disclosure Letter, in case of Vendor's Warranties, all other provisions of this Agreement insofar as the same shall not have been performed at Completion shall not be extinguished or affected by Completion, or by any other event or matter whatsoever (including, without limitation, any satisfaction and/or waiver of any condition contained in Clause 3.1 or Clause 3.2), except by a specific and duly authorised written waiver or release by the Purchaser or the Vendor as the case may be. 15 5. OBLIGATIONS OF THE VENDOR BETWEEN EXECUTION AND COMPLETION 5.1 From the date hereof through to the Completion Date, the Vendor shall cause the AMC to conduct its business in the ordinary course, in a manner, and use all reasonable efforts to shall otherwise use all reasonable efforts, so as to ensure that the Vendor's Warranties shall continue to be true and correct on and as of the Completion Date, as if made on such date. The Vendor shall give the Purchaser prompt notice of any event, condition or circumstance occurring from the date hereof until the Completion Date that would constitute a violation or breach of any Vendor's Warranty if such Vendor's Warranty were made as of any date from the date hereof until the Completion Date, or that would constitute a violation or breach of any terms and conditions contained in this Agreement. 5.2 The Vendor shall use its reasonable efforts to cause the AMC to preserve the relationship and goodwill with their clients. 5.3 The Vendor shall cause the AMC to comply in all material respect with all applicable laws, regulations, and decrees of any court or regulatory body. 5.4 Protective Covenants 5.4.1 The Vendor shall cause in relation to the AMC, the Fund and the Trustee Company, and covenants with the Purchaser that, without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld from the date hereof until the Completion: (i) the AMC shall not incur any capital expenditure without the prior approval from the Purchaser; (ii) the AMC and Fund shall conduct business in the ordinary course and shall not incur any revenue expenses other than in the ordinary course of business; (iii) the AMC shall not incur any expense or compensation, other than in the ordinary course of business; (iv) the AMC shall not release any new product launch or corporate campaign; (v) no dividends shall be declared by the AMC or the Trustee Company; (vi) no new employee shall be hired and no new position shall be created in the AMC; (vii) there shall be no creation of any charge or encumbrance on the Assets of the AMC or the Fund; 16 (viii) there shall be no change in the composition of the Board or Senior Executive of the AMC and the Fund, except arising out of retirement or demise (as the case may be) of such persons; (ix) there shall be no borrowing or lending of any sum of money by the AMC or the Fund; (xi) the AMC or Trustee Company shall not induce or attempt to induce the Senior Executives of the AMC to leave the employment of the AMC (it being understood however that any director, Senior Executive or personnel may resign of his or her own volition) or appoint any additional directors, Senior Executive or otherwise change the roles of the Senior Executives; or (xii) the AMC or Trustee Company shall not sell or otherwise dispose of any material part of its Assets (or any interest therein) or contract to do so; (xiii) except for the sale and transfer of shares pursuant to this Transaction, the AMC or Trustee Company shall not issue, sell, repurchase, redeem or permit the transfer of or mortgage, pledge or subject to any lien any shares, partnership interests or equity interests in the AMC or otherwise permit any change in its equity structure; (xiv) the AMC or Trustee Company shall not amend the Basic Documents or change its financial year; (xv) the AMC or Trustee Company shall not acquire Assets or any shares, partnership interests or other equity interests (or any interest therein) or contract to do so, otherwise than in the ordinary course of its business; (xvi) the AMC or Trustee Company shall not enter, terminate, extend or renew any arrangement, contract or agreement with any Related Party except as expressly permitted under this Agreement; (xvii) the AMC or Trustee Company shall not give any guarantee or indemnity in favour of any party or give any financial assistance in any way to any Related Party; (xviii) the AMC or Trustee Company shall not increase salary or compensation of any of the employee of the AMC or create, modify any benefits to the employees of the AMC; 17 (xix) the AMC or the Trustee Company shall not re-appoint their respective present auditors at their respective annual meetings for the financial year ending 31st March 2002. All requests for approvals pursuant to this Clause shall be made to the CEO of the Purchaser by the AMC, the Trustee Company or the Fund, as the case may be, and such approval shall be given within a period of two (2) working days from the date of such request. 5.5 The Vendor acknowledges that the above provisions of this Clause are no more extensive than is reasonable to protect the Purchaser of the Vendor's AMC Shares and the Trustee Company Shares. 5.6 Each of the restrictions in this Clause 5.4 shall be enforceable by the Purchaser independently of each of the others and its validity shall not be affected if any of the others is invalid; if any of those restrictions is void but would be valid if some part of the restrictions were deleted the restriction in question shall apply with such modification as may be necessary to make it valid. 5.7 The Purchaser shall be entitled from the date hereof through to the Completion Date to depute one or more of its officers to over see and monitor the operations of the AMC and the Fund. 6. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 6.1 The Vendor hereby represents, warrants and undertakes to the Purchaser for the period prior to this Agreement and until the expiry of the Warranty Period, in relation to itself, the AMC, it's the Subsidiary and the Fund in the terms set forth in Schedule 3, and acknowledges that the Purchaser in entering into this Agreement relies on such Vendor's Warranties. 6.2 The Purchaser hereby represents, warrants and undertakes to the Vendor in the terms set forth in Schedule 2 and acknowledges that the Vendor is entering into this Agreement relying on such Purchaser's Warranties. 6.3 The Vendor's Warranties are subject to the matters disclosed in writing to the Purchaser under letter dated July 23, 2002, addressed by Vendor, ITI and the Employee Shareholders, and accepted and confirmed by the Purchaser. The said letter alongwith its annexures is referred to as the "Disclosure Letter". The matters disclosed in the Disclosure Letter shall be acceptable to the Purchaser and shall be exceptions to the relevant Vendor's Warranty and wherever the term `except as disclosed' is used in Schedule 3 it shall mean as disclosed in the Disclosure Letter. The Purchaser shall not make any Claims under the Vendor Warranties in relation to the items specified in the SPA Escrow Agreement. 6.4. The Vendor shall be entitled to make further additions to the Disclosure Letter for events arising after the date hereof, at any time upto the Completion Date. Provided that any additions to the Disclosure Letter as contemplated in this 18 Clause 6.4 shall not be effective until after the Vendor has notified such addition in writing to the Purchaser. 6.5 For the avoidance of doubt, each Vendor's Warranty is qualified by the expression "to the best of the Vendor's knowledge after the Vendor having exercised due care and made reasonable enquiry" and does not relate to any forecasts, budgets and estimates with respect to matters on which the Vendor's Warranties are given. 6.6 The rights and remedies of the Purchaser in respect of any breach of the warranties shall not be affected because of an investigation (which shall include the preparation of legal, financial and technical due diligence as commissioned by the Purchaser) made prior to the execution of this agreement or at any time until Completion Date in to the affairs of the AMC, the Subsidiary or the Fund. 6.7 The Purchaser's Warranties and the Vendor's Warranties set forth in each of Schedule 2 and Schedule 3, respectively, shall be separate and independent. 6.8 The Vendor further warrants to the Purchaser and its successors in title that: 6.8.1 subject to Clause 6.8.2, the Vendor's Warranties shall be deemed to have been repeated as at the Completion and all references therein to the date of this Agreement were references to such dates at the Completion; and 6.8.2 if after the signing of this Agreement and before Completion any event shall occur or any matter arise which results or may result in any of the Vendor's Warranties being unfulfilled to the satisfaction of the Purchaser or being untrue, misleading or incorrect in any respect at Completion, then the Vendor (at their own cost) shall make any investigation and take such steps concerning the event or matter which the Purchaser may reasonably require. 7. RESTRICTION ON ANNOUNCEMENTS; CONFIDENTIALITY 7.1 Each Party undertakes that, prior to the Completion and thereafter, it will not make any announcement in connection with this Agreement unless all of the other Parties shall have given their written consent to such announcement, including both as to timing and substance, except for announcements required by applicable law or regulations, in which case any information provided by the disclosing Party about the other Parties shall require the prior written approval of such other Parties. 7.2 No Party shall, without the consent of the other Parties, during the continuance of this Agreement or after its termination, disclose to any Person (save to the extent to which it is obliged to make disclosure as a result of applicable law or regulations or for the purposes of procuring any approvals) this Agreement or any of the arrangements contemplated by this Agreement or any information 19 relating to the AMC, the Trustee Company, the Subsidiary, the Fund, the Purchaser and/or the Vendor obtained in the course of preparing the Agreement or otherwise pursuant to this Agreement or the performance of the transactions contemplated by this Agreement, or use such information otherwise than as strictly required for the purpose of performing this Agreement or in the best interests of the AMC, the Trustee Company, the Subsidiary, the Fund, the Purchaser or the Vendor, as the case may be; provided that the foregoing shall not prohibit disclosure by any Party to its employees and Affiliates or to its professional advisers to the extent necessary for the purpose of this Agreement and subject to such employees, or Affiliates or professional advisers being subject to confidentiality obligations no less onerous than those imposed by this Clause. The obligations set forth under this Clause 7.2 shall survive the consummation and termination of this Agreement. 7.3 At the Completion parties, shall be entitled to make their own press releases provided the contents of the same have been mutual agreed prior to such release. 8. ACCESS AND FURTHER ASSURANCES 8.1 As from the date of this Agreement, the Vendor shall cause to give to the Purchaser and its accountants, counsel and agents reasonable access, upon reasonable prior notice and during normal business hours, to the premises and all the books and records of the AMC and shall instruct the officers and employees of the AMC to give promptly all information and explanations to the Purchaser or any such persons as the Purchaser may reasonably request, it being recognized that such access should not unduly hinder the AMC's normal operations. 8.2 The Vendor agrees to, at any time and from time to time, upon the written request of the Purchaser: (a) promptly and duly execute and deliver all such further instruments and documents, and do or procure to be done all such acts or things, as such the Purchaser may reasonably deem necessary or desirable in obtaining the full benefits of this Agreement and of the rights and ownership herein granted; and (b) do or procure to be done each and every act or thing which the Purchaser may from time to time reasonably require to be done for the purpose of enforcing the Purchaser's rights under this Agreement. 9. COSTS AND EXPENSES 9.1 Except as otherwise provided in Clause 9.2, each Party shall pay its own costs and expenses (including the fees and costs of any financial or technical advisors, lawyers or accountants engaged by it) in relation to the negotiations leading up to the Transaction contemplated hereunder and to the preparation, 20 execution and carrying into effect all documents referred to and or relate to the Transaction here under including this Agreement. 9.2 Any stamp duty, fees or expenses payable in connection with the Transaction including for the execution of this Agreement shall be borne by the Purchaser. 10. TERMINATION 10.1 This Agreement may be terminated prior to the Completion: (a) at the election of the Purchaser, (i) under Clause 3.5; (ii) for non fulfillment of the conditions in Clauses 4.2.1 and 4.2.2 due to the fault of the Vendor. (b) at the election of the Vendor, (i) under Clause 3.5; (ii) for non fulfillment of the conditions in Clause 4.2.3 due to the fault of the Purchaser. (c) at any time on or prior to the Completion, by mutual written consent of the Purchaser and the Vendors. 10.2 This Agreement shall stand fulfilled and terminated upon expiry of the Warranty Period or payment of the Retention Amount under the SPA Escrow Agreement to the Vendor or the Purchaser, as the case may be, in accordance with the SPA Escrow Agreement whichever is later. 10.3 If this Agreement is terminated pursuant to Clause 10.1 then, except for the provisions of Clauses 7, 11, and 14 (which shall survive the termination), this Agreement shall have no further force and effect and Parties shall have no further liability or claim against each other except for those which have already been incurred prior to the termination or except for those which relate to the provisions which survive the termination. 10.4 In the event of the Completion of this Agreement or the ITI SPA or the Employee SPA does not occur or this Agreement or the ITI SPA or the Employee SPA is terminated before Completion, neither the Purchaser nor the Vendor shall have any claim against each other and the interest on the MOU Escrow Amount shall be paid by the Escrow Agent to the Purchaser by issuing an instruction to the Escrow Agent under the prescribed form set out in the Escrow Agreement. 21 11. NOTICES 11.1 Each notice, demand or other communication given or made under this Agreement shall be in writing and may be given by facsimile, by personal delivery or by sending the same by prepaid registered mail (or prepaid registered airmail or a recognized international courier service where the address of the Party to receive the notice is not in the same country as that of the Party giving the notice) addressed to the Party concerned at the address or fax number below (or such other address or fax number as the addressee has by five (5) days' prior written notice specified to the other Parties): TO THE PURCHASER: Address: Templeton Asset Management (India) Private Limited, 1st Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021, Attention: Mr. Rajiv Vij Phone: + 91 22 288 6129 Fax: + 91 22 288 6707 Email: rvij@templeton.com TO PIONEER: Address: Pioneer Investment Management, Inc. 60, State Street, Boston, Massachusetts, U.S.A 02109 Attention: Mr. Daniel Geraci Phone: + 1 617 4224806 Fax: + 1 617 4224296 Email: dan.geraci@pioneerinvest.com Any notice, demand or other communication so addressed to the relevant Party shall be deemed to have been delivered (a) if given or made by personal delivery, when actually delivered to the relevant address; and (b) if given or made by prepaid registered post to an address within the same country or by a recognized international courier service to an overseas address, seven (7) days after the dispatch of the same; (c) if given or made by prepaid registered airmail to an overseas address, ten (10) days after the dispatch of the same; (d) if given or made by fax, upon dispatch and the receipt of a transmission report confirming dispatch. 12. POST COMPLETION OBLIGATIONS 12.1 The post Completion obligations of the Vendor: 22 The Vendor covenants and agrees that, it by itself and or through its Affiliate shall not without the consent of the Purchaser, from the Completion until two (2) years after the Completion Date: (a) in relation any mutual fund or AMC in India, undertake or act as sponsor a trustee or asset management business, or carry on any activity either as a shareholder (investor), advisor, manager, consultant, technical know-how provider, under the mutual fund industry in India; (b) hire any the employees of the AMC and or induce them to leave the employment of the AMC and join another asset management company under different management or an organization carrying on activities of, connected to or associated to a mutual fund. 12.2 The post Completion obligations of the Purchaser: (a) obtain all the necessary approvals from SEBI and the Registrar of Companies and such other authorities for change of name of the AMC and the Trustee Company; (b) shall take all steps as may be necessary for the purposes of changing the corporate name (including obtaining approval from the Registrar of Companies for the change of name and appropriate Board and shareholder consents of the AMC, the Trustee Company) of the AMC, the Fund and the Trustee Company by deleting the words "Pioneer" or "ITI" such that the new name of the AMC, Fund or the Trustee Company will not contain the words " Pioneer or ITI" or any other derivation thereof or any name, brand or mark reasonably similar to any of them or reasonably capable of confusion with any of them, and at the request of the Vendor furnishing documentary evidence satisfactory in relation to the same. The Purchaser will within one hundred and eighty (180) days of the Completion, stop using the name "Pioneer" or ITI in relation to the AMC, in its communication with third parties. Provided however that no liability shall accrue to the Vendor on account of such usage. It is clarified that the Purchaser shall have no right title or interest into or over the name "Pioneer" or "ITI" at any time including during the one hundred and eighty (180) days referred to above; (c) shall not for a period of two (2) years from the Completion Date, hire any the employees of the Vendor and or induce them to leave the employment of the Vendor and join the Purchaser or its Affiliate in India; (d) provide an exit option to the unit holders as per the Regulations; (e) subject to the receipt by the Vendor of the RBI approval, forthwith repay the aggregate amount of Rs. 45 million lying to the credit of the Vendor in the books of the AMC as advance against equity. Provided 23 however that if the RBI approval has been received before Completion, the Vendor shall be at liberty to request the Purchaser to repay the said amount upon production of a copy of the said approval. 13. MISCELLANEOUS 13.1 This Agreement may not be amended, modified or supplemented except by a written instrument executed by each of the Parties. 13.2 No waiver of any provision of this Agreement shall be effective unless set forth in a written instrument signed by the Party waiving such provision. No failure or delay by a Party in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. Without limiting the foregoing, no waiver by a Party of any breach by another Party of any provision hereof shall be deemed to be a waiver of any subsequent breach of that or any other provision hereof. 13.3 This Agreement shall inure to the benefit of the Parties and is binding upon the Parties hereto and their respective successors, legal representatives and permitted assigns. This Agreement shall not be assignable by any Party, except with the written consent of the other Parties. 13.4 This Agreement constitutes the whole agreement between the Parties relating to the subject matter hereof and supersedes any prior (not simultaneous) agreements or understandings with effect from the execution hereof as regards the Transaction and with effect from the Completion as regards the MOU Escrow Agreement. 13.5 Any liability of the Vendor to the Purchaser under this Agreement may in whole or in part be released, compounded or compromised or time or indulgence given by the Purchaser in its absolute discretion as regards any such liability without in any way prejudicing or affecting the Purchaser's rights against any other or others or the Vendor under the same or a like liability. 13.6 Each and every obligation under this Agreement shall be treated as a separate obligation and shall be severally enforceable as such and in the event of any obligation or obligations being or becoming unenforceable in whole or in part. To the extent that any provision or provisions of this Agreement are unenforceable they shall be deemed to be deleted from this Agreement, and any such deletion shall not affect the enforceability of this Agreement as remain not so deleted. 13.7 This Agreement may be executed in one or more counterparts which, each of which when so signed and taken together, shall be deemed an original but all the counterparts shall together constitute one and the same instrument. 24 13.8 Subject to contract to the contrary the parties may pursue remedies available under this Agreement. The Parties shall ensure that no such remedy results in more than one claim against the Party concerned for the same cause of action. It is agreed that no Party would be penalised twice for the same claim or cause of action under this Agreement. 13.9 Nothing in this Agreement shall be deemed to constitute a partnership between the Parties hereto or constitute any party the agent of another party for any purpose. 13.10 The illegality, invalidity or unenforceability of any provision of this Agreement, whether in whole or in part, under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision or part 14. GOVERNING LAW AND JURISDICTION 14.1 This Agreement shall be governed by and construed in accordance with the laws of India. 14.2 Any dispute or claim arising out of or in connection with or relating to this Agreement, or the breach, termination or invalidity hereof (the "Dispute"), shall be referred to the CEO of the Vendor and the CEO of the Purchaser for resolution. If the Dispute is not resolved within a period of 30 days from such referral then the Dispute shall be finally settled by an arbitration which shall be governed by the Arbitration and Conciliation Act 1996 (the "Act ") as are in force at the time. For the purpose of such arbitration, there shall subject Clause 14.3 below, be three arbitrators appointed (each of them must be lawyers having significant expertise in the commercial field), one nominated by Pioneer on hand and one nominated by the Purchaser on the other hand and the third arbitrator appointed by such appointed arbitrators (such board of arbitrators is referred to below as the "Arbitration Board"). The place of arbitration shall be in Mumbai. All arbitration proceedings shall be conducted in the English language. The arbitrators shall decide any such dispute or claim strictly in accordance with the governing law specified in Clause 14.1 of this Agreement. Judgment upon any arbitral award rendered hereunder may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be if required. 14.3 Notwithstanding Clause 14.1, in the event the Vendor raises any dispute in relation to issues which are also raised by ITI under the its share purchase agreement then the Vendor agrees that it shall together with ITI jointly appoint only one arbitrator and the Purchaser shall appoint one arbitrator. 14.4 Each Party shall co-operate in good faith to expedite (to the maximum extent practicable) the conduct of any arbitral proceedings commenced under this Agreement. 25 14.5 The costs and expenses of the arbitration, including, without limitation, the fees of the arbitration and the Arbitration Board, shall be borne equally by each Party to the dispute or claim, and each Party shall pay its own fees, disbursements and other charges of its counsel. 14.6 Any award made by the Arbitration Board shall be final and binding on each of the Parties as if it were parties to the dispute. 26
Schedule 1 LIST OF EMPLOYEE SHAREHOLDERS LIST OF SHAREHOLDERS NO OF AMT PER NAME OF THE SHARE HOLDER FATHER'S NAME TYPE OF SHARES SHARES SHARE ADDRESS 1. Vivek Reddy D G K Reddy Equity 216600 10 12, Subba Rao Avenue 3 rd Street Madras Tamilnadu 2. Ravi Mehrotra Umesh Mehrotra Equity 100000 10 23 Cenotaph Road Rahul Apts Ground Floor Flat B Teynampet Madras 3. R.Narayanan N Ramachandran Equity 5000 10 55 C MIG FLAT A L MUDALIAR ROAD Madras Tamil Nadu 4. Anoop Bhasker Amrit Rai Bhasker Equity 4000 10 44/5 3 rd street East Abhirampuram Madras 27 Tamilnadu 5. Anil Prabhudas JeevanPrabhudas Equity 4000 10 B 34 PA Towers 869PHRoad Kilpauk Madras Tamilnadu 6. K N Sivasubramaniam Narayanan Equity 4000 10 No 2 22nd cross Street Indira Nagar Madras Tamilnadu 7. R Sukumar A M Rajah Equity 4000 10 8, Sadulla Street Madras Tamilnadu 8. V Rajagopal Veeraraghavachari N K Equity 3000 10 No43 Kalaignar Street Anna Nagar Pammal Madras Tamilnadu 9. Lalitha Swamy K Ramaswamy Equity 2000 10 E 2 Sriji Apts 25 Rajasekharan Road Mylapore Madras Tamilnadu 10. Prem Khatri J P Khatri Equity 2000 10 6 D Cambrae East 28 Victoria Cresent Road Egmore Madras Tamilnadu 11. Tamil Selvi M Balasubramanian Equity 2000 10 61, Vasudevan Nagar Jafferkhanpet Ashok Nagar Madras Tamilnadu 12. P L Ambal Saravanan Equity 1500 10 C/O Kumarappa Chethyar 162A Kamar Salai Ramakrishna Nagar Aiwarthirunagar Madras Tamilnadu 5 A Muthu Lakshmi 13. D Vijayraghavan K V Desikachari Equity 1500 10 Street Muthu Lakshmi Nagar Extn Chitlapakkam Madras Tamilnadu 14. S Chellappa N Sivaguru Equity 1500 10 C 2, Paras Apts Jeevarathnam Nagar Adyar 29 Madras Tamilnadu 15. S R Ramesh S K Ramamurthi Equity 1400 10 Vigneswar house (upstairs) No 1 New Thillai Nagar Plot 25, Part 6 P N Pudur Coimbatore Tamilnadu 16. Indira Menon P R Menon Equity 1200 10 No 9, M Block Anna Nagar East Madras Tamil Nadu 17. Rajendra Mukadam Upendra Dhondo Mukadam Equity 1200 10 23/C Zaoba Wadi Thakurdwar, JSS Road Bombay Maharashtra 18. Aseem Malhotra R I Malhotra Equity 1200 10 B 302 Rosewood Apts Mayur Vi bar Phase I (Extn) New Delhi 19. Samvita Reddy A Koti Reddy Equity 1000 10 73, E V K Sampath Road Vepery Madras Tamilnadu 30 20. Sanjeev Patnaik K C Patnaik Equity 1000 10 No 67 kamaraja nagar Ernavur Ennore Madras Tamilnadu 21. G Srinivas G V Sastry Equity 1000 10 3, Ill Main Road Kasturiba Nagar Adyar Madras Tamilnadu 22. K Thirugnanam C Karuppiah Equity 1000 10 13, Park Street 108, Pandian Nagar Thiru Nagar Madurai Tamilnadu 23. V N Srikanth V N Subba Rao Equity 1000 10 22 Umayal Road Kilpauk Madras Tamilnadu 24. P K Saravanan P Kannabiran Equity 600 10 No 5,Ratnam Nagar Thruvanmiyur 31 Madras Tamilnadu 25. S Balasubramaniam TV Sivararnakrishnan Equity 600 10 No 4 Arul Jyothi Rossary Church Road Lane Santhome Madras Tamilnadu 26. Senthi Kumar M A Mariappan Equity 600 10 No 3, V Cross Ammayappa Nagar Trichy Tamilnadu 27. R Anantharaman A Ramaswamy Equity 600 10 No 26, Nore Veeraswamy Street Nungambakkam Madras Tamil Nadu 28. K Bharati Raj M S Krishnamurthy Equity 500 10 No 102, Bazaar Road Mylapore Madras Tamilnadu 29. R Sekhar S Ramamoorthy Equity 500 10 5 Raman Street Madras Tamilnadu 32 30. P S Balasubramaniam P Sitaraman Equity 500 10 A1 Damayanthi Apts South Mada Street Nungambakkam Madras Tamilnadu 31. J VS Ravi Kumar J Kameswara Sastry Equity 400 10 60-3-19, Ashok Nagar SBI Colony Road Near ITI Vijaywada Andhra Pradesh 32. A V Ravi Kumar A V N Murthy Equity 400 10 Lakshmi Sudha Nivas 54-1-30, Plot No 26 L.I.C Colony Vijaywada Andhra Pradesh 33. Vinay Kumar B Devadattam Equity 400 10 2/3 R T Prakasam Nagar Begumpet Hyderabad Andhra Pradesh 34. S Vidyasagar R S Mani Equity 400 10 K -7 Turn Bulls Road Nandanam Madras Tamilnadu 33 35. B Parthiban N Balasubramaniam Equity 400 10 No 11 Jacob Street Madipakkam Madras Tamilnadu 36. R Ramesh S Raju Equity 400 10 3/0, Supdt Qtrs The Sea Farer's Club Rajaji Salai Opp- Reserve Bank Of India Madras Tamilnadu 37. Simon Solomon MT Solomon Raj Equity 400 10 1219, 17th Street Anna Nagar West Extn Madras Tamilnadu 38. R S Gopalan S Rajan Equity 400 10 86,A V Krishnaswamy Street Janaki Nagar Valsarvakkam Madras Tamilnadu 39. K Balaji E Krishnan Equity 300 10 No 28-C Third Agraharam Salem Tamilnadu 40. P Jayaraman K Pitchai Raman Equity 300 10 No 3, 3 rd Cross Ammoiyappa Nagar 34 Puthur Trichy Tamilnadu 41. T Srikumar M P Thiruvengadam Equity 200 10 No 28, III Street Jayalakshmi Puram N ungambakkam Madras Tamilnadu 42. B Srinivas Rao B Seetharamaraju Equity 200 10 No 20 Ambika Nagar Main Road Madhavaram Milk Colony Madras Tamilnadu 43. MKannan Muruganandan Equity 200 10 270 G, GST Road Thirunagar Madurai Tamilnadu 44. D Venkatesh B Deivasigamani Equity 200 10 10 Kandappa Gramani Street Pu rasawalkam Madras Tamilnadu 369600
35 SCHEDULE 2 PURCHASERS WARRNTIES 1 ORGANISATION, GOOD STANDING AND QUALIFICATION: The Purchaser has been duly incorporated and organised, and is validly existing in good standing, under the laws of India. The Purchaser has the corporate power and authority to carry on its business as currently conducted and proposed to be conducted. 2 the Purchaser has the legal right and full power and authority to enter into, deliver and perform this Agreement and any other documents to be executed by the Purchaser pursuant to or in connection with the Transaction which when executed will constitute valid and binding obligation of the Purchaser, and enforceable against them in accordance with their terms. 3 The execution, delivery and the performance by the Purchaser of this Agreement and the respective obligations in relation to the Transaction contemplated herein, do not and will not: (i) breach or constitute a default under the Charter Document of the Purchaser; (ii) result in a violation or breach of or default under any applicable law or regulation or of any order, judgment or decree of any Court, Governmental Authority, regulatory body to which each of the Purchaser is a party or by which the Purchaser or any of its assets are bound. (iii)Result in a breach of, or constitute a default under any contract to which the Purchaser is a party 4 Except for the approvals of the FIPB, Reserve Bank of India and the corporate approvals, no consent, approval, order or authorisation of, or registration, qualification, designation, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance by the Purchaser, of this Agreement and or the Transaction and 5 All corporate action on the part of the Board, the board of directors of the Purchaser, necessary for the authorisation, execution, delivery of and the performance of all obligations of the Purchaser under this Agreement have been taken as of the date of this Agreement; SCHEDULE 3 VENDOR WARRANTIES INTERPRETATION In this Schedule, unless the context clearly indicates a contrary intention, - (a) The provisions of the agreement ("Agreement") to which these warranties relate to its interpretation shall apply, mutatis mutandis, and the words and expressions defined in the Agreement shall bear the same meanings in this Schedule; (b) The warranties, representations and undertakings herein shall apply in respect of each of the AMC and its Subsidiary (together "the AMC" for the purpose of this Schedule), and references in these warranties to AMC shall also be deemed where the context so admits, unless specified otherwise, to apply to the Trustee Company; (c) Where ever the warranty refers to accounts of the AMC it shall relate to a period on or after April 1, 2001 unless specified otherwise. 1. AUTHORITY AND CAPACITY OF THE VENDOR 1.1 The Vendor is a company duly incorporated and validly existing under the law of its incorporation. 1.2.1 The Vendor has the legal right and full power and authority to enter into, deliver and perform this Agreement and any other documents to be executed by the Vendor pursuant to or in connection with the Transaction which when executed will constitute valid and binding obligation of the Vendor, and enforceable against them in accordance with their terms. 1.2.2 Subject to applicable laws, regulations and rules, the execution, delivery and performance by the Vendor and the AMC, of this Agreement and the respective obligations in relation to the Transaction contemplated herein, do not and will not: (i) breach or constitute a default under the respective Charter Document of Vendor and AMC; (ii) result in a breach of, or constitute a default under, any Contract to which the AMC, or the Vendor is a party or by which they are bound or give any third party a right to terminate or modify, or result in the creation of any Encumbrance under any agreement, licence or other instrument; or (iii) result in a violation or breach of or default under any applicable law or regulation or of any order, judgement or decree of any Court, 37 Governmental Authority, regulatory body to which each of the Vendor or the AMC is a party or by which each of the Vendor or the AMC or any of their respective assets are bound. 1.2.3 Except for the approvals of the SEBI, FIPB, Reserve Bank of India, the Trustees, the unit holders and the corporate approvals, no consent, approval, order or authorisation of, or registration, qualification, designation, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance by the Vendor or the AMC, of this Agreement and or the Transaction and 1.3 VENDOR'S AMC SHARES: (i) the Vendor's AMC Shares were validly issued and are fully paid-up; (ii) the Vendor is the sole beneficial owner of the its shares and is registered as the sole owner of such shares; (iii) the Vendor has clear and marketable title to its shares and that the shares are free from any Encumbrance or claim, demand or doubts, and the Vendor is not aware of any claims against their shares or any circumstances which might reasonably believed to lead to a claim or demand against the Vendor's AMC Shares; (iv) the Vendor has good right, full power and absolute authority to sell and transfer the Vendor's AMC Shares free from any third party claim or demand of any nature and that they have not nor anyone on their behalf have done, committed or omitted any act, deed, matter or thing whereby the Vendor's AMC Shares is or can be forfeited extinguished or rendered void or voidable; and (v) that the Vendor has not entered into or arrived at any agreement and/or arrangement, written or oral, with any person or party in respect of the Vendor's AMC Shares, or their membership of the AMC which, will render the sale of the sale and transfer of AMC Shares violative of such agreements. 2. CORPORATE MATTERS 2.1 CHARTER DOCUMENT: The copies of the Charter Documents of the AMC (having attached thereto all amendments made to date) delivered to the Purchaser and filed with the Registrar of Companies are true and complete copies, and the AMC has complied with all the provisions of its Charter Documents and, in particular, has not entered into any ultra vires transaction. All legal and procedural requirements and other formalities concerning such Charter Documents have been duly and properly complied with in all material respects. 38 2.2 ORGANISATION, GOOD STANDING AND QUALIFICATION: The AMC has been duly incorporated and organised, and is validly existing in good standing, under the laws of India. The AMC has the corporate power and authority to own and operate its Assets and properties and to carry on its business as currently conducted and proposed to be conducted. 2.3 CAPITALISATION AND OTHER PARTICULARS OF THE AMC: The particulars of the AMC as disclosed in the Accounts are true, complete and correct as of the date. 2.4 ISSUED SHARES: The 7,893,965 million shares now outstanding comprise the entire issued share capital of the AMC. No modification or variation of the terms of issue or the rights attaching to such Shares has been made since the dates of issue. 2.5 PAID UP: All the issued shares of the AMC are fully paid up and the AMC has not exercised nor purported to exercise or claimed any lien over any of them. 2.6 CONDUCT IN RELATION TO CAPITAL: The AMC has not at any time repaid or redeemed or agreed to repay or redeem any of its share capital or otherwise reduced or agreed to reduce its issued share capital or purchased any of its own shares or carried out any transaction having the effect of a reduction of capital. 2.7 CONVERSION RIGHTS: No person has the right to call for the issue of any share or loan capital of the AMC by reason of any conversion rights or under any option or other agreement and there are no claims, charges, liens, equities or encumbrances on the Vendor's AMC Shares. 2.8 OPTIONS, WARRANTS AND RESERVED SHARES: Except as disclosed in Clause 12.2(e) of the SPA, there are no outstanding options, warrants, rights (including conversion or pre-emption rights) or agreements for the subscription or purchase from the AMC of any shares in the capital stock of the AMC or any securities convertible into or ultimately exchangeable or exercisable for any shares of the AMC, and no shares of the AMC when issued, are subject to any pre-emptive rights, rights of first refusal or other rights pursuant to any agreement or commitment of the AMC as the case may be. 2.9 OTHER RIGHTS WITH RESPECT TO SHARES: Except as contemplated in this Agreement, no voting or similar agreements exist relating to the AMC Shares or any other securities issued by the AMC or the shares of the Subsidiary which are presently outstanding or that may hereafter be issued. 2.10 EXISTENCE OF SUBSIDIARIES: The AMC has a subsidiary called ITI Capital Markets Limited , a company incorporated under the Companies Act 1956 and having its registered office at No.39, TTK Road, Alwarpet, Chennai 600 018 . The particulars of the subsidiary as the its capital and other statutory details such as capital, director are disclosed in the Disclosure Letter. Except for the Subsidiary the AMC does not own any direct or indirect equity or voting interest in any other AMC, partnership or any other legal entity. 39 2.11 CORPORATE RECORDS: Except as disclosed the statutory books, minute books and register of members of the AMC have been properly and accurately maintained and written up to date in all material respects and contain full and accurate records of all resolutions passed by the directors and the shareholders of the AMC and all issuances and transfers of shares or other securities of the AMC. All such documents are in its possession or under the control of the AMC. 2.12 REGISTER OF MEMBERS: Except as disclosed the register of members of the AMC contains a complete and accurate record of the members of the AMC and the AMC has not received any notice of any application for rectification and so far as the Vendor is aware such members are the beneficial owners of the shares listed against their names. 2.13 DIVIDENDS: Except as disclosed and except for the dividends declared under an investment scheme operated by the AMC, the AMC has not declared any dividend or made any distribution to its shareholders since their incorporation. 2.14 POWERS OF ATTORNEY: Except for the powers of attorney disclosed in the Disclosure Letter there are no outstanding powers of attorney given by the AMC or the Fund. 2.15 WINDING-UP ORDERS: No order has been made, no resolution has been passed, no petition has been presented by the AMC and no petition has been presented by any other person for the Winding-up of the AMC; no receiver or manager has been appointed by any person of the business or assets of the AMC or any part thereof and there is no unfulfilled or unsatisfied judgement or decree or court order outstanding against the AMC. 2.16 The Vendor does not hold any equity or voting interest in any entity that carries on any business that competes with the business of the AMC or Fund in India. 3. ACCOUNTS AND RECORDS 3.1 Except as disclosed therein and except as disclosed, the Accounts and the accounts for the period ending March 31, 2001 ("2001 Accounts") of the AMC have been prepared in accordance with applicable law and in accordance with accounting principles, standards and practices generally accepted at the date of this Agreement in India and give a true and fair view of the assets, liabilities and state of affairs of the AMC at the Account Date. 3.2 MANAGEMENT ACCOUNTS: Except as disclosed, the Management Accounts have been prepared in accordance with applicable law and in accordance with accounting principles, standards and practices generally accepted at the date of this Agreement in India and, subject thereto, on a basis consistent with that adopted in preparing the audited accounts for the previous two financial periods so as to give a true and fair view of the assets, liabilities and state of affairs of the AMC at the Management Account Date and of the profits or losses for the period concerned and as at that date make: 40 3.2.1 full provision for all actual liabilities, 3.2.2 proper provision for all contingent liabilities, and 3.2.3 provision reasonably regarded as adequate for all bad and doubtful debts. 3.3 ACCOUNTING AND OTHER RECORDS: Except as disclosed, the AMC's books and records are in its possession or under its control and have been properly maintained in accordance with all applicable laws. As at the Completion Date, the AMC's books and records will accurately record all transactions of the AMC up to and including [the Management Accounts Date] and will be capable of being written up within a reasonable time so as to record all subsequent transactions of the AMC. 3.4 CHANGES SINCE APRIL 1ST 2001 AS REGARDS THE AMC AND THE FUND: Except as disclosed: 3.4.1 there has been no material adverse change in its financial position or turnover and no event, fact or matter has occurred that will give rise to any such change; 3.4.2 its business has been carried on in the ordinary course, without any interruption or alteration in its nature, scope or manner, and so as to maintain the same as a going concern; 3.4.3 it has not entered into any transaction or assumed or incurred any liabilities (including contingent liabilities) or made any payment not provided for in the Accounts or the Management Accounts otherwise than in the ordinary course of carrying on its business; 3.4.4 its profits have not been affected by changes or inconsistencies in account treatment, by any non-recurring items of income or expenditure, by transactions of an abnormal or unusual nature or entered into otherwise that on normal commercial terms or by any other factors rendering such profits exceptionally high or low; 3.4.5 no dividend or other distribution has been declared, made or paid to its shareholders; 3.4.6 no share or loan capital or any other security giving rise to a right over the capital has been allotted or issued or agreed to be allotted or issued; 3.4.7 it has not redeemed or purchased or agreed to redeem or purchase any of its share capital; and 41 3.4.8 except in the ordinary course of business, no debt or liability has been incurred, assumed or guaranteed by the AMC except, advance share application monies of Rs 450 lakhs, which will be returned to Pioneer. 3.5 ABSENCE OF UNDISCLOSED LIABILITIES: Except as disclosed, there are no liabilities of the AMC other than (I) liabilities disclosed or provided for in the Accounts and the Management Accounts; (ii) liabilities incurred in the ordinary course of business since the Management Accounts Date, none of which results in a material adverse change in the financial position or turnover of the AMC; or (iii) liabilities disclosed elsewhere in this Agreement. 4. FINANCE 4.1 Except for the funds of the investors in the Blue Chip Fund, open end Scheme aggregating to Rs 1.5 crores, which are lying with the Fund for want of instruction from the investors, and except as disclosed, neither the AMC nor the Fund has outstanding any obligation for the payment or repayment of money, whether present or future, actual or contingent. 4.2 The AMC and the Fund have no encumbrance, mortgage, charge, pledge, lien (save by operation of law in the ordinary course of business) or other security interest or any other agreement or arrangement having a similar effect subsisting over the whole or any part of its present or future revenues. 4.3 Except for the payments under the Blue Chip Scheme and except as disclosed, no borrowing of the Fund or AMC has become or is now due and payable or capable of being declared due and payable, before its normal or originally stated maturity and no demand or other notice requiring the payment or repayment of money before its normal or originally stated maturity has been received by the AMC. 4.4 No event or circumstance has occurred of which the Vendor is aware which is or, with the giving of notice or lapse of time or both, shall be such as to terminate, cancel or render incapable of exercise any entitlement to draw money or otherwise exercise the rights of the AMC or Fund under an agreement relating to borrowing. 5. TAXATION MATTERS 5.1 RETURNS, INFORMATION AND CLEARANCES, EXCEPT AS DISCLOSED AND TO THE BEST OF THE VENDOR'S KNOWLEDGE AND UNDERSTANDINGS: i) All returns, computations, notices and information which are or have been required to be made or given by the AMC for a Taxation purpose (i) have been made on a proper basis and are correct and (ii) none of them is subject of any dispute with the Indian Taxation authorities. 42 ii) The AMC is in possession of sufficient information or has reasonable access to such information to enable it to compute its liability to Taxation. 5.2 TAXATION CLAIMS, LIABILITIES AND RELIEFS: Except as disclosed, there is no liability of Taxation in respect of which a claim has been made to the knowledge of the Vendor. 5.3 AMC RESIDENCE: The AMC has been resident for tax purposes in India 5.4 DEDUCTION OF TAX AT SOURCE: Except as disclosed, the liability on account of late filing/remittance of returns for tax to be deducted at source does not exceed an amount of Rs 25,000/- on account of interest and such returns are true and correct in all material respects. To the best of our knowledge and understanding the deductions have been made in accordance with law. 6. LEGAL MATTERS 6.1 Except as disclosed, the Vendor hereby represents and warrants in respect of the AMC Trustee and the Fund that: (i) NO VIOLATION OF LAW: There has not been any investigation or enquiry by nor any notice or communication, or order, decree, decision or judgment of, any court, tribunal, arbitrator, governmental agency or regulatory body received by and against the AMC, with respect to any material violation and/or there has been no subsisting violation to comply with any such applicable law, regulation, byelaw or Charter Documents, which has resulted in any liability or criminal or administrative sanction; (ii) PERMITS: Consistent with industry practice, the AMC has all permits, approvals, authorisations, licenses, registrations, and consents (including, without limitation, the registrations of the AMC with SEBI), necessary for the conduct of its business as currently conducted have been obtained and are in full force and effect. The AMC is not in material breach of or in material default under any such permit, approval, authorisation, franchise or license and the Vendor are not aware of any event or circumstance under which any of those licences, registrations, permissions or consents is likely to be revoked terminated and/or cancelled, except for those which are consequential arising out of this Agreement or the Transaction; (iii) ETHICAL CODE OF CONDUCT: The AMC has not and has not authorised or permitted any of its employees, agents or representatives to make or promise any payment of anything of value to any Governmental Authority or any employee, agent or representative of any 43 Governmental Authority for the purpose of obtaining or retaining business; and (iv) UNLAWFUL ACTS: The AMC has not, so far as the Vendor is aware, nor have any of its Senior Executives in the course of theiremployment by any act or default committed: a. any criminal or unlawful act involving dishonesty; b. any breach of trust; or c. any breach of contract or statutory duty or any tortuous act which could entitle any third party to terminate any contract to which the AMC is a party; which could have a material adverse effect on the AMC. 6.2 COMPLIANCE WITH AGREEMENTS: Except as disclosed, all the contracts and all leases, tenancies, licences and agreements of whatsoever nature to which the AMC is a party are, except as disclosed, valid, binding enforceable obligations of the parties thereto and the terms thereof have been complied with by the AMC and there have occurred no grounds for rescission, avoidance or repudiation of any of the contracts or such leases, tenancies, licences or agreements and no notice of termination or of intention to terminate has been received in respect of any thereof. 6.3 LITIGATION: 6.3.1 Except as disclosed, and except as in the ordinary course of business, since the Account Date no claim for damages or otherwise has been made against the AMC. 6.3.2 The AMC, except as disclosed, is not involved whether as plaintiff or defendant or other party in any claim, legal action, proceeding, suit, litigation, prosecution, investigation, enquiry or arbitration and no such claim, legal action, proceeding, suit, litigation, prosecution, investigation, enquiry or arbitration is pending against the AMC. 6.4 INSOLVENCY: 6.4.1 No order has been made, petition, presented, resolution passed or meeting convened for the winding up (or other process whereby the business is terminated and the assets of the AMC concerned are distributed amongst the creditors and/or shareholders or other contributories) of the AMC and there are no cases or proceedings under any applicable insolvency, reorganisation, or similar laws in any jurisdiction concerning the AMC and no events have occurred which, under applicable laws, would justify any such cases or proceedings. 6.4.2 No petition has been presented or other proceedings have been commenced for an administration order to be made (or any other order 44 to be made by which during the period it is in force, the affairs, business and assets of the AMC concerned are managed by a person appointed for the purpose by a Court, governmental agency or similar body) in relation to the AMC, nor has any such order been made. 6.4.3 No receiver (including an administrative receiver), liquidator, trustee, administrator, custodian or similar official has been appointed in any jurisdiction in respect of the whole or any part of the business or assets of the AMC and no step has been taken for or with a view to the appointment of such a person. 6.4.4 The AMC is not insolvent as on date. 7. TRADING AND CONTRACTUAL ARRANGEMENTS 7.1 CAPITAL COMMITMENTS: Since March 17, 2002 (the "MOU Date"), except under various investment schemes operated by the AMC for its clients, the AMC: 7.1.1 has not entered into any capital commitments; 7.1.2 is not, nor has been, party to any unusual, long-term or onerous commitments, contracts or arrangements otherwise at an arm's length basis in the ordinary course of business; 7.1.3 except as disclosed, is not party to any agency, distributorship, marketing, purchasing, agreement or arrangement that restricts its freedom to carry on its business in such manner as it thinks fit; and 7.1.4 is not, nor has agreed to become, a member of any joint venture, consortium, partnership or other unincorporated association (other than a recognised trade association). 7.2 CONTRACTS: The AMC is not a party to or bound, except as disclosed, by any Contract (collectively, "Material Contracts") that: 7.2.1 grants management, operational or voting rights in the AMC to any Person; 7.2.2 is a consulting Contract that involves payments of an amount equal to or in excess of Rs. 1 million for any 12-month period; 7.2.3 is a non-competition Contract restricting in any way the business activities of the AMC; 7.2.4 was entered into outside of the ordinary course of business of the AMC; 7.2.5 is a Contract with any Person relating to the use of the Assets of the AMC, including without limitation use of the Assets for Internet services, telephone services or the provision of data or other value-added services, excluding Contracts with its customers or clients; 45 7.2.6 is a Contract involving subscriber management or systems, call centres or other customer service systems; 7.2.7 The AMC is not in default in the performance, observance or fulfilment of any of the material obligations, covenants or conditions contained in any Contract to which it is a party. Each Material Contract has been duly authorised, executed and delivered by the AMC, and constitutes a valid and binding obligation of each party thereto, enforceable against each party thereto in accordance with its terms. To the best of the Vendor knowledge, no party (other than the AMC) is in material breach of any Material Contract or has indicated any intention to terminate any such Contract prior to the expiration of its term. 7.3 ARRANGEMENTS WITH ASSOCIATES ETC: Except as disclosed: 7.3.1 There is no indebtedness (actual or contingent) nor any indemnity, guarantee or security arrangement, except as disclosed, between the AMC and any current or former employee, current or former director or any current or former consultant of the AMC. 7.3.2 The AMC is not a party to any contract, arrangement or understanding, except as disclosed, with any current or former employee, current or former director of the AMC other than the employment contracts. 7.3.3 Other than employment contracts with the Employee Shareholders, there are no existing contracts or arrangements, except as disclosed, between or involving the AMC and any of the Vendor and/or any of the directors. 7.4 TRANSACTIONS WITH DIRECTORS: There is no outstanding: 7.4.1 loan, except as disclosed, made by the AMC to, or to the AMC, by the Vendor, or any director or officer of the AMC; 7.4.2 agreement or arrangement, except as disclosed, to which the AMC is a party and in which the Vendor or any director of the AMC; 7.4.3 Related Party Transaction: Except as disclosed, there are no Contracts, understandings, transactions or proposed transactions between the AMC and any Related Party on the other hand. Except for loans/advances aggregating to not more than Rs. 65 lacs made to any single employee, pursuant to staff Housing/Vehicle Assistance Scheme existing as of the date of this Agreement, no Related Party or employee of the AMC is indebted to the AMC, nor is the AMC indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Vendors' knowledge, no such Person is, directly or 46 indirectly, interested in any Contract with the AMC, excluding employment contracts. 7.5 Investment Management Agreement: The Investment Management Agreement executed between the Trustee Company and the AMC is the only investment management agreement for the family of funds operated and managed by the AMC on behalf of the Trustee Company. 7.6 Guarantee: Except as disclosed in the Accounts, there is not outstanding guarantee, indemnity, surety or comfort (whether or not legally binding) given by or for the benefit of the AMC. 8. EMPLOYEES 8.1 DISCLOSURE OF MATERIAL FACTS: 8.1.1 Except as disclosed, all material facts and matters relating to the employment of all employees of the AMC have been disclosed to the Purchaser. 8.1.2 The AMC has no collective agreements, arrangements and other understandings with any recognised trade union, staff association or other body representing the employees of the AMC and, to the best of the Vendor's knowledge, no labour union has requested, sought or attempted to represent any employees, representatives or agents of the AMC. There is no strike or other labour dispute involving the AMC. 8.1.3 STATUS OF EMPLOYEES: Except as disclosed to the best of the Vendor's knowledge, no Senior Executive has terminated their employment with the AMC since the MOU Date. 8.1.4 EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS: Except as disclosed, other than standard employment contracts of the AMC in the form as disclosed, and the employment contract of the current CEO of the AMC as disclosed, the AMC is not a party to nor bound by any currently effective employment contract (other than contracts that can be terminated on an at-will basis), deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement. To the best of the Vendor knowledge, none of these employees or the CEO is in breach of their respective employment contracts or any terms by which any such person may have been seconded to the AMC. 8.2 COMPLIANCE WITH REQUIREMENTS: Except as disclosed, the AMC has in relation to each of its employees and (so far as relevant) to each of its former employees: 47 8.2.1 complied in all material respects with its obligations (as appropriate) under relevant laws and all other statutes and regulations relevant to its relations with each employee or the conditions of service of the employee and has maintained adequate and suitable records regarding the service of the employee; 8.2.2 discharged or adequately provided for in all material respects its obligations to pay all salaries, wages, commissions, bonuses, overtime pay, holiday pay, sick pay and other benefits of or connected with employment upto the date of this Agreement; and 8.2.3 complied in all material respects with all its obligations under the master mediclaim policy. 8.3 AGREEMENTS: Except as disclosed, the AMC has not since the MOU Date entered into: 8.3.1 any agreement or arrangement to make any payments (other than emoluments) to or on behalf of any of its directors or employees; 8.3.2 any contract of service with any employee, which is not terminable by the AMC by three months' notice or less without payment of compensation (except as provided by statute); 8.3.3 any agreement imposing a legal obligation on the AMC to increase the rates of remuneration of, or to make any bonus or incentive payments or any benefits in kind or any payments under a profit-sharing scheme to or on behalf of, any of its employees at any future date which would result in an increase in the AMC's employment costs; 8.3.4 any negotiation for a change in the emoluments or other terms of engagement of any grade of the AMC's employees resulting in an increase in the AMC's employment costs; 8.3.5 any agreement or arrangement for the provision of compensation on the termination of employment of any employee of the AMC, beyond the minimum required by law and by the employment contracts. 8.4 DISPUTES: 8.4.1 Except as disclosed, no subsisting material dispute has arisen since incorporation between the AMC and any member or category of its employees or former employees. 8.4.2 Except as disclosed, there are no significant complaints pending against the AMC of whatsoever nature in relation to any of its employees or former employees and there is no industrial action or dispute or of such nature existing in respect of or concerning any employees or former employees of the AMC. 48 8.4.3 Except as disclosed, no employee has given notice of termination of his contract of employment or is under notice of dismissal. 8.4.4 Except as disclosed, the AMC has not offered any contract of employment to any person for a salary of more than [Rs.1 million] per annum, which offer remains outstanding. 8.5 PENSIONS: Except as disclosed, the AMC does not make, and is not party to any arrangement under which it could be liable to make payments (except for statutory payment) for providing retirement, death, disability, life assurance or medical benefits to any person. 9. OPERATIONS AND COMPLIANCE OF THE FUND AND ITS SCHEMES: 9.1 ACCOUNTS: Except as disclosed, the 2001 Accounts and the Accounts of the Fund and its Schemes have been prepared in accordance with the Regulations and the Schedule Nine of the Regulations; 9.2 LIABILITIES AND NPAS: Except as disclosed and except as disclosed in the portfolio statement the Fund and the Schemes do not have any non-performing other than those reflected in the 2001 Accounts, the Accounts and Management Accounts incurred in the ordinary course of business. 9.3 ACTIVITIES SINCE ACCOUNTS DATE: Except as disclosed and otherwise than in the ordinary course of business, since the Accounts Date, there has not been: 9.3.1 any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the Assets used by the AMC or the Fund or the operating results or the business of the Fund as currently conducted; 9.3.2 any waiver by the AMC or the Fund of a valuable right or of a debt owed to the Fund or any of its Schemes with a value of over Rs. 500,000 owed to it; 9.3.3 any material change or amendment to a contract by which the Fund is bound, except for changes or amendments which are expressly provided for or disclosed in this Agreement; 9.3.4 any declaration or payment of any dividend or other distribution by any Scheme of the Fund otherwise than in ordinary course of business; 9.3.5 any debt or liability incurred, assumed or guaranteed by the Fund or any of its Schemes otherwise than in ordinary course of business. 49 9.4 CURRENT OPERATIONS: Except as disclosed, to the best knowledge of the Vendor, there is no existing fact or circumstance as on date that has a material adverse effect on the ability of the Fund or Schemes to conduct its business as currently conducted. 9.5 TAXES: The liability/ penalties on account of late filing/remittance of returns for tax to be deducted at source does not exceed an amount of Rs.2,35,000/- on account of interest and such returns are true and correct in all material respects. To the best of our knowledge and understanding the deductions have been made in accordance with law. COMPLIANCE 9.5 A list of the all the Schemes operated by the Vendor is attached in Annexure 4.3 of the Disclosure Letter. There has been no material adverse change that is inconsistent with normal industry conditions in any of the information contained in the offer documents of the Schemes since the [MOU] Date; 9.6 AUM: (i) The Vendor represents that the Mutual Fund, as on February 20 2002 had assets under management of Rs. 3833.79 crores in the equity schemes and Rs. 1476.68 crores and under fixed-income schemes aggregating to assets under management at Rs.2357.10 crores as certified by the auditors. (ii) the Vendor represents that the Mutual Fund, as on July 19, 2002 had assets under management of Rs.1405.80 crores in the equity schemes and Rs. 2688.85 crores and under fixed-income schemes aggregating to assets under management at Rs. 4094.64 crores as certified by the auditors. 9.7 COMPLIANCE WITH REGULATIONS: Except as disclosed, the Vendor represents and warrants that: 9.7.1 The affairs of the Fund have been conducted materially in accordance with the Regulations and the related circulars of the Regulations. 9.7.2 The accounting operations of the Fund and the Schemes have materially been carried out in accordance with Schedule Nine of the Regulations and with the guidance note of Institute of Chartered Accountants of India. 9.8 The Code of Ethics relating to conduct of the directors of the Trustee and the employees of the AMC and Code for Personal Trading and Insider Trading guidelines have been complied with and the AMC is not aware of any violations thereof; 9.9 The business of the Schemes has been conducted generally in a bonafide manner with the interests of the unit holders paramount; 50 9.10 The AMC fees and the other expenses charged to the Fund and the Schemes are within the limits provided in the Regulations and the offer documents of the respective schemes; 9.11 That the entry and exit loads collected from the investors has been utilised in accordance with the Regulations; 9.12 The investor services have been rendered fully in accordance with the Regulations; 9.13 The offer documents (including abridged offer documents)/sales literature/annual reports /all sales material have been fully prepared and updated in accordance with the Regulations; 10. ASSETS 10.1 THE PROPERTIES: Except as disclosed, the Properties shown in Schedule_ comprise all of the premises and land owned, leased, occupied or licensed used in connection with the businesses of the AMC and the Fund. The AMC has provided to the Purchaser, except as disclosed, true and complete copies of documents for all immoveable property owned, leased and or occupied by the AMC. The AMC is in compliance in all material respects with all such leases. 10.2 TITLE: Except as disclosed, the AMC has full and clear title to the immoveable properties owned by the AMC which free and clear of all Encumbrances and there is no dispute pending or of which the Vendor is reasonably aware with regard to the title or rights to any such owned property. 10.3 STATUTORY OBLIGATIONS, NOTICES AND ORDERS: Except as disclosed, in relation to each of the owned properties, no notices, orders, proposals, applications, requests or schedule of dilapidation, demands for duty or taxes affecting or relating to any of such Properties have been served or made by any authority on the AMC or the Fund. 10.4 NOTICES OF BREACH: Except as disclosed, in relation to the leased or licensed immovable property occupied by the AMC or the Fund neither the AMC nor the Fund has not received any notice or complaint from the landlord of any breach of the terms of the leases or tenancy agreements which would entitle the landlord to terminate the leases or agreements or claim damages for breach of terms or covenant; under which such properties are held. 10.5 DISPOSAL OF ASSETS: Except for the sale of securities owned by the AMC and except as disclosed, no Assets of the AMC above the value of Rs. 25,000/-have been disposed of since July 1, 2001 to June 30, 2002 except as disclosed and in the ordinary course of business. 51 10.6 STAMP DUTY: All documents, except as disclosed, to which the AMC or Fund is a party, or which form part of the title to any asset owned or possessed by the AMC, or which the AMC or the Vendor may need to enforce or produce in evidence in any court of law have been duly stamped and registered. 10.7 TRANSACTIONS NOT AT ARM'S LENGTH: 10.7.1 Since the MOU Date, the AMC does not own, nor has agreed to acquire, any asset, nor, has received or agreed to receive any services or facilities (including, without limitation, the benefit of any licensee or agreements), the consideration for the acquisition or provision of which was otherwise than on an arm's length basis. 10.7.2 Except as disclosed, since the MOU Date, the AMC has not disposed, nor has agreed to dispose, of any asset, nor has provided or agreed to provide any services or facilities (including, without limitation, the benefit of any licences or agreements), the consideration for the disposal or provision of which was or will be less than its market value, or otherwise than on an arm's length basis. 10.8 CONTROL OF RECORDS AND INFORMATION: Except as stated in Annexure 3.3 of the Disclosure Letter and subject to the Custodian Agreement, all records and information belonging to the AMC or the Fund or relating to their affairs (whether or not held in written form) are in the exclusive possession and under the direct control of the AMC and or the Fund and subject to unrestricted access by them. 10.9 INTELLECTUAL PROPERTY 10.9.1 The AMC has such interest in any intellectual property rights and has, as disclosed, entered into any agreement for: (i) the licensing or use of intellectual property rights; or (ii) the provision or acquisition of know-how or technical information or assistance; or (iii) the prohibition or restriction of the disclosure of any know-how or technical information. 10.9.2 INTELLECTUAL PROPERTY RIGHTS. (i) True and complete copies of all licenses granted to or by the AMC in respect of any Intellectual Property (collectively, the "IP Licenses"), have been made available to the Purchaser. Except as provided in the IP Licenses, the AMC is not obligated to pay any royalties or other payments to any Person in respect of Intellectual Property used by the AMC. The AMC 52 is not in breach of any IP License or of any agreement under which any confidential business information was or is to be made available to it; (ii) Except as otherwise set out in the respective IP Licenses, (1) all rights in all Intellectual Property and confidential business information owned or otherwise required for the business of the AMC as currently conducted are vested in or validly granted to the AMC and, (2) except as disclosed in relation to paragraph (i) above, all renewal fees and steps required for their maintenance or protection have been paid and taken as on date; (iii) To the best of the Vendor knowledge, the processes and methods employed, the services provided, the businesses conducted and the products, used or dealt with by the AMC, do not, or at the time of being employed, provided, conducted used or dealt in did not, infringe the rights of any other Person in any Intellectual Property or business information; (iv) To the best of the Vendor knowledge, there is not, nor has there been at any time, any unauthorised use or infringement by the AMC of any of the Intellectual Property or confidential business information owned or otherwise required for the business of the AMC. 11. INSURANCE Assets of the AMC and the Fund as stated in Annexure 11 of the Disclosure Letter are at the date of this Agreement adequately insured according to prudent business practices thereof against fire and other risks normally insured against by companies carrying on the same classes of business or owing assets of a similar nature and all such insurances are in full force and effect and the premiums have been paid. 12. CONFIDENTIALITY So far as the Vendor are aware neither the AMC nor the Fund have disclosed or permitted to be disclosed or undertaken or arranged to disclose to any person any of its know-how, secrets or confidential information other than under an obligation of confidentiality. 13. GENERAL 13.1 NO MISREPRESENTATION: No representation, warranty or statement by the AMC, the Vendor in this Agreement, or in the Disclosure Letter, or Exhibit, Schedule of this Agreement, statement or certificate furnished to the Purchaser 53 pursuant to this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made herein, in light of the circumstances under which they were made, and are not misleading; 13.2 FULL DISCLOSURE: To the best of knowledge of the AMC and the Vendor, there are no fact or circumstance relating to the affairs of the AMC which has not been disclosed to the Purchaser and which if not disclosed might reasonably have been expected to influence the decision of the Purchaser to enter into this Agreement; and 13.3 ACCURACY AND ADEQUACY OF INFORMATION DISCLOSED TO THE PURCHASER: All information contained in this Agreement, Disclosure Letter and all other information which has been given in writing or made available by or on behalf of the Vendor to the Purchaser or its agents, employees or professional advisers in the course of the negotiations leading to this Agreement or in the course of any due diligence or other investigation carried out by or on behalf of the Purchaser prior to entering into this Agreement was when given and remains true, complete and accurate in all respects and to the best knowledge of the Vendor, the Vendor is not aware of any fact or matter or circumstances which have not disclosed in writing to the Purchaser or which renders any such information untrue, inaccurate or misleading or the disclosure of which might reasonably affect the willingness of the Purchaser to purchase the AMC Shares or the price at or terms upon which the Purchaser would be willing to purchase them. 54 Schedule 4 List of Senior Executives 1. Mr. Vivek Reddy 2. Mr. Ravi Mehrotra 3. Mr. R. Narayanan 4. Mr. Anoop Bhaskar 5. Mr. Anil Prabhudas 6. Mr. K N Sivasubramaniam 7. Mr. R Sukumar 8. Mrs. Lalitha Swamy 9. Mr. S Chellappa 55 IN WITNESS WHEREOF this Agreement has been executed on the day and year first above written. TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE LIMITED, By its duly authorised signatory Name: Mr Rajiv Vij /s/ Rajiv Vij PIONEER INVESTMENT MANAGEMENT, INC By its duly authorised signatory Name: Mr. Fabio Tombesi /s/ Fabio Tombesi 56 EXHIBIT 10.67 ------------- (continued) THIS AGREEMENT is made at Mumbai as of the 23rd day of July 2002 AMONG: TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE LIMITED, a company incorporated under the laws of India and having its registered office at 1st Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021, ("Purchaser" which expression shall unless repugnant to the context thereof include its successors and permitted assigns); and INVESTMENT TRUST OF INDIA LIMITED, a company incorporated under the provisions of the Indian Companies Act, 1913 and having its registered office at "Mashkur," 1, Krishnama Road, Nungambakkam Chennai - 600 034, India (hereinafter referred to as "Vendor" or "ITI" which expression shall unless repugnant to the context thereof include its successors) 1 WHEREAS: A. The Pioneer ITI AMC Limited a company incorporated under the Company Act 1956 having its registered office at Century Centre, 75 T.T.K. Road, Alwarpet, Chennai - 600018 India (the AMC), is the asset management company to the Pioneer ITI Mutual Fund, a mutual fund set up and registered with the Securities and Exchange Board of India ("SEBI") under the SEBI (Mutual Funds) Regulations, 1996. B. Pioneer Investment Management, Inc. a company incorporated under the laws of Delaware and having its principle office at 60, State Street, Boston, Massachusetts, U.S.A ("Pioneer") and ITI, collectively as on the date hereof hold 95.3 % of the shares of AMC and the Employee Shareholders hold 4.7 % of the shares of AMC. C. Pursuant to a Memorandum of Understanding dated 17th March 2002 entered into amongst the Purchaser, ITI and Pioneer (the "MOU"), ITI and Pioneer agreed to sell and the Purchaser agreed to purchase the AMC Shares held by ITI and Pioneer on certain terms and conditions and the manner set out herein. It was also agreed that the Trustee Shareholders would be procured to sell to the Purchaser, or its nominee, the Trustee Company Shares at the same time or immediately after the Completion. 2 D. Simultaneously the Purchaser had also entered into a memorandum of understanding dated 17th March 2002 with the Employee Shareholders (defined herein below) of the AMC (the "Employees MOU") for the purchase of their shares in the AMC. E. Subsequently the Purchaser also entered into an escrow agreement dated 20th March 2002 with ITI, Pioneer and the Escrow Agent (the "MOU Escrow Agreement") and pursuant thereto deposited the MOU Escrow Amount by way of earnest money with the Escrow Agent on the terms and conditions set out therein. F. The Purchaser has conducted a due diligence of the affairs of the AMC and the Trustee Company pursuant to and in accordance with the terms of the MOU and is desirous of acquiring the Vendor's AMC Shares held by the Vendor in the AMC on the terms and conditions set out herein. G. Simultaneously the Purchaser has also entered into separate Share Purchase Agreements each dated 23rd July 2002 with Pioneer and the Employee Shareholders for the purchase of their respective shares held by them in the AMC. 3 NOW IT IS HEREBY AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this Agreement, the following terms shall have the following meaning: "ACCOUNTS" means the unaudited balance sheet of the AMC and its Subsidiary, for the period ending the Accounts Date which shall be audited prior to Completion, and the audited statements of profit and loss and cash flows of the AMC and its Subsidiary, ended on such date and as disclosed; "ACCOUNTS DATE" means March 31, 2002; "AFFILIATE" of a Person (the "Subject Person") means (i) in the case of a Subject Person other than a natural Person, any other Person that, either directly or indirectly through one or more intermediate Persons, controls, is controlled by or is under common control with the Subject Person, and (ii) in the case of a Subject Person that is a natural Person, any other Person that, either directly or indirectly through one or more intermediate Persons, is controlled by the Subject Person. For purposes of this definition, "control" means the power to direct the management or policies of a Person, whether through the ownership of over 50% of the voting power of such Person, through the power to appoint over half of the members of the board of directors or similar governing body of such Person, through contractual arrangements or otherwise; "AMC Shares" means collectively the: (i) Vendor's AMC Shares; and (ii) Pioneer's AMC Shares; and (iii) Employee Shares; "AMC PURCHASE PRICE" means Rs.1,040,705,229.00 (Rupees One thousand forty million seven hundred and five thousand two hundred twenty nine only) payable to the Vendor; "ARBITRATION BOARD" shall have the meaning set forth in Clause 14.2; "ASSETS" means all assets, rights and privileges of any nature and all goodwill associated therewith of the AMC, all Intellectual Property, Equipment and Software, and rights in respect of the Immovable property; "BASIC DOCUMENTS" means, collectively, the Charter Documents, the Memorandum of Association and Articles of Association of the Trustee Company, the Investment Management Agreement dated 23rd July 1993 executed amongst the AMC and the Trustee Company, the Trust Deed dated 4 29th July 1993 amongst ITI and the Trustees including the variations thereto, and the Custodian Agreement dated 19th April 2001 amongst the AMC and the Trustee Company and Deutsche Bank AG; "BOARD" means the board of directors of the AMC; "CLAIMS" means the reimbursement and or payment of claims that have arisen or may arise to the AMC, and which have been agreed to be set off against the Retention Amount in accordance with the SPA Escrow Agreement; "CHARTER DOCUMENTS" means the Articles of Association and the Memorandum of Association of the AMC; "COMPLETION" means the completion of the sale and purchase of the Vendor's AMC Shares pursuant to Clause 4.1, which completion shall occur simultaneous with the completion of sale and purchase of the Pioneer's AMC Shares, the Employee Shares and the Trustee Company Shares; "COMPLETION DATE" shall have the same meaning as set out in Clause 4; "CONTRACTS" means all contracts, agreements, licenses, engagements, leases, financial instruments, purchase orders, commitments and other contractual arrangements entered into by the AMC; "DISCLOSURE LETTER" shall have the same meaning as ascribed to in Clause 6.3; "EMPLOYEE SHAREHOLDERS" means the other shareholders of the AMC who hold shares of the AMC and whose names have been listed in Schedule 1 hereto; "EMPLOYEE SHARES" means 3,69,600 fully paid equity shares of Rs 10/- each, representing 4.7% of the issued capital of the AMC, held by the Employee Shareholders; "ENCUMBRANCE" means (i) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, title retention, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including without limitation any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the granting of security under applicable law, (ii) any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, or refusal or transfer restriction in favour of any Person, and (iii) any adverse claim as to title, possession or use; "EQUIPMENT" means all the plant and machinery, tools and equipment, vehicles and office furniture, computer equipment (including without limitation servers, personal computers, mainframes, modems, screens, terminals, keyboards, disks, printers, cabling and associated and peripheral electronic equipment) and other tangible assets, but excluding Software; 5 "ESCROW AGENT" means Mr Anand Bhatt/ Hamid A Moochhala, Senior Partners, Wadia Ghandy & Co., having offices at 2nd floor, N.M. Wadia building, 123 M. G. Road, Mumbai 400 023 (which expression shall mean to include their respective successors); "FIPB" means the Foreign Investment Promotion Board of the Ministry of Industry of India; "FUND" means the Pioneer ITI Mutual Fund, a mutual fund set up and registered with the Securities and Exchange Board of India, and includes all the mutual fund schemes floated there under; "GOVERNMENTAL AUTHORITY" means any government or political subdivision thereof; any supranational or trade agency, department, agency or instrumentality of any government or political subdivision thereof; departments, bodies, regulatory authorities, government authorities, any court or arbitral tribunal; and the governing body of any -securities exchange or other securities self-regulatory body; "IMMOVABLE PROPERTY" means the immovable properties owned, leased, licensed and or occupied by the AMC; "INTELLECTUAL PROPERTY" means all letters patent, trademarks, service marks, registered designs, domain names and utility models, copyrights, inventions, confidential information, brand names, database rights, know-how and business names and any similar rights situated in any country and the benefit (subject to the burden) of any of the foregoing (in each case whether registered or unregistered and including applications for the grant of any of the foregoing and the right to apply for any of the foregoing in any part of the world) owned by the AMC, Trustee or the Fund; "IP LICENSES" shall have the meaning set forth in Clause 10.9 of Schedule 3; "VENDOR'S AMC SHARES" means, 37,65,762 fully paid equity shares of Rs 10/- each, representing 47.7 % of the issued capital of the AMC; "LIABILITIES" means all indebtedness and other liabilities of any nature whatsoever, actual or contingent, and whether or not of a nature required to be disclosed in the accounts of the AMC and its Subsidiary; "LITIGATION" shall have the meaning set forth in Clause 6.3 of Schedule 3; "MANAGEMENT ACCOUNTS" means the un-audited balance sheet of the AMC and its Subsidiary and the un-audited statements of income and cash flows for period ending June 30, 2002; "MATERIAL CONTRACTS" shall have the meaning set forth in Clause 7.2 of Schedule 3; 6 "MOU ESCROW AGREEMENT" means the escrow agreement dated 20 th March 2002 between the Vendor, ITI, the Purchaser and the Escrow Agent; "MOU ESCROW AMOUNT" means the rupee equivalent of Rs. 28,27,50,000/- (Rupees Twenty eight crores twenty seven lakhs and fifty thousand only) deposited with the Escrow Agent under the MOU Escrow Agreement; "OWNERSHIP" means, at any time ownership of the Shares on a fully diluted basis, assuming the exercise, conversion or exchange of all options, warrants and other securities exercisable for or convertible or exchangeable into Shares regardless of whether such options, warrants or other securities are currently exercisable, convertible or exchangeable at such time; "PARTIES" means the Vendor and the Purchaser and "PARTY" means any of them; "PERSON" means any individual, firm, company, Governmental Authority, joint venture, association, partnership or other entity (whether or not having separate legal personality); "PURCHASER'S WARRANTIES" means the representations, warranties and undertakings of the Purchaser set forth in Schedule 2; "REGULATIONS" means the SEBI (Mutual Fund) Regulations 1996 and as amended from time to time; "RELATED PARTY" means with respect to the AMC or a Subsidiary, as the case may be, (i) any shareholder of the AMC or such Subsidiary, (ii) any director of the AMC or such Subsidiary, (iii) any Senior Executive of the AMC or such Subsidiary, 1(iv) any Person in which any shareholder, director or Senior Executive of the AMC or such Subsidiary has any shareholding interest, other than a passive shareholding of less than 10% in a publicly listed company, and (vi) any other Affiliate of the AMC or such Subsidiary or of a shareholder or director of the AMC or such Subsidiary; "RETENTION AMOUNT" means an amount of Rs. 462,982,500.00 (Rupees Four sixty two million nine eighty two thousand five hundred only) to be used for setting off and or reimbursing the AMC against the Claims in accordance with the SPA Escrow Agreement; "RETENTION PERIOD" means the period commencing from the Completion and ending at the later of 30 days after (i) the completion and communication to the Purchaser of the findings of the SEBI appointed external audit for the period ending 31st March 2003 or (ii) the statutory annual financial audit for the financial period ending 31st March 2003, which shall be completed no later than September 30 2003; 7 "Rs." means Indian Rupees, the lawful currency of India; "SEBI" means Securities Exchange Board of India; "SENIOR EXECUTIVE" means the employees of the AMC whose names have been set out in Schedule 4; "SHAREHOLDERS' Agreement" means the shareholders' agreement, entered into by the AMC, Pioneering Management Corporation and ITI dated 8th October 1993; "SHARES" means the equity shares of the par value Rs. 10/- per share in the issued and paid up capital of the AMC; "SOFTWARE" means any set of instructions for execution by microprocessor, irrespective of application, language or medium; "SPA ESCROW AGENT" means Mr Anand Bhatt/ Hamid A Moochhala, Senior Partners, Wadia Ghandy & Co., having offices at 2nd floor, N.M. Wadia building, 123 M. G. Road, Mumbai 400 023 (which expression shall mean to include their respective successors); "SPA ESCROW ACCOUNT" means the fixed deposit account opened by the SPA Escrow Agent with the SPA Escrow Bank designated as "Anand S Bhatt a/c Templeton- Pioneer" in accordance with the terms of the SPA Escrow Agreement; "SPA ESCROW AMOUNT" means a sum of Rs. 220,862,634 (Rupees Two hundred twenty million eight hundred sixty two thousand six hundred thirty four only) deposited by the Purchaser with the SPA Escrow Agent that shall be an amount equal to 47.6% of the Retention Amount; "SPA ESCROW AGREEMENT" means the agreement in an agreed form to be entered into, on the Completion, by the Purchaser with Pioneer, the Vendor, Employee Shaeholders and the SPA Escrow Agent; "SPA ESCROW BANK" means Citibank NA, D.N. Road, Mumbai 400 001; "SUBSIDIARY" means any company, partnership or other legal entity in which the AMC owns, directly or indirectly, greater than 50% of the equity interest or voting power; "TAXATION" means all forms of taxation and statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions and levies of India whenever imposed and whether chargeable directly or primarily against or attributable directly or primarily to the AMC or its subsidiary and all penalties, charges, costs and interest relating thereto; 8 "TRANSACTION" means the acquisition of the AMC Shares by the Purchaser and the Trustee Company Shares by the nominee of the Purchaser; "TRUSTEE OR TRUSTEE COMPANY" means the Pioneer ITI Mutual Fund Private Limited a private company incorporated under the Companies Act 1956 and having its registered address at 117, Nungambakkam High Road, Chennai -600 034 and which is the trustee of the Mutual Fund; "TRUSTEE COMPANY SHARES" means the shares of the Trustee Company held by the Trustee Shareholders; "TRUSTEE SHAREHOLDERS" means the shareholders of the Trustee Company; "PIONEER'S AMC SHARES": means 37,58,603 fully paid equity shares of Rs 10/- each, representing 47.6% of the issued capital of the AMC held by Pioneer; "VENDOR'S WARRANTIES" means the representations, warranties and undertakings of the Vendor as set forth in Schedule 3; "WARRANTIES" means collectively the Vendor Warranties set out in the Schedule 3 and the Purchaser's Warranties set out in Schedule 2 and "Warranty" means any of them; "WARRANTY PERIOD" means a period of 2 years from the Completion Date. 1.2 INTERPRETATION In this Agreement (a) Any reference herein to any Clause, Schedule, Exhibit or Annex is to such Clause, Schedule, Exhibit or Annex to this Agreement unless the context otherwise requires. The Schedules, Exhibits and Annexes to this Agreement including this interpretation Clause shall be deemed to form part of this Agreement; (b) References to a Party shall, where the context permits, include such Party's respective successors, legal representatives and permitted assigns; (c) The headings are inserted for convenience only and shall not affect the construction of this Agreement; (d) Unless the context requires otherwise, words importing the singular include the plural and vice versa, and pronouns importing a gender include each of the masculine, feminine and neuter genders; (e) References to the knowledge, information, belief or awareness of any Person shall be deemed to include the knowledge, information, belief or 9 awareness such Person would have if such Person had made reasonable inquiries; (f) Any reference to a statutory provision shall include any subordinate legislation and such provision as from time to time modified or re-enacted or consolidated whether before or after the date of this Agreement so far as such modification, re-enactment or consolidation applies or is capable of applying to any transactions entered into under this Agreement prior to Completion and (as from time to time modified, re-enacted or consolidated) which such provision has directly or indirectly replaced; (g) Any reference to "accounts" shall include the directors' and auditors' reports, relevant balance sheets and profit and loss accounts and related notes together with all documents which are or would be required by law to be annexed to such accounts before such accounts are laid before the company in general meeting in respect of the accounting reference period in question; and (h) References to this Agreement shall include the Recitals and Schedules to it and references to Clauses and Schedules are to Clauses of and schedules to this Agreement. 2. SALE AND PURCHASE OF SHARES 2.1 Subject to the terms of this Agreement, the Vendor hereby agrees to sell and the Purchaser agrees to purchase on the Completion Date, the Vendor's AMC Shares, free from all Encumbrances and together with all rights and advantages now and hereafter attaching thereto and relying on Warranties contained in this Agreement. 2.2 Subject to the terms of this Agreement, in consideration for the sale of the Vendor's AMC Shares, the Purchaser will pay the AMC Purchase Price to the Vendor in the manner set out hereinafter. 2.3 The Claims shall be adjusted in accordance with the provisions of the SPA Escrow Agreement. The Parties hereby agree that if any part of the SPA Escrow Amount remains un-adjusted/un-utilised after the Retention Period not earmarked for a specific claim under the SPA Escrow Agreement, it shall paid to the Vendor as an additional purchase price at the end of the Retention Period together with interest accrued thereon. 2.4 The AMC purchase price may stand increased by the balance of SPA Escrow Amount, which shall not exceed an amount of Rs. 220,862,634 (Rupees Two hundred twenty million eight hundred sixty two thousand six hundred thirty four only) , depending upon the occurrence of the events laid down in the SPA Escrow Agreement, and shall to that extent be contingent. 10 2.5 Within seven (7) days of the satisfaction or waiver of the conditions set out in Clause 3, the Vendor will cause the meeting of the Board to be called and the Completion shall occur as indicated in Clause 4. 2.6 On the execution of this Agreement, the Vendor and the Purchaser shall instruct the Escrow Agent to return the MOU Escrow Amount to the Purchaser and retain the interest accrued thereon and pay the same to the Vendor in accordance with clause 4.2.1(v). 3. CONDITIONS PRECEDENT TO COMPLETION 3.1 The obligation of the Purchaser to purchase the Vendor's AMC Shares is subject to the fulfillment, by the Vendor prior to or simultaneously on the Completion Date (or at the time specified below), of the following conditions: (a) the Vendor's AMC Shares are converted into electronic form and dematerialized and sufficient evidence have been produced from the depository in that regards; (b) a letter from the Depository to the effect that the depository shall, upon receiving irrevocable instructions from the vendor, transfer the shares standing in the name of the Vendor to the name of the Purchaser; (c) Subject to the Disclosure Letter the Vendor's Warranties remaining true and correct in all material respects on the Completion; (d) confirmation from the Vendor that the Shareholders Agreement has been duly terminated and that there are no surviving obligations or rights there under; (e) there having been, since the date of this Agreement: (i) no material adverse change in the operations, financial position of the AMC and its Subsidiary or the Fund whether arising out of additional disclosure notified to the Purchaser or not; or (ii) no receipt of any notice of any action or investigation by any Governmental Authority or any Person which would restrain, prohibit or otherwise challenge the Transaction; (f) there being no order of any Governmental Authority, or Court since the date of this Agreement that has, as against the AMC or the Trustee Company as the case may be, been instituted or any action or investigation to restrain, prohibit or otherwise challenge the Transaction been taken; g) the Vendor shall have caused the employees of the AMC who have availed housing loans to execute housing loan agreements in the form agreed; 11 (h) the Vendor shall have caused identification of the Assets in relation to the Fixed Asset Register; (i) all consents and approvals required for the purpose of execution, delivery or performance and the consummation in each case by the Vendor, of the Transactions contemplated in this Agreement shall have been duly obtained; (k) the Vendor shall have ensured that the Trustee Company has written to SEBI seeking its confirmation of the Transaction. The Parties hereby acknowledge that the SEBI "no objection letter" has been procured by the Purchaser vide letter dated May 7, 2002; (l) the Vendor shall have caused the AMC to deliver to the Purchaser a certificate duly certified by its company secretary, dated the Completion Date, certifying that the conditions set forth in paragraph(e) and (f) of this Clause 3 have been satisfied; (m) the Vendor has delivered to the Purchaser a certificate dated the Completion Date, certifying that the conditions set forth in paragraphs (a) to (d), and (g) to (k) of this Clause 3.1 have been satisfied; (n) the Purchaser having been given a reasonable opportunity to conduct a limited high level review, the agreed scope of which is set out in Schedule 4 relating to the AMC prior to Completion, provided such review shall have been completed at least 2 days prior to the Completion Date; and (o) the Vendors shall have caused the AMC to adopt the Accounts. 3.2 The Completion is subject to the fulfillment by the Purchaser, prior to or on the Completion Date (or at the time specified below), of the following conditions: (a) all consents and approvals of, notices to and filings or registrations with any Governmental Authority or any other Person required pursuant to any applicable law or regulation of any Governmental Authority, in connection with the Transaction; (b) all corporate and other proceedings by the Purchaser in connection with the Transaction contemplated at or prior to the Completion Date pursuant to this Agreement shall have been procured, and the Vendors having received all such counterpart originals and certified or other copies of such documents as they may reasonably request, including without limitation a copy of the resolutions of the board of directors of the Purchaser, and evidencing the approval of the Transaction; (c) the Purchaser's Warranties as stated in Schedule 2 remaining true and correct in all material respects on the Completion; and 12 (d) the Purchaser has delivered to the Vendor a certificate dated the Completion Date certifying that the conditions set forth in paragraphs (a), to (c) of this Clause 3.2 have been satisfied. 3.3 The Vendor hereby undertakes to use its best endeavors to ensure the satisfaction of each of the conditions set out in Clause 3.1. Without prejudice to the foregoing, it is agreed that all requests and enquiries from any government, governmental, supranational or trade agency, court or regulatory body shall be dealt with the Vendor in consultation with the Purchaser and each of them shall promptly co-operate with and provide all necessary information and assistance reasonably required by such government, agency, court or body upon being requested to do so by the other. 3.4 The Purchaser hereby undertakes to use its best endeavors to ensure the satisfaction of each of the conditions set out in Clause 3.2. Without prejudice to the foregoing, it is agreed that all requests and enquiries from any government, governmental, supranational or trade agency, court or regulatory body shall be dealt with the Purchaser in consultation with the Vendor and each of them shall promptly co-operate with and provide all necessary information and assistance reasonably required by such government, agency, court or body upon being requested to do so by the other. 3.5 The Party responsible for the satisfaction of each condition as specified in Clauses 3.1 and 3.2 shall promptly give notice to the other Parties of the satisfaction of the relevant conditions within (2) two Business Days of becoming aware of the same. If the conditions of the Vendor in Clause 3.1 or those of the Purchaser in Clause 3.2 are not satisfied in full by them are waived by the Purchaser (incase of Clause 3.1) or the Vendor (in case of Clause 3.2), by 31st July 2002 or such other extended date as may be mutually agreed, the Purchaser or the Vendor (as the case may be) may, in its sole discretion, terminate this Agreement at any time thereafter in accordance with Clause 10. 3.6 The Purchaser or the Vendor (as the case may be) shall have the sole right to waive in whole or in part, conditionally or unconditionally, any of the conditions in Clause 3.1 or Clause 3.2 by notice in writing to the Vendor or the Purchaser (as the case may be), which shall be deemed notification to the other parties hereto. 4. COMPLETION AND POST-COMPLETION ACTIONS 4.1 Subject to Clause 3, the Completion shall take place simultaneously with the Completion of the SPA with Pioneer and the SPA with the Employee Shareholders at the registered office of the AMC at Chennai or at Mumbai, within seven (7) days after the conditions set out in Clause 3.1 and Clause 3.2 are satisfied or waived (the "Completion Date") or on such other date and place as the Parties may agree. 13 4.2 OBLIGATIONS OF THE PARTIES Simultaneously on, or before Completion all and not some only of the following events shall take place: 4.2.1 the Vendor shall: (i) procure that the written resignations of each of the directors of the AMC nominated by the Vendor take effect on the Completion Date, with acknowledgments signed by each of them in a form satisfactory to the Purchaser to the effect that he has no claim against the AMC for compensation, for the loss of office (whether contractual, statutory or otherwise), redundancy or otherwise except only for any accrued remuneration and reimbursable business expenses incurred down to the Completion Date; (ii) procure that the appointment of the new directors of the AMC nominated by the Purchaser occurs with effect from the Completion Date; (iii) procure that a list of statutory registers maintained by the AMC, indicating therein the location where they have been kept, is handed over; (iv) execute the SPA Escrow Agreement and such other agreement as may be mutually agreed to give effect to the Transaction; (v) issue the instruction to the Escrow Agent to release to the Vendor its proportionate share of interest accrued on the MOU Escrow Amount till the date of payment; (vi) deliver signed irrevocable instructions directing the depository to transfer the Vendor's AMC Shares in to the depository account of the Purchaser; and (vii) procure the delivery by the Trustee Shareholder to the nominee of the Purchaser, the Trustee Company Shares together with the share transfer forms executed by the Trustee Shareholders in favor of the Purchaser. (viii) execute the Deed of Variation effective as of the Completion Date and such other documents as may be necessary to transfer the sponsorship and the trusteeship functions related to the Fund in favor of the appropriate Purchaser entities and take such actions as may be required for completing all formalities including providing an exit option to the existing unit holders of the Fund; 14 4.2.2 the Vendor shall cause the Trustee Shareholders to procure that as of the Completion: (i) a meeting of the board of the Trustee Company be held transferring the Trustee Company Shares in favor of the nominees of the Purchaser; (ii) the written resignations of each of the directors of the Trustee Company take effect on the Completion Date with acknowledgments signed by each of them to the effect that either of them has no claim against the Trustee Company for compensation for the loss of office (whether contractual, statutory or otherwise), redundancy or otherwise except only for any accrued remuneration and reimbursable business expenses incurred down to the Completion Date; (iii)appointment of the new directors of the Trustee Company nominated by the Purchaser take effect from the Completion Date; and (iv) a list of statutory registers maintained by the AMC, indicating therein the location where they have been kept, is handed over. 4.2.3 Simultaneously with the compliance to the satisfaction of the Purchaser of the provisions in Clause 3.1, 4.2.1 and 4.2.2 on Completion: (i) the Purchaser will execute the SPA Escrow Agreement and deposit the SPA Escrow Amount in the SPA Escrow Account; (ii) the Purchaser will on the Completion Date pay to the Vendor the AMC Purchase Price in the manner indicated by the Vendor; and (iii) the Purchaser shall offer/have taken irrevocable steps jointly with the AMC or to offer an exit option to the existing unit holders of the Fund to redeem their units without imposition of any exit load in compliance with the Regulations. 4.3 The Warranties and, subject to the Disclosure Letter, in case of Vendor's Warranties, all other provisions of this Agreement insofar as the same shall not have been performed at Completion shall not be extinguished or affected by Completion, or by any other event or matter whatsoever (including, without limitation, any satisfaction and/or waiver of any condition contained in Clause 3.1 or Clause 3.2), except by a specific and duly authorised written waiver or release by the Purchaser or the Vendor as the case may be. 15 5. OBLIGATIONS OF THE VENDOR BETWEEN EXECUTION AND COMPLETION 5.1 From the date hereof through to the Completion Date, the Vendor shall cause the AMC to conduct its business in the ordinary course, in a manner, and use all reasonable efforts to shall otherwise use all reasonable efforts, so as to ensure that the Vendor's Warranties shall continue to be true and correct on and as of the Completion Date, as if made on such date. The Vendor shall give the Purchaser prompt notice of any event, condition or circumstance occurring from the date hereof until the Completion Date that would constitute a violation or breach of any Vendor's Warranty if such Vendor's Warranty were made as of any date from the date hereof until the Completion Date, or that would constitute a violation or breach of any terms and conditions contained in this Agreement. 5.2 The Vendor shall use its reasonable efforts to cause the AMC to preserve the relationship and goodwill with their clients. 5.3 The Vendor shall cause the AMC to comply in all material respect with all applicable laws, regulations, decrees of any court or regulatory body. 5.4 PROTECTIVE COVENANTS 5.4.1 The Vendor shall cause in relation to the AMC, the Fund and the Trustee Company, and covenants with the Purchaser that, without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld from the date hereof until the Completion: (i) the AMC shall not incur any capital expenditure without the prior approval from the Purchaser; (ii) the AMC and Fund shall conduct business in the ordinary course and shall not incur any revenue expenses other than in the ordinary course of business; (iii) the AMC shall not incur any expense or compensation, other than in the ordinary course of business; (iv) the AMC shall not release any new product launch or corporate campaign; (v) no dividends shall be declared by the AMC or the Trustee Company; (vi) no new employee shall be hired and no new position shall be created in the AMC; (vii) there shall be no creation of any charge or encumbrance on the Assets of the AMC or the Fund; 16 (viii) there shall be no change in the composition of the Board or Senior Executive of the AMC and the Fund, except arising out of retirement or demise (as the case may be) of such persons; (ix) there shall be no borrowing or lending of any sum of money by the AMC or the Fund; (xi) the AMC or Trustee Company shall not induce or attempt to induce the Senior Executives of the AMC to leave the employment of the AMC (it being understood however that any director, Senior Executive or personnel may resign of his or her own volition) or appoint any additional directors, Senior Executive or otherwise change the roles of the Senior Executives; or (xii) the AMC or Trustee Company shall not sell or otherwise dispose of any material part of its Assets (or any interest therein) or contract to do so; (xiii) except for the sale and transfer of shares pursuant to this Transaction, the AMC or Trustee Company shall not issue, sell, repurchase, redeem or permit the transfer of or mortgage, pledge or subject to any lien any shares, partnership interests or equity interests in the AMC or otherwise permit any change in its equity structure; (xiv) the AMC or Trustee Company shall not amend the Basic Documents or change its financial year; (xv) the AMC or Trustee Company shall not acquire Assets or any shares, partnership interests or other equity interests (or any interest therein) or contract to do so, otherwise than in the ordinary course of its business; (xvi) the AMC or Trustee Company shall not enter, terminate, extend or renew any arrangement, contract or agreement with any Related Party except as expressly permitted under this Agreement; (xvii) the AMC or Trustee Company shall not give any guarantee or indemnity in favour of any party or give any financial assistance in any way to any Related Party; (xviii) the AMC or Trustee Company shall not increase salary or compensation of any of the employee of the AMC or create, modify any benefits to the employees of the AMC; 17 (xix) the AMC or the Trustee Company shall not re-appoint their respective present auditors at their respective annual meetings for the financial year ending 31st March 2002. All requests for approvals pursuant to this Clause shall be made to the CEO of the Purchaser by the AMC, the Trustee Company or the Fund, as the case may be, and such approval shall be given within a period of two (2) working days from the date of such request. 5.5 The Vendor acknowledges that the above provisions of this Clause are no more extensive than is reasonable to protect the Purchaser of the Vendor's AMC Shares and the Trustee Company Shares. 5.6 Each of the restrictions in this Clause 5.4 shall be enforceable by the Purchaser independently of each of the others and its validity shall not be affected if any of the others is invalid, if any of those restrictions is void but would be valid if some part of the restrictions were deleted the restriction in question shall apply with such modification as may be necessary to make it valid. 5.7 The Purchaser shall be entitled from the date hereof through to the Completion Date to depute one or more of its officers to over see and monitor the operations of the AMC and the Fund. 6. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 6.1 The Vendor hereby represents, warrants and undertakes to the Purchaser for the period prior to this Agreement and until the expiry of the Warranty Period, in relation to itself, the AMC, it's the Subsidiary and the Fund in the terms set forth in Schedule 3, and acknowledges that the Purchaser in entering into this Agreement relies on such Vendor's Warranties. 6.2 The Purchaser hereby represents, warrants and undertakes to the Vendor in the terms set forth in Schedule 2 and acknowledges that the Vendor is entering into this Agreement relying on such Purchaser's Warranties. 6.3 The Vendor's Warranties are subject to the matters disclosed in writing to the Purchaser under letter-dated July 23, 2002 addressed by Vendor, Pioneer and the Employee Shareholders, and accepted and confirmed by the Purchaser. The said letter alongwith its annexures is referred to as the "Disclosure Letter". The matters disclosed in the Disclosure Letter shall be acceptable to the Purchaser and shall be exceptions to the relevant Vendor's Warranty and wherever the term `except as disclosed' is used in Schedule 3 it shall mean as disclosed in the Disclosure Letter. The Purchaser shall not make any Claims under the Vendor Warranties in relation to the items specified in the SPA Escrow Agreement. 6.4. The Vendor shall be entitled to make further additions to the Disclosure Letter for events arising after the date hereof, at any time upto the Completion Date. Provided that any additions to the Disclosure Letter as contemplated in this 18 Clause 6.4 shall not be effective until after the Vendor has notified such addition in writing to the Purchaser. 6.5 For the avoidance of doubt, each Vendor's Warranty is qualified by the expression "to the best of the Vendor's knowledge after the Vendor having exercised due care and made reasonable enquiry" and does not relate to any forecasts, budgets and estimates with respect to matters on which the Vendor's Warranties are given. 6.6 The rights and remedies of the Purchaser in respect of any breach of the warranties shall not be affected because of an investigation (which shall include the preparation of legal, financial and technical due diligence as commissioned by the Purchaser) made prior to the execution of this agreement or at any time until Completion Date in to the affairs of the AMC, the Subsidiary or the Fund. 6.7 The Purchaser's Warranties and the Vendor's Warranties set forth in each of Schedule 2 and Schedule 3, respectively, shall be separate and independent. 6.8 The Vendor further warrants to the Purchaser and its successors in title that: 6.8.1 subject to Clause 6.8.2, the Vendor's Warranties shall be deemed to have been repeated as at the Completion and all references therein to the date of this Agreement were references to such dates at the Completion; and 6.8.2 if after the signing of this Agreement and before Completion any event shall occur or any matter arise which results or may result in any of the Vendor's Warranties being unfulfilled to the satisfaction of the Purchaser or being untrue, misleading or incorrect in any respect at Completion, then the Vendor (at their own cost) shall make any investigation and take such steps concerning the event or matter which the Purchaser may reasonably require. 7. RESTRICTION ON ANNOUNCEMENTS; CONFIDENTIALITY 7.1 Each Party undertakes that, prior to the Completion and thereafter, it will not make any announcement in connection with this Agreement unless all of the other Parties shall have given their written consent to such announcement, including both as to timing and substance, except for announcements required by applicable law or regulations, in which case any information provided by the disclosing Party about the other Parties shall require the prior written approval of such other Parties. 7.2 No Party shall, without the consent of the other Parties, during the continuance of this Agreement or after its termination, disclose to any Person (save to the extent to which it is obliged to make disclosure as a result of applicable law or regulations or for the purposes of procuring any approvals) this Agreement or any of the arrangements contemplated by this Agreement or any information 19 relating to the AMC, the Trustee Company, the Subsidiary, the Fund, the Purchaser and/or the Vendor obtained in the course of preparing the Agreement or otherwise pursuant to this Agreement or the performance of the transactions contemplated by this Agreement, or use such information otherwise than as strictly required for the purpose of performing this Agreement or in the best interests of the AMC, the Trustee Company, the Subsidiary, the Fund, the Purchaser or the Vendor, as the case may be; provided that the foregoing shall not prohibit disclosure by any Party to its employees and Affiliates or to its professional advisers to the extent necessary for the purpose of this Agreement and subject to such employees, or Affiliates or professional advisers being subject to confidentiality obligations no less onerous than those imposed by this Clause. The obligations set forth under this Clause 7.2 shall survive the consummation and termination of this Agreement. 7.3 At the Completion parties, shall be entitled to make their own press releases provided the contents of the same have been mutual agreed prior to such release. 8. ACCESS AND FURTHER ASSURANCEs 8.1 As from the date of this Agreement, the Vendor shall cause to give to the Purchaser and its accountants, counsel and agents reasonable access, upon reasonable prior notice and during normal business hours, to the premises and all the books and records of the AMC and shall instruct the officers and employees of the AMC to give promptly all information and explanations to the Purchaser or any such persons as the Purchaser may reasonably request, it being recognized that such access should not unduly hinder the AMC's normal operations. 8.2 The Vendor agrees to, at any time and from time to time, upon the written request of the Purchaser: (a) promptly and duly execute and deliver all such further instruments and documents, and do or procure to be done all such acts or things, as such the Purchaser may reasonably deem necessary or desirable in obtaining the full benefits of this Agreement and of the rights and ownership herein granted; and (b) do or procure to be done each and every act or thing which the Purchaser may from time to time reasonably require to be done for the purpose of enforcing the Purchaser's rights under this Agreement. 9. COSTS AND EXPENSES 9.1 Except as otherwise provided in Clause 9.2, each Party shall pay its own costs and expenses (including the fees and costs of any financial or technical advisors, lawyers or accountants engaged by it) in relation to the negotiations leading up to the Transaction contemplated hereunder and to the preparation, 20 execution and carrying into effect all documents referred to and or relate to the Transaction here under including this Agreement. 9.2 Any stamp duty, fees or expenses payable in connection with the Transaction including for the execution of this Agreement shall be borne by the Purchaser. 10. TERMINATION 10.1 This Agreement may be terminated prior to the Completion: (a) at the election of the Purchaser, (i) under Clause 3.5; (ii) for non fulfillment of the conditions in Clauses 4.2.1 and 4.2.2 due to the fault of the Vendor. (b) at the election of the Vendor, (i) under Clause 3.5; (ii) for non fulfillment of the conditions in Clause 4.2.3 due to the fault of the Purchaser. (c) at any time on or prior to the Completion, by mutual written consent of the Purchaser and the Vendors. 10.2 This Agreement shall stand fulfilled and terminated upon expiry of the Warranty Period or payment of the Retention Amount under the SPA Escrow Agreement to the Vendor or the Purchaser, as the case may be, in accordance with the SPA Escrow Agreement which ever is later. 10.3 If this Agreement is terminated pursuant to Clause 10.1 then, except for the provisions of Clauses 7, 11, and 14 (which shall survive the termination), this Agreement shall have no further force and effect and Parties shall have no further liability or claim against each other except for those which have already been incurred prior to the termination or except for those which relate to the provisions which survive the termination. 10.4 In the event of the Completion of this Agreement or the ITI SPA or the Employee SPA does not occur or this Agreement or the Pioneer SPA or the Employee SPA is terminated before Completion, neither the Purchaser nor the Vendor shall have any claim against each other and the interest on the MOU Escrow Amount shall be paid by the Escrow Agent to the Purchaser by issuing an instruction to the Escrow Agent under the prescribed form set out in the Escrow Agreement. 21 11. NOTICES 11.1 Each notice, demand or other communication given or made under this Agreement shall be in writing and may be given by facsimile, by personal delivery or by sending the same by prepaid registered mail (or prepaid registered airmail or a recognized international courier service where the address of the Party to receive the notice is not in the same country as that of the Party giving the notice) addressed to the Party concerned at the address or fax number below (or such other address or fax number as the addressee has by five (5) days' prior written notice specified to the other Parties): TO THE PURCHASER: Address: Templeton Asset Management (India) Private Limited, 1st Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021, Attention: Mr. Rajiv Vij Phone: + 91 22 288 6129 Fax: + 91 22 288 6707 Email: rvij@templeton.com IF TO ITI: The Investment Trust of India Limited Address: 16, Neetaji Subhas Road, 4th Floor, Calcutta - 700 001 Attention: Mr. Sanjay Maloo Phone: +91 33 220 7016 Fax: +91 33 248 7702 Email: smaloo1@hotmail.com Any notice, demand or other communication so addressed to the relevant Party shall be deemed to have been delivered (a) if given or made by personal delivery, when actually delivered to the relevant address; and (b) if given or made by prepaid registered post to an address within the same country or by a recognized international courier service to an overseas address, seven (7) days after the dispatch of the same; (c) if given or made by prepaid registered airmail to an overseas address, ten (10) days after the dispatch of the same; (d) if given or made by fax, upon dispatch and the receipt of a transmission report confirming dispatch. 12. POST COMPLETION OBLIGATIONS 12.1 The post Completion obligations of the Vendor: The Vendor covenants and agrees that, it by itself and or through its Affiliate shall not without the consent of the Purchaser, from the Completion until two (2) years after the Completion Date: (a) in relation any mutual fund or AMC in India, undertake or act as sponsor a trustee or asset management business, or carry on any 22 activity either as a shareholder (investor), advisor, manager, consultant, technical know-how provider, under the mutual fund industry in India; (b) hire any the employees of the AMC and or induce them to leave the employment of the AMC and join another asset management company under different management or an organization carrying on activities of, connected to or associated to a mutual fund. 12.2 The post Completion obligations of the Purchaser: (a) obtain all the necessary approvals from SEBI and the Registrar of Companies and such other authorities for change of name of the AMC and the Trustee Company; (b) shall take all steps as may be necessary for the purposes of changing the corporate name (including obtaining approval from the Registrar of Companies for the change of name and appropriate Board and shareholder consents of the AMC, the Trustee Company) of the AMC, the Fund and the Trustee Company by deleting the words "Pioneer" or "ITI" such that the new name of the AMC, Fund or the Trustee Company will not contain the words " Pioneer or ITI" or any other derivation thereof or any name, brand or mark reasonably similar to any of them or reasonably capable of confusion with any of them, and at the request of the Vendor furnishing documentary evidence satisfactory in relation to the same. The Purchaser will within one hundred and eighty (180) days of the Completion, stop using the name "Pioneer" or ITI in relation to the AMC, in its communication with third parties. Provided however that no liability shall accrue to the Vendor on account of such usage. It is clarified that the Purchaser shall have no right title or interest into or over the name "Pioneer" or "ITI" at any time including during the one hundred and eighty (180) days referred to above; (c) shall not for a period of two (2) years from the Completion Date, hire any the employees of the Vendor and or induce them to leave the employment of the Vendor and join the Purchaser or its Affiliate in India; (d) provide an exit option to the unit holders as per the Regulations; 13. MISCELLANEOUS 13.1 This Agreement may not be amended, modified or supplemented except by a written instrument executed by each of the Parties. 13.2 No waiver of any provision of this Agreement shall be effective unless set forth in a written instrument signed by the Party waiving such provision. No failure or delay by a Party in exercising any right, power or remedy under this 23 Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. Without limiting the foregoing, no waiver by a Party of any breach by another Party of any provision hereof shall be deemed to be a waiver of any subsequent breach of that or any other provision hereof. 13.3 This Agreement shall inure to the benefit of the Parties and is binding upon the Parties hereto and their respective successors, legal representatives and permitted assigns. This Agreement shall not be assignable by any Party, except with the written consent of the other Parties. 13.4 This Agreement constitutes the whole agreement between the Parties relating to the subject matter hereof and supersedes any prior (not simultaneous) agreements or understandings with effect from the execution hereof as regards the Transaction and with effect from the Completion as regards the MOU Escrow Agreement. 13.5 Any liability of the Vendor to the Purchaser under this Agreement may in whole or in part be released, compounded or compromised or time or indulgence given by the Purchaser in its absolute discretion as regards any such liability without in any way prejudicing or affecting the Purchaser's rights against any other or others or the Vendor under the same or a like liability. 13.6 Each and every obligation under this Agreement shall be treated as a separate obligation and shall be severally enforceable as such and in the event of any obligation or obligations being or becoming unenforceable in whole or in part. To the extent that any provision or provisions of this Agreement are unenforceable they shall be deemed to be deleted from this Agreement, and any such deletion shall not affect the enforceability of this Agreement as remain not so deleted. 13.7 This Agreement may be executed in one or more counterparts which, each of which when so signed and taken together, shall be deemed an original but all the counterparts shall together constitute one and the same instrument. 13.8 Subject to contract to the contrary the parties may pursue remedies available under this Agreement. The Parties shall ensure that no such remedy results in more than one claim against the Party concerned for the same cause of action. It is agreed that no Party would be penalised twice for the same claim or cause of action under this Agreement. 13.9 Nothing in this Agreement shall be deemed to constitute a partnership between the Parties hereto or constitute any party the agent of another party for any purpose. 13.10 The illegality, invalidity or unenforceability of any provision of this Agreement, whether in whole or in part, under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other 24 jurisdiction nor the legality, validity or enforceability of any other provision or part 14. GOVERNING LAW AND JURISDICTION 14.1 This Agreement shall be governed by and construed in accordance with the laws of India. 14.2 Any dispute or claim arising out of or in connection with or relating to this Agreement, or the breach, termination or invalidity hereof (the "Dispute"), shall be referred to the CEO of the Vendor and the CEO of the Purchaser for resolution. If the Dispute is not resolved within a period of 30 days from such referral then the Dispute shall be finally settled by an arbitration which shall be governed by the Arbitration and Conciliation Act 1996 (the "Act ") as are in force at the time. For the purpose of such arbitration, there shall subject to clause 14.3, be three arbitrators appointed (each of them must be lawyers having significant expertise in the commercial field), one nominated by Pioneer on hand and one nominated by the Purchaser on the other hand and the third arbitrator appointed by such appointed arbitrators (such board of arbitrators is referred to below as the "Arbitration Board"). The place of arbitration shall be in Mumbai. All arbitration proceedings shall be conducted in the English language. The arbitrators shall decide any such dispute or claim strictly in accordance with the governing law specified in Clause 14.1 of this Agreement. Judgment upon any arbitral award rendered hereunder may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be if required. 14.3 Notwithstanding Clause 14.1, in the event the Vendor raises any dispute in relation to issues which are also raised by Pioneer under the its share purchase agreement then the Vendor agrees that it shall together with Pioneer jointly appoint only one arbitrator and the Purchaser shall appoint one arbitrator. 14.4 Each Party shall co-operate in good faith to expedite (to the maximum extent practicable) the conduct of any arbitral proceedings commenced under this Agreement. 14.5 The costs and expenses of the arbitration, including, without limitation, the fees of the arbitration and the Arbitration Board, shall be borne equally by each Party to the dispute or claim, and each Party shall pay its own fees, disbursements and other charges of its counsel. 14.6 Any award made by the Arbitration Board shall be final and binding on each of the Parties as if it were parties to the dispute. 25
Schedule 1 LIST OF EMPLOYEE SHAREHOLDERS LIST OF SHAREHOLDERS NO OF AMT PER NAME OF THE SHARE HOLDER FATHER'S NAME TYPE OF SHARES SHARES SHARE ADDRESS 1. Vivek Reddy D G K Reddy Equity 216600 10 12, Subba Rao Avenue 3 rd Street Madras Tamilnadu 2. Ravi Mehrotra Umesh Mehrotra Equity 100000 10 23 Cenotaph Road Rahul Apts Ground Floor Flat B Teynampet Madras 3. R.Narayanan N Ramachandran Equity 5000 10 55 C MIG FLAT A L MUDALIAR ROAD Madras Tamil Nadu 4. Anoop Bhasker Amrit Rai Bhasker Equity 4000 10 44/5 3 rd street East Abhirampuram Madras 26 Tamilnadu 5. Anil Prabhudas JeevanPrabhudas Equity 4000 10 B 34 PA Towers 869PHRoad Kilpauk Madras Tamilnadu 6. K N Sivasubramaniam Narayanan Equity 4000 10 No 2 22nd cross Street Indira Nagar Madras Tamilnadu 7. R Sukumar A M Rajah Equity 4000 10 8, Sadulla Street Madras Tamilnadu 8. V Rajagopal Veeraraghavachari N K Equity 3000 10 No43 Kalaignar Street Anna Nagar Pammal Madras Tamilnadu 9. Lalitha Swamy K Ramaswamy Equity 2000 10 E 2 Sriji Apts 25 Rajasekharan Road Mylapore Madras Tamilnadu 10. Prem Khatri J P Khatri Equity 2000 10 6 D Cambrae East 27 Victoria Cresent Road Egmore Madras Tamilnadu 11. Tamil Selvi M Balasubramanian Equity 2000 10 61, Vasudevan Nagar Jafferkhanpet Ashok Nagar Madras Tamilnadu 12. P L Ambal Saravanan Equity 1500 10 C/O Kumarappa Chethyar 162A Kamar Salai Ramakrishna Nagar Aiwarthirunagar Madras Tamilnadu 5 A Muthu Lakshmi 13. D Vijayraghavan K V Desikachari Equity 1500 10 Street Muthu Lakshmi Nagar Extn Chitlapakkam Madras Tamilnadu 14. S Chellappa N Sivaguru Equity 1500 10 C 2, Paras Apts Jeevarathnam Nagar Adyar 28 Madras Tamilnadu 15. S R Ramesh S K Ramamurthi Equity 1400 10 Vigneswar house (upstairs) No 1 New Thillai Nagar Plot 25, Part 6 P N Pudur Coimbatore Tamilnadu 16. Indira Menon P R Menon Equity 1200 10 No 9, M Block Anna Nagar East Madras Tamil Nadu 17. Rajendra Mukadam Upendra Dhondo Mukadam Equity 1200 10 23/C Zaoba Wadi Thakurdwar, JSS Road Bombay Maharashtra 18. Aseem Malhotra R I Malhotra Equity 1200 10 B 302 Rosewood Apts Mayur Vi bar Phase I (Extn) New Delhi 19. Samvita Reddy A Koti Reddy Equity 1000 10 73, E V K Sampath Road Vepery Madras Tamilnadu 29 20. Sanjeev Patnaik K C Patnaik Equity 1000 10 No 67 kamaraja nagar Ernavur Ennore Madras Tamilnadu 21. G Srinivas G V Sastry Equity 1000 10 3, Ill Main Road Kasturiba Nagar Adyar Madras Tamilnadu 22. K Thirugnanam C Karuppiah Equity 1000 10 13, Park Street 108, Pandian Nagar Thiru Nagar Madurai Tamilnadu 23. V N Srikanth V N Subba Rao Equity 1000 10 22 Umayal Road Kilpauk Madras Tamilnadu 24. P K Saravanan P Kannabiran Equity 600 10 No 5,Ratnam Nagar Thruvanmiyur 30 Madras Tamilnadu 25. S Balasubramaniam TV Sivararnakrishnan Equity 600 10 No 4 Arul Jyothi Rossary Church Road Lane Santhome Madras Tamilnadu 26. Senthi Kumar M A Mariappan Equity 600 10 No 3, V Cross Ammayappa Nagar Trichy Tamilnadu 27. R Anantharaman A Ramaswamy Equity 600 10 No 26, Nore Veeraswamy Street Nungambakkam Madras Tamil Nadu 28. K Bharati Raj M S Krishnamurthy Equity 500 10 No 102, Bazaar Road Mylapore Madras Tamilnadu 29. R Sekhar S Ramamoorthy Equity 500 10 5 Raman Street Madras Tamilnadu 31 30. P S Balasubramaniam P Sitaraman Equity 500 10 A1 Damayanthi Apts South Mada Street Nungambakkam Madras Tamilnadu 31. J VS Ravi Kumar J Kameswara Sastry Equity 400 10 60-3-19, Ashok Nagar SBI Colony Road Near ITI Vijaywada Andhra Pradesh 32. A V Ravi Kumar A V N Murthy Equity 400 10 Lakshmi Sudha Nivas 54-1-30, Plot No 26 L.I.C Colony Vijaywada Andhra Pradesh 33. Vinay Kumar B Devadattam Equity 400 10 2/3 R T Prakasam Nagar Begumpet Hyderabad Andhra Pradesh 34. S Vidyasagar R S Mani Equity 400 10 K -7 Turn Bulls Road Nandanam Madras Tamilnadu 32 35. B Parthiban N Balasubramaniam Equity 400 10 No 11 Jacob Street Madipakkam Madras Tamilnadu 36. R Ramesh S Raju Equity 400 10 3/0, Supdt Qtrs The Sea Farer's Club Rajaji Salai Opp- Reserve Bank Of India Madras Tamilnadu 37. Simon Solomon MT Solomon Raj Equity 400 10 1219, 17th Street Anna Nagar West Extn Madras Tamilnadu 38. R S Gopalan S Rajan Equity 400 10 86,A V Krishnaswamy Street Janaki Nagar Valsarvakkam Madras Tamilnadu 39. K Balaji E Krishnan Equity 300 10 No 28-C Third Agraharam Salem Tamilnadu 40. P Jayaraman K Pitchai Raman Equity 300 10 No 3, 3 rd Cross Ammoiyappa Nagar 35 Puthur Trichy Tamilnadu 41. T Srikumar M P Thiruvengadam Equity 200 10 No 28, III Street Jayalakshmi Puram N ungambakkam Madras Tamilnadu 42. B Srinivas Rao B Seetharamaraju Equity 200 10 No 20 Ambika Nagar Main Road Madhavaram Milk Colony Madras Tamilnadu 43. MKannan Muruganandan Equity 200 10 270 G, GST Road Thirunagar Madurai Tamilnadu 44. D Venkatesh B Deivasigamani Equity 200 10 10 Kandappa Gramani Street Pu rasawalkam Madras Tamilnadu 369600
34 SCHEDULE 2 PURCHASERS WARRNTIES 1 ORGANISATION, GOOD STANDING AND QUALIFICATION: The Purchaser has been duly incorporated and organised, and is validly existing in good standing, under the laws of India. The Purchaser has the corporate power and authority to carry on its business as currently conducted and proposed to be conducted. 2 the Purchaser has the legal right and full power and authority to enter into, deliver and perform this Agreement and any other documents to be executed by the Purchaser pursuant to or in connection with the Transaction which when executed will constitute valid and binding obligation of the Purchaser, and enforceable against them in accordance with their terms. 3 The execution, delivery and the performance by the Purchaser of this Agreement and the respective obligations in relation to the Transaction contemplated herein, do not and will not: (i) breach or constitute a default under the Charter Document of the Purchaser; (ii) result in a violation or breach of or default under any applicable law or regulation or of any order, judgment or decree of any Court, Governmental Authority, regulatory body to which each of the Purchaser is a party or by which the Purchaser or any of its assets are bound. (iii) Result in a breach of, or constitute a default under any contract to which the Purchaser is a party 4 Except for the approvals of the FIPB, Reserve Bank of India and the corporate approvals, no consent, approval, order or authorisation of, or registration, qualification, designation, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance by the Purchaser, of this Agreement and or the Transaction and 5 All corporate action on the part of the Board, the board of directors of the Purchaser, necessary for the authorisation, execution, delivery of and the performance of all obligations of the Purchaser under this Agreement have been taken as of the date of this Agreement; 35 SCHEDULE 3 VENDOR WARRANTIES INTERPRETATION In this Schedule, unless the context clearly indicates a contrary intention, - (a) The provisions of the agreement ("Agreement") to which these warranties relate to its interpretation shall apply, mutatis mutandis, and the words and expressions defined in the Agreement shall bear the same meanings in this Schedule; (b) The warranties, representations and undertakings herein shall apply in respect of each of the AMC and its Subsidiary (together "the AMC" for the purpose of this Schedule), and references in these warranties to AMC shall also be deemed where the context so admits, unless specified otherwise, to apply to the Trustee Company; (c) Where ever the warranty refers to accounts of the AMC it shall relate to a period on or after April 1, 2001 unless specified otherwise. 1. AUTHORITY AND CAPACITY OF THE VENDOR 1.1 The Vendor is a company duly incorporated and validly existing under the law of its incorporation. 1.2.1 The Vendor has the legal right and full power and authority to enter into, deliver and perform this Agreement and any other documents to be executed by the Vendor pursuant to or in connection with the Transaction which when executed will constitute valid and binding obligation of the Vendor, and enforceable against them in accordance with their terms. 1.2.2 Subject to applicable laws, regulations and rules, the execution, delivery and performance by the Vendor and the AMC, of this Agreement and the respective obligations in relation to the Transaction contemplated herein, do not and will not: (i) breach or constitute a default under the respective Charter Document of Vendor and AMC; (ii) result in a breach of, or constitute a default under, any Contract to which the AMC, or the Vendor is a party or by which they are bound or give any third party a right to terminate or modify, or result in the creation of any Encumbrance under any agreement, licence or other instrument; or (iii) result in a violation or breach of or default under any applicable law or regulation or of any order, judgement or decree of any Court, 36 Governmental Authority, regulatory body to which each of the Vendor or the AMC is a party or by which each of the Vendor or the AMC or any of their respective assets are bound. 1.2.3 Except for the approvals of the SEBI, FIPB, Reserve Bank of India, the Trustees, the unit holders and the corporate approvals, no consent, approval, order or authorisation of, or registration, qualification, designation, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance by the Vendor or the AMC, of this Agreement and or the Transaction and 1.3 VENDOR'S AMC SHARES: (i) the Vendor's AMC Shares were validly issued and are fully paid-up; (ii) the Vendor is the sole beneficial owner of the its shares and is registered as the sole owner of such shares; (iii) the Vendor has clear and marketable title to its shares and that the shares are free from any Encumbrance or claim, demand or doubts, and the Vendor is not aware of any claims against their shares or any circumstances which might reasonably believed to lead to a claim or demand against the Vendor's AMC Shares; (iv) the Vendor has good right, full power and absolute authority to sell and transfer the Vendor's AMC Shares free from any third party claim or demand of any nature and that they have not nor anyone on their behalf have done, committed or omitted any act, deed, matter or thing whereby the Vendor's AMC Shares is or can be forfeited extinguished or rendered void or voidable; and (v) that the Vendor has not entered into or arrived at any agreement and/or arrangement, written or oral, with any person or party in respect of the Vendor's AMC Shares, or their membership of the AMC which, will render the sale of the sale and transfer of AMC Shares violative of such agreements. 2. CORPORATE MATTERS 2.1 CHARTER DOCUMENT: The copies of the Charter Documents of the AMC (having attached thereto all amendments made to date) delivered to the Purchaser and filed with the Registrar of Companies are true and complete copies, and the AMC has complied with all the provisions of its Charter Documents and, in particular, has not entered into any ultra vires transaction. All legal and procedural requirements and other formalities concerning such Charter Documents have been duly and properly complied with in all material respects. 37 2.2 ORGANISATION, GOOD STANDING AND QUALIFICATION: The AMC has been duly incorporated and organised, and is validly existing in good standing, under the laws of India. The AMC has the corporate power and authority to own and operate its Assets and properties and to carry on its business as currently conducted and proposed to be conducted. 2.3 CAPITALISATION AND OTHER PARTICULARS OF THE AMC: The particulars of the AMC as disclosed in the Accounts are true, complete and correct as of the date. 2.4 ISSUED SHARES: The 7,893,965 million shares now outstanding comprise the entire issued share capital of the AMC. No modification or variation of the terms of issue or the rights attaching to such Shares has been made since the dates of issue. 2.5 PAID UP: All the issued shares of the AMC are fully paid up and the AMC has not exercised nor purported to exercise or claimed any lien over any of them. 2.6 CONDUCT IN RELATION TO CAPITAL: The AMC has not at any time repaid or redeemed or agreed to repay or redeem any of its share capital or otherwise reduced or agreed to reduce its issued share capital or purchased any of its own shares or carried out any transaction having the effect of a reduction of capital. 2.7 CONVERSION RIGHTS: No person has the right to call for the issue of any share or loan capital of the AMC by reason of any conversion rights or under any option or other agreement and there are no claims, charges, liens, equities or encumbrances on the Vendor's AMC Shares. 2.8 OPTIONS, WARRANTS AND RESERVED SHARES: Except as disclosed in Clause 12.2(e) of the SPA, there are no outstanding options, warrants, rights (including conversion or pre-emption rights) or agreements for the subscription or purchase from the AMC of any shares in the capital stock of the AMC or any securities convertible into or ultimately exchangeable or exercisable for any shares of the AMC, and no shares of the AMC when issued, are subject to any pre-emptive rights, rights of first refusal or other rights pursuant to any agreement or commitment of the AMC as the case may be. 2.9 OTHER RIGHTS WITH RESPECT TO SHARES: Except as contemplated in this Agreement, no voting or similar agreements exist relating to the AMC Shares or any other securities issued by the AMC or the shares of the Subsidiary which are presently outstanding or that may hereafter be issued. 2.10 EXISTENCE OF SUBSIDIARIES: The AMC has a subsidiary called ITI Capital Markets Limited , a company incorporated under the Companies Act 1956 and having its registered office at No.39, TTK Road, Alwarpet, Chennai 600 018 . The particulars of the subsidiary as the its capital and other statutory details such as capital, director are disclosed in the Disclosure Letter. Except for the Subsidiary the AMC does not own any direct or indirect equity or voting interest in any other AMC, partnership or any other legal entity. 38 2.11 CORPORATE RECORDS: Except as disclosed the statutory books, minute books and register of members of the AMC have been properly and accurately maintained and written up to date in all material respects and contain full and accurate records of all resolutions passed by the directors and the shareholders of the AMC and all issuances and transfers of shares or other securities of the AMC. All such documents are in its possession or under the control of the AMC. 2.12 REGISTER OF MEMBERS: Except as disclosed the register of members of the AMC contains a complete and accurate record of the members of the AMC and the AMC has not received any notice of any application for rectification and so far as the Vendor is aware such members are the beneficial owners of the shares listed against their names. 2.13 DIVIDENDS: Except as disclosed and except for the dividends declared under an investment scheme operated by the AMC, the AMC has not declared any dividend or made any distribution to its shareholders since their incorporation. 2.14 POWERS OF ATTORNEY: Except for the powers of attorney disclosed in the Disclosure Letter there are no outstanding powers of attorney given by the AMC or the Fund. 2.15 WINDING-UP ORDERS: No order has been made, no resolution has been passed, no petition has been presented by the AMC and no petition has been presented by any other person for the Winding-up of the AMC; no receiver or manager has been appointed by any person of the business or assets of the AMC or any part thereof and there is no unfulfilled or unsatisfied judgement or decree or court order outstanding against the AMC. 2.16 The Vendor does not hold any equity or voting interest in any entity that carries on any business that competes with the business of the AMC or Fund in India. 3. ACCOUNTS AND RECORDS 3.1 Except as disclosed therein and except as disclosed, the Accounts and the accounts for the period ending March 31, 2001 ("2001 Accounts") of the AMC have been prepared in accordance with applicable law and in accordance with accounting principles, standards and practices generally accepted at the date of this Agreement in India and give a true and fair view of the assets, liabilities and state of affairs of the AMC at the Account Date. 3.2 MANAGEMENT ACCOUNTS: Except as disclosed, the Management Accounts have been prepared in accordance with applicable law and in accordance with accounting principles, standards and practices generally accepted at the date of this Agreement in India and, subject thereto, on a basis consistent with that adopted in preparing the audited accounts for the previous two financial periods so as to give a true and fair view of the assets, liabilities and state of affairs of the AMC at the Management Account Date and of the profits or losses for the period concerned and as at that date make: 39 3.2.1 full provision for all actual liabilities, 3.2.2 proper provision for all contingent liabilities, and 3.2.3 provision reasonably regarded as adequate for all bad and doubtful debts. 3.3 ACCOUNTING AND OTHER RECORDS: Except as disclosed, the AMC's books and records are in its possession or under its control and have been properly maintained in accordance with all applicable laws. As at the Completion Date, the AMC's books and records will accurately record all transactions of the AMC up to and including [the Management Accounts Date] and will be capable of being written up within a reasonable time so as to record all subsequent transactions of the AMC. 3.4 CHANGES SINCE APRIL 1ST 2001 AS REGARDS THE AMC AND THE FUND: Except as disclosed: 3.4.1 there has been no material adverse change in its financial position or turnover and no event, fact or matter has occurred that will give rise to any such change; 3.4.2 its business has been carried on in the ordinary course, without any interruption or alteration in its nature, scope or manner, and so as to maintain the same as a going concern; 3.4.3 it has not entered into any transaction or assumed or incurred any liabilities (including contingent liabilities) or made any payment not provided for in the Accounts or the Management Accounts otherwise than in the ordinary course of carrying on its business; 3.4.4 its profits have not been affected by changes or inconsistencies in account treatment, by any non-recurring items of income or expenditure, by transactions of an abnormal or unusual nature or entered into otherwise that on normal commercial terms or by any other factors rendering such profits exceptionally high or low; 3.4.5 no dividend or other distribution has been declared, made or paid to its shareholders; 3.4.6 no share or loan capital or any other security giving rise to a right over the capital has been allotted or issued or agreed to be allotted or issued; 3.4.7 it has not redeemed or purchased or agreed to redeem or purchase any of its share capital; and 40 3.4.8 except in the ordinary course of business, no debt or liability has been incurred, assumed or guaranteed by the AMC except, advance share application monies of Rs 450 lakhs, which will be returned to Pioneer. 3.5 ABSENCE OF UNDISCLOSED LIABILITIES: Except as disclosed, there are no liabilities of the AMC other than (I) liabilities disclosed or provided for in the Accounts and the Management Accounts; (ii) liabilities incurred in the ordinary course of business since the Management Accounts Date, none of which results in a material adverse change in the financial position or turnover of the AMC; or (iii) liabilities disclosed elsewhere in this Agreement. 4. FINANCE 4.1 Except for the funds of the investors in the Blue Chip Fund, open end Scheme aggregating to Rs 1.5 crores, which are lying with the Fund for want of instruction from the investors, and except as disclosed, neither the AMC nor the Fund has outstanding any obligation for the payment or repayment of money, whether present or future, actual or contingent. 4.2 The AMC and the Fund have no encumbrance, mortgage, charge, pledge, lien (save by operation of law in the ordinary course of business) or other security interest or any other agreement or arrangement having a similar effect subsisting over the whole or any part of its present or future revenues. 4.3 Except for the payments under the Blue Chip Scheme and except as disclosed, no borrowing of the Fund or AMC has become or is now due and payable or capable of being declared due and payable, before its normal or originally stated maturity and no demand or other notice requiring the payment or repayment of money before its normal or originally stated maturity has been received by the AMC. 4.4 No event or circumstance has occurred of which the Vendor is aware which is or, with the giving of notice or lapse of time or both, shall be such as to terminate, cancel or render incapable of exercise any entitlement to draw money or otherwise exercise the rights of the AMC or Fund under an agreement relating to borrowing. 5. TAXATION MATTERS 5.1 RETURNS, INFORMATION AND CLEARANCES, EXCEPT AS DISCLOSED AND TO THE BEST OF THE VENDOR'S KNOWLEDGE AND UNDERSTANDINGS: i) All returns, computations, notices and information which are or have been required to be made or given by the AMC for a Taxation purpose (i) have been made on a proper basis and are correct and (ii) none of them is subject of any dispute with the Indian Taxation authorities. 41 ii) The AMC is in possession of sufficient information or has reasonable access to such information to enable it to compute its liability to Taxation. 5.2 TAXATION CLAIMS, LIABILITIES AND RELIEFS: Except as disclosed, there is no liability of Taxation in respect of which a claim has been made to the knowledge of the Vendor. 5.3 AMC RESIDENCE: The AMC has been resident for tax purposes in India 5.4 DEDUCTION OF TAX AT SOURCE: Except as disclosed, the liability on account of late filing/remittance of returns for tax to be deducted at source does not exceed an amount of Rs 25,000/- on account of interest and such returns are true and correct in all material respects. To the best of our knowledge and understanding the deductions have been made in accordance with law. 6. LEGAL MATTERS 6.1 Except as disclosed, the Vendor hereby represents and warrants in respect of the AMC Trustee and the Fund that: (i) NO VIOLATION OF LAW: There has not been any investigation or enquiry by nor any notice or communication, or order, decree, decision or judgment of, any court, tribunal, arbitrator, governmental agency or regulatory body received by and against the AMC, with respect to any material violation and/or there has been no subsisting violation to comply with any such applicable law, regulation, byelaw or Charter Documents, which has resulted in any liability or criminal or administrative sanction; (ii) PERMITS: Consistent with industry practice, the AMC has all permits, approvals, authorisations, licenses, registrations, and consents (including, without limitation, the registrations of the AMC with SEBI), necessary for the conduct of its business as currently conducted have been obtained and are in full force and effect. The AMC is not in material breach of or in material default under any such permit, approval, authorisation, franchise or license and the Vendor are not aware of any event or circumstance under which any of those licences, registrations, permissions or consents is likely to be revoked terminated and/or cancelled, except for those which are consequential arising out of this Agreement or the Transaction; (iii) ETHICAL CODE OF CONDUCT: The AMC has not and has not authorised or permitted any of its employees, agents or representatives to make or promise any payment of anything of value to any Governmental Authority or any employee, agent or representative of any 42 Governmental Authority for the purpose of obtaining or retaining business; and (iv) UNLAWFUL ACTS: The AMC has not, so far as the Vendor is aware, nor have any of its Senior Executives in the course of theiremployment by any act or default committed: a. any criminal or unlawful act involving dishonesty; b. any breach of trust; or c. any breach of contract or statutory duty or any tortuous act which could entitle any third party to terminate any contract to which the AMC is a party; which could have a material adverse effect on the AMC. 6.2 COMPLIANCE WITH AGREEMENTS: Except as disclosed, all the contracts and all leases, tenancies, licences and agreements of whatsoever nature to which the AMC is a party are, except as disclosed, valid, binding enforceable obligations of the parties thereto and the terms thereof have been complied with by the AMC and there have occurred no grounds for rescission, avoidance or repudiation of any of the contracts or such leases, tenancies, licences or agreements and no notice of termination or of intention to terminate has been received in respect of any thereof. 6.3 LITIGATION: 6.3.1 Except as disclosed, and except as in the ordinary course of business, since the Account Date no claim for damages or otherwise has been made against the AMC. 6.3.2 The AMC, except as disclosed, is not involved whether as plaintiff or defendant or other party in any claim, legal action, proceeding, suit, litigation, prosecution, investigation, enquiry or arbitration and no such claim, legal action, proceeding, suit, litigation, prosecution, investigation, enquiry or arbitration is pending against the AMC. 6.4 INSOLVENCY: 6.4.1 No order has been made, petition, presented, resolution passed or meeting convened for the winding up (or other process whereby the business is terminated and the assets of the AMC concerned are distributed amongst the creditors and/or shareholders or other contributories) of the AMC and there are no cases or proceedings under any applicable insolvency, reorganisation, or similar laws in any jurisdiction concerning the AMC and no events have occurred which, under applicable laws, would justify any such cases or proceedings. 6.4.2 No petition has been presented or other proceedings have been commenced for an administration order to be made (or any other order 43 to be made by which during the period it is in force, the affairs, business and assets of the AMC concerned are managed by a person appointed for the purpose by a Court, governmental agency or similar body) in relation to the AMC, nor has any such order been made. 6.4.3 No receiver (including an administrative receiver), liquidator, trustee, administrator, custodian or similar official has been appointed in any jurisdiction in respect of the whole or any part of the business or assets of the AMC and no step has been taken for or with a view to the appointment of such a person. 6.4.4 The AMC is not insolvent as on date. 7. TRADING AND CONTRACTUAL ARRANGEMENTS 7.1 CAPITAL COMMITMENTS: Since March 17, 2002 (the "MOU Date"), except under various investment schemes operated by the AMC for its clients, the AMC: 7.1.1 has not entered into any capital commitments; 7.1.2 is not, nor has been, party to any unusual, long-term or onerous commitments, contracts or arrangements otherwise at an arm's length basis in the ordinary course of business; 7.1.3 except as disclosed, is not party to any agency, distributorship, marketing, purchasing, agreement or arrangement that restricts its freedom to carry on its business in such manner as it thinks fit; and 7.1.4 is not, nor has agreed to become, a member of any joint venture, consortium, partnership or other unincorporated association (other than a recognised trade association). 7.2 CONTRACTS: The AMC is not a party to or bound, except as disclosed, by any Contract (collectively, "Material Contracts") that: 7.2.1 grants management, operational or voting rights in the AMC to any Person; 7.2.2 is a consulting Contract that involves payments of an amount equal to or in excess of Rs. 1 million for any 12-month period; 7.2.3 is a non-competition Contract restricting in any way the business activities of the AMC; 7.2.4 was entered into outside of the ordinary course of business of the AMC; 7.2.5 is a Contract with any Person relating to the use of the Assets of the AMC, including without limitation use of the Assets for Internet services, telephone services or the provision of data or other value-added services, excluding Contracts with its customers or clients; 44 7.2.6 is a Contract involving subscriber management or systems, call centres or other customer service systems; 7.2.7 The AMC is not in default in the performance, observance or fulfilment of any of the material obligations, covenants or conditions contained in any Contract to which it is a party. Each Material Contract has been duly authorised, executed and delivered by the AMC, and constitutes a valid and binding obligation of each party thereto, enforceable against each party thereto in accordance with its terms. To the best of the Vendor knowledge, no party (other than the AMC) is in material breach of any Material Contract or has indicated any intention to terminate any such Contract prior to the expiration of its term. 7.3 ARRANGEMENTS WITH ASSOCIATES ETC: Except as disclosed: 7.3.1 There is no indebtedness (actual or contingent) nor any indemnity, guarantee or security arrangement, except as disclosed, between the AMC and any current or former employee, current or former director or any current or former consultant of the AMC. 7.3.2 The AMC is not a party to any contract, arrangement or understanding, except as disclosed, with any current or former employee, current or former director of the AMC other than the employment contracts. 7.3.3 Other than employment contracts with the Employee Shareholders, there are no existing contracts or arrangements, except as disclosed, between or involving the AMC and any of the Vendor and/or any of the directors. 7.4 TRANSACTIONS WITH DIRECTORS: There is no outstanding: 7.4.1 loan, except as disclosed, made by the AMC to, or to the AMC, by the Vendor, or any director or officer of the AMC; 7.4.2 agreement or arrangement, except as disclosed, to which the AMC is a party and in which the Vendor or any director of the AMC; 7.4.3 Related Party Transaction: Except as disclosed, there are no Contracts, understandings, transactions or proposed transactions between the AMC and any Related Party on the other hand. Except for loans/advances aggregating to not more than Rs. 65 lacs made to any single employee, pursuant to staff Housing/Vehicle Assistance Scheme existing as of the date of this Agreement, no Related Party or employee of the AMC is indebted to the AMC, nor is the AMC indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Vendors' knowledge, no such Person is, directly or 45 indirectly, interested in any Contract with the AMC, excluding employment contracts. 7.5 Investment Management Agreement: The Investment Management Agreement executed between the Trustee Company and the AMC is the only investment management agreement for the family of funds operated and managed by the AMC on behalf of the Trustee Company. 7.6 Guarantee: Except as disclosed in the Accounts, there is not outstanding guarantee, indemnity, surety or comfort (whether or not legally binding) given by or for the benefit of the AMC. 8. EMPLOYEES 8.1 DISCLOSURE OF MATERIAL FACTS: 8.1.1 Except as disclosed, all material facts and matters relating to the employment of all employees of the AMC have been disclosed to the Purchaser. 8.1.2 The AMC has no collective agreements, arrangements and other understandings with any recognised trade union, staff association or other body representing the employees of the AMC and, to the best of the Vendor's knowledge, no labour union has requested, sought or attempted to represent any employees, representatives or agents of the AMC. There is no strike or other labour dispute involving the AMC. 8.1.3 STATUS OF EMPLOYEES: Except as disclosed to the best of the Vendor's knowledge, no Senior Executive has terminated their employment with the AMC since the MOU Date. 8.1.4 EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS: Except as disclosed, other than standard employment contracts of the AMC in the form as disclosed, and the employment contract of the current CEO of the AMC as disclosed, the AMC is not a party to nor bound by any currently effective employment contract (other than contracts that can be terminated on an at-will basis), deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement. To the best of the Vendor knowledge, none of these employees or the CEO is in breach of their respective employment contracts or any terms by which any such person may have been seconded to the AMC. 8.2 COMPLIANCE WITH REQUIREMENTS: Except as disclosed, the AMC has in relation to each of its employees and (so far as relevant) to each of its former employees: 46 8.2.1 complied in all material respects with its obligations (as appropriate) under relevant laws and all other statutes and regulations relevant to its relations with each employee or the conditions of service of the employee and has maintained adequate and suitable records regarding the service of the employee; 8.2.2 discharged or adequately provided for in all material respects its obligations to pay all salaries, wages, commissions, bonuses, overtime pay, holiday pay, sick pay and other benefits of or connected with employment upto the date of this Agreement; and 8.2.3 complied in all material respects with all its obligations under the master mediclaim policy. 8.3 AGREEMENTS: Except as disclosed, the AMC has not since the MOU Date entered into: 8.3.1 any agreement or arrangement to make any payments (other than emoluments) to or on behalf of any of its directors or employees; 8.3.2 any contract of service with any employee, which is not terminable by the AMC by three months' notice or less without payment of compensation (except as provided by statute); 8.3.3 any agreement imposing a legal obligation on the AMC to increase the rates of remuneration of, or to make any bonus or incentive payments or any benefits in kind or any payments under a profit-sharing scheme to or on behalf of, any of its employees at any future date which would result in an increase in the AMC's employment costs; 8.3.4 any negotiation for a change in the emoluments or other terms of engagement of any grade of the AMC's employees resulting in an increase in the AMC's employment costs; 8.3.5 any agreement or arrangement for the provision of compensation on the termination of employment of any employee of the AMC, beyond the minimum required by law and by the employment contracts. 8.4 DISPUTES: 8.4.1 Except as disclosed, no subsisting material dispute has arisen since incorporation between the AMC and any member or category of its employees or former employees. 8.4.2 Except as disclosed, there are no significant complaints pending against the AMC of whatsoever nature in relation to any of its employees or former employees and there is no industrial action or dispute or of such nature existing in respect of or concerning any employees or former employees of the AMC. 47 8.4.3 Except as disclosed, no employee has given notice of termination of his contract of employment or is under notice of dismissal. 8.4.4 Except as disclosed, the AMC has not offered any contract of employment to any person for a salary of more than [Rs.1 million] per annum, which offer remains outstanding. 8.5 PENSIONS: Except as disclosed, the AMC does not make, and is not party to any arrangement under which it could be liable to make payments (except for statutory payment) for providing retirement, death, disability, life assurance or medical benefits to any person. 9. OPERATIONS AND COMPLIANCE OF THE FUND AND ITS SCHEMES: 9.1 ACCOUNTS: Except as disclosed, the 2001 Accounts and the Accounts of the Fund and its Schemes have been prepared in accordance with the Regulations and the Schedule Nine of the Regulations; 9.2 LIABILITIES AND NPAS: Except as disclosed and except as disclosed in the portfolio statement the Fund and the Schemes do not have any non-performing other than those reflected in the 2001 Accounts, the Accounts and Management Accounts incurred in the ordinary course of business. 9.3 ACTIVITIES SINCE ACCOUNTS DATE: Except as disclosed and otherwise than in the ordinary course of business, since the Accounts Date, there has not been: 9.3.1 any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the Assets used by the AMC or the Fund or the operating results or the business of the Fund as currently conducted; 9.3.2 any waiver by the AMC or the Fund of a valuable right or of a debt owed to the Fund or any of its Schemes with a value of over Rs. 500,000 owed to it; 9.3.3 any material change or amendment to a contract by which the Fund is bound, except for changes or amendments which are expressly provided for or disclosed in this Agreement; 9.3.4 any declaration or payment of any dividend or other distribution by any Scheme of the Fund otherwise than in ordinary course of business; 9.3.5 any debt or liability incurred, assumed or guaranteed by the Fund or any of its Schemes otherwise than in ordinary course of business. 48 9.4 CURRENT OPERATIONS: Except as disclosed, to the best knowledge of the Vendor, there is no existing fact or circumstance as on date that has a material adverse effect on the ability of the Fund or Schemes to conduct its business as currently conducted. 9.5 TAXES: The liability/ penalties on account of late filing/remittance of returns for tax to be deducted at source does not exceed an amount of Rs.2,35,000/- on account of interest and such returns are true and correct in all material respects. To the best of our knowledge and understanding the deductions have been made in accordance with law. COMPLIANCE 9.5 A list of the all the Schemes operated by the Vendor is attached in Annexure 4.3 of the Disclosure Letter. There has been no material adverse change that is inconsistent with normal industry conditions in any of the information contained in the offer documents of the Schemes since the [MOU] Date; 9.6 AUM: (i) The Vendor represents that the Mutual Fund, as on February 20 2002 had assets under management of Rs. 3833.79 crores in the equity schemes and Rs. 1476.68 crores and under fixed-income schemes aggregating to assets under management at Rs.2357.10 crores as certified by the auditors. (ii) the Vendor represents that the Mutual Fund, as on July 19, 2002 had assets under management of Rs.1405.80 crores in the equity schemes and Rs. 2688.85 crores and under fixed-income schemes aggregating to assets under management at Rs. 4094.64 crores as certified by the auditors. 9.7 COMPLIANCE WITH REGULATIONS: Except as disclosed, the Vendor represents and warrants that: 9.7.1 The affairs of the Fund have been conducted materially in accordance with the Regulations and the related circulars of the Regulations. 9.7.2 The accounting operations of the Fund and the Schemes have materially been carried out in accordance with Schedule Nine of the Regulations and with the guidance note of Institute of Chartered Accountants of India. 9.8 The Code of Ethics relating to conduct of the directors of the Trustee and the employees of the AMC and Code for Personal Trading and Insider Trading guidelines have been complied with and the AMC is not aware of any violations thereof; 9.9 The business of the Schemes has been conducted generally in a bonafide manner with the interests of the unit holders paramount; 49 9.10 The AMC fees and the other expenses charged to the Fund and the Schemes are within the limits provided in the Regulations and the offer documents of the respective schemes; 9.11 That the entry and exit loads collected from the investors has been utilised in accordance with the Regulations; 9.12 The investor services have been rendered fully in accordance with the Regulations; 9.13 The offer documents (including abridged offer documents)/sales literature/annual reports /all sales material have been fully prepared and updated in accordance with the Regulations; 10. ASSETS 10.1 THE PROPERTIES: Except as disclosed, the Properties shown in Schedule_ comprise all of the premises and land owned, leased, occupied or licensed used in connection with the businesses of the AMC and the Fund. The AMC has provided to the Purchaser, except as disclosed, true and complete copies of documents for all immoveable property owned, leased and or occupied by the AMC. The AMC is in compliance in all material respects with all such leases. 10.2 TITLE: Except as disclosed, the AMC has full and clear title to the immoveable properties owned by the AMC which free and clear of all Encumbrances and there is no dispute pending or of which the Vendor is reasonably aware with regard to the title or rights to any such owned property. 10.3 STATUTORY OBLIGATIONS, NOTICES AND ORDERS: Except as disclosed, in relation to each of the owned properties, no notices, orders, proposals, applications, requests or schedule of dilapidation, demands for duty or taxes affecting or relating to any of such Properties have been served or made by any authority on the AMC or the Fund. 10.4 NOTICES OF BREACH: Except as disclosed, in relation to the leased or licensed immovable property occupied by the AMC or the Fund neither the AMC nor the Fund has not received any notice or complaint from the landlord of any breach of the terms of the leases or tenancy agreements which would entitle the landlord to terminate the leases or agreements or claim damages for breach of terms or covenant; under which such properties are held. 10.5 DISPOSAL OF ASSETS: Except for the sale of securities owned by the AMC and except as disclosed, no Assets of the AMC above the value of Rs. 25,000/-have been disposed of since July 1, 2001 to June 30, 2002 except as disclosed and in the ordinary course of business. 50 10.6 STAMP DUTY: All documents, except as disclosed, to which the AMC or Fund is a party, or which form part of the title to any asset owned or possessed by the AMC, or which the AMC or the Vendor may need to enforce or produce in evidence in any court of law have been duly stamped and registered. 10.7 TRANSACTIONS NOT AT ARM'S LENGTH: 10.7.1 Since the MOU Date, the AMC does not own, nor has agreed to acquire, any asset, nor, has received or agreed to receive any services or facilities (including, without limitation, the benefit of any licensee or agreements), the consideration for the acquisition or provision of which was otherwise than on an arm's length basis. 10.7.2 Except as disclosed, since the MOU Date, the AMC has not disposed, nor has agreed to dispose, of any asset, nor has provided or agreed to provide any services or facilities (including, without limitation, the benefit of any licences or agreements), the consideration for the disposal or provision of which was or will be less than its market value, or otherwise than on an arm's length basis. 10.8 CONTROL OF RECORDS AND INFORMATION: Except as stated in Annexure 3.3 of the Disclosure Letter and subject to the Custodian Agreement, all records and information belonging to the AMC or the Fund or relating to their affairs (whether or not held in written form) are in the exclusive possession and under the direct control of the AMC and or the Fund and subject to unrestricted access by them. 10.9 INTELLECTUAL PROPERTY 10.9.1 The AMC has such interest in any intellectual property rights and has, as disclosed, entered into any agreement for: (i) the licensing or use of intellectual property rights; or (ii) the provision or acquisition of know-how or technical information or assistance; or (iii) the prohibition or restriction of the disclosure of any know-how or technical information. 10.9.2 INTELLECTUAL PROPERTY RIGHTS. (i) True and complete copies of all licenses granted to or by the AMC in respect of any Intellectual Property (collectively, the "IP Licenses"), have been made available to the Purchaser. Except as provided in the IP Licenses, the AMC is not obligated to pay any royalties or other payments to any Person in respect of Intellectual Property used by the AMC. The AMC 51 is not in breach of any IP License or of any agreement under which any confidential business information was or is to be made available to it; (ii) Except as otherwise set out in the respective IP Licenses, (1) all rights in all Intellectual Property and confidential business information owned or otherwise required for the business of the AMC as currently conducted are vested in or validly granted to the AMC and, (2) except as disclosed in relation to paragraph (i) above, all renewal fees and steps required for their maintenance or protection have been paid and taken as on date; (iii) To the best of the Vendor knowledge, the processes and methods employed, the services provided, the businesses conducted and the products, used or dealt with by the AMC, do not, or at the time of being employed, provided, conducted used or dealt in did not, infringe the rights of any other Person in any Intellectual Property or business information; (iv) To the best of the Vendor knowledge, there is not, nor has there been at any time, any unauthorised use or infringement by the AMC of any of the Intellectual Property or confidential business information owned or otherwise required for the business of the AMC. 11. INSURANCE Assets of the AMC and the Fund as stated in Annexure 11 of the Disclosure Letter are at the date of this Agreement adequately insured according to prudent business practices thereof against fire and other risks normally insured against by companies carrying on the same classes of business or owing assets of a similar nature and all such insurances are in full force and effect and the premiums have been paid. 12. CONFIDENTIALITY So far as the Vendor are aware neither the AMC nor the Fund have disclosed or permitted to be disclosed or undertaken or arranged to disclose to any person any of its know-how, secrets or confidential information other than under an obligation of confidentiality. 13. GENERAL 13.1 NO MISREPRESENTATION: No representation, warranty or statement by the AMC, the Vendor in this Agreement, or in the Disclosure Letter, or Exhibit, Schedule of this Agreement, statement or certificate furnished to the Purchaser 52 pursuant to this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made herein, in light of the circumstances under which they were made, and are not misleading; 13.2 FULL DISCLOSURE: To the best of knowledge of the AMC and the Vendor, there are no fact or circumstance relating to the affairs of the AMC which has not been disclosed to the Purchaser and which if not disclosed might reasonably have been expected to influence the decision of the Purchaser to enter into this Agreement; and 13.3 ACCURACY AND ADEQUACY OF INFORMATION DISCLOSED TO THE PURCHASER: All information contained in this Agreement, Disclosure Letter and all other information which has been given in writing or made available by or on behalf of the Vendor to the Purchaser or its agents, employees or professional advisers in the course of the negotiations leading to this Agreement or in the course of any due diligence or other investigation carried out by or on behalf of the Purchaser prior to entering into this Agreement was when given and remains true, complete and accurate in all respects and to the best knowledge of the Vendor, the Vendor is not aware of any fact or matter or circumstances which have not disclosed in writing to the Purchaser or which renders any such information untrue, inaccurate or misleading or the disclosure of which might reasonably affect the willingness of the Purchaser to purchase the AMC Shares or the price at or terms upon which the Purchaser would be willing to purchase them. 53 Schedule 4 List of Senior Executives 1. Mr. Vivek Reddy 2. Mr. Ravi Mehrotra 3. Mr. R. Narayanan 4. Mr. Anoop Bhaskar 5. Mr. Anil Prabhudas 6. Mr. K N Sivasubramaniam 7. Mr. R Sukumar 8. Mrs. Lalitha Swamy 9. Mr. S Chellappa 54 IN WITNESS WHEREOF this Agreement has been executed on the day and year first above written. TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE LIMITED, By its duly authorised signatory Name: Mr Rajiv Vij /s/ Rajiv Vij INVESTMENT TRUST OF INDIA LIMITED By its duly authorised signatory Name: Mr Sanjay Maloo /s/ Sanjay Maloo 55 EXHIBIT 10.67 ------------- (Continued) THIS AGREEMENT is made at Mumbai as of the 23rd day of July, 2002 AMONG: TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE LIMITED, a company incorporated under the laws of India and having its registered office at 1st Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021, ("Purchaser" which expression shall unless repugnant to the context thereof include its successors and permitted assigns); and MR. VIVEK REDDY, an Indian Inhabitant, son of Mr. D.G.K. Reddy, having his address at Pioneer ITI AMC Limited, Century Centre 75 TTK Road, Chennai - 600018, a shareholder and Chief Executive Officer of Pioneer ITI AMC Limited acting for himself and such other employee and non-employee shareholders of the AMC, as listed in Schedule 1 to the Employee MOU as defined herein below (the Vendors). 1 WHEREAS: A. The Pioneer ITI AMC Limited a company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Century Centre, 75 T.T.K. Road, Alwarpet, Chennai - 600018 India (hereinafter referred to as "the AMC"), is the asset management company to the Pioneer ITI Mutual Fund, a mutual fund set up and registered with the Securities and Exchange Board of India ("SEBI") under the SEBI (Mutual Funds) Regulations, 1996. B. The Investment Trust of India Limited, a company incorporated under the provisions of the Indian Companies Act, 1913 and having its registered office at "Mashkur", 1, Krishnama Road, Nungambakkam Chennai - 600 034, India ("ITI") and Pioneer, collectively as on the date hereof hold 95.3 % of the shares of AMC and the Employees Shareholders hold 4.7 % of the shares of AMC. C. Pursuant to a Memorandum of Understanding dated 17th March 2002 entered into amongst the Purchaser, ITI and Pioneer, (the "MOU"), ITI and Pioneer agreed to sell and the Purchaser agreed to purchase the AMC Shares held by ITI and Pioneer on certain terms and conditions and the manner set out therein. It was also agreed that the Trustee Shareholders would be procured to sell to the Purchaser or its nominee, the Trustee Company Shares at the same time or immediately after the Completion. 2 D. The Purchaser had also entered into a memorandum of understanding dated 17th March 2002 with the Employee Shareholders (defined herein below) of the AMC (the "Employees MOU") for the purchase of their shares in the AMC. E. The Purchaser has conducted a due diligence of the affairs of the AMC and the Trustee Company pursuant to and in accordance with the terms of the MOU and is desirous of acquiring the Vendors's AMC Shares held by the Vendors in the AMC on the terms and conditions set out herein. F. Simultaneously the Purchaser has also entered into separate Share Purchase Agreements each dated 23rd July 2002 with ITI and Pioneer for the purchase of the respective shares held by them in the AMC. NOW IT IS HEREBY AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this Agreement, the following terms shall have the following meaning: 3 "ACCOUNTS" means the unaudited balance sheet of the AMC and its Subsidiary, for the period ending the Accounts Date which shall be audited prior to Completion, and the audited statements of profit and loss and cash flows of the AMC and its Subsidiary, ended on such date and as disclosed; "ACCOUNTS DATE" means March 31, 2002; "AFFILIATE" of a Person (the "Subject Person") means (i) in the case of a Subject Person other than a natural Person, any other Person that, either directly or indirectly through one or more intermediate Persons, controls, is controlled by or is under common control with the Subject Person, and (ii) in the case of a Subject Person that is a natural Person, any other Person that, either directly or indirectly through one or more intermediate Persons, is controlled by the Subject Person. For purposes of this definition, "control" means the power to direct the management or policies of a Person, whether through the ownership of over 50% of the voting power of such Person, through the power to appoint over half of the members of the board of directors or similar governing body of such Person, through contractual arrangements or otherwise; "AMC SHARES" means collectively the: (i) Vendors's AMC Shares; and (ii) ITI's AMC Shares; and (iii) Pioneer's AMC Shares; - "AMC PURCHASE PRICE" means Rs. 133,971,013.00 (Rupees One Hundred Thirty Three Million, Nine Hundred Seventy One Thousand And Thirteen Only) payable to the Vendors; "ASSETS" means all assets, rights and privileges of any nature and all goodwill associated therewith of the AMC, all Intellectual Property, Equipment and Software, and rights in respect of the Immovable property; "BASIC DOCUMENTS" means, collectively, the Charter Documents, the Memorandum of Association and Articles of Association of the Trustee Company, the Investment Management Agreement dated 23rd July 1993 executed amongst the AMC and the Trustee Company, the Trust Deed dated 29th July 1993 amongst ITI and the Trustees including the variations thereto, and the Custodian Agreement dated 19th April 2001 amongst the AMC and the Trustee Company and Deutsche Bank AG; "BOARD" means the board of directors of the AMC; "CLAIMS" means the reimbursement and or payment of claims which have arisen or may arise to the AMC, and which have been agreed to be set off against the Retention Amount in accordance with the SPA Escrow Agreement; 4 "CHARTER DOCUMENTS" means the Articles of Association and the Memorandum of Association of the AMC; "COMPLETION" means the completion of the sale and purchase of the Vendor's AMC Shares pursuant to Clause 4.1, which completion shall occur simultaneous with the completion of sale and purchase of the ITI's AMC Shares, the Pioneer's AMC Shares and the Trustee Company Shares; "COMPLETION DATE" shall have the same meaning as set out in Clause 4; "CONTRACTS" means all contracts, agreements, licenses, engagements, leases, financial instruments, purchase orders, commitments and other contractual arrangements entered into by the AMC; "DISCLOSURE LETTER" shall have the same meaning ascribed in Clause 6.3. "EMPLOYEE SHARES" means 3,69,600 fully paid equity shares of Rs 10/- each, representing 4.7% of the issued capital of the AMC, held by the Employee Shareholders; "ENCUMBRANCE" means (i) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, title retention, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including without limitation any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the granting of security under applicable law, (ii) any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, or refusal or transfer restriction in favour of any Person and (iii) any adverse claim as to title, possession or use; "EQUIPMENT" means all the plant and machinery, tools and equipment, vehicles and office furniture, computer equipment (including without limitation servers, personal computers, mainframes, modems, screens, terminals, keyboards, disks, printers, cabling and associated and peripheral electronic equipment) and other tangible assets, but excluding Software; "ESCROW AGENT" means Mr Anand Bhatt/ Hamid A Moochhala, Senior Partners, Wadia Ghandy & Co., having offices at 2nd floor, N.M. Wadia building, 123 M. G. Road, Mumbai 400 023 (which expression shall mean to include their respective successors); "FIPB" means the Foreign Investment Promotion Board of the Ministry of Industry of India; "FUND" means the Pioneer ITI Mutual Fund, a mutual fund set up and registered with the Securities and Exchange Board of India, and includes all the mutual fund schemes floated there under; 5 "GOVERNMENTAL AUTHORITY" means any government or political subdivision thereof; any supranational or trade agency, department, agency or instrumentality of any government or political subdivision thereof; departments, bodies, regulatory authorities, government authorities, any court or arbitral tribunal; and the governing body of any -securities exchange or other securities self-regulatory body; "IMMOVABLE PROPERTY" means the immovable properties owned, leased, licensed and or occupied by the AMC; "INTELLECTUAL PROPERTY" means all letters patent, trademarks, service marks, registered designs, domain names and utility models, copyrights, inventions, confidential information, brand names, database rights, know-how and business names and any similar rights situated in any country and the benefit (subject to the burden) of any of the foregoing (in each case whether registered or unregistered and including applications for the grant of any of the foregoing and the right to apply for any of the foregoing in any part of the world) owned by the AMC, Trustee or the Fund ; "IP LICENSES" shall have the meaning set forth in Clause 10.9 of Schedule 3; "ITI'S AMC SHARES" means, 37,65,762 fully paid equity shares of Rs 10/- each, representing 47.7 % of the issued capital of the AMC; "LIABILITIES" means all indebtedness and other liabilities of any nature whatsoever, actual or contingent, and whether or not of a nature required to be disclosed in the accounts of the AMC and its Subsidiary; "LITIGATION" shall have the meaning set forth in Clause 9(a)(i) of Schedule 3; "MANAGEMENT ACCOUNTS" means the un-audited balance sheet of the AMC and its Subsidiary and the un-audited statements of income and cash flows for period ending June 30, 2002; "OWNERSHIP" means, at any time ownership of the Shares on a fully diluted basis, assuming the exercise, conversion or exchange of all options, warrants and other securities exercisable for or convertible or exchangeable into Shares regardless of whether such options, warrants or other securities are currently exercisable, convertible or exchangeable at such time; "PARTIES" means the Vendors and the Purchaser and "PARTY" means any of them; "PERSON" means any individual, firm, company, Governmental Authority, joint venture, association, partnership or other entity (whether or not having separate legal personality); 6 "PIONEER" shall mean Pioneer Investment Management, Inc. a company incorporated under the laws of Delaware and having its principle office at 60, State Street, Boston, Massachusetts, U.S.A; "PIONEER'S AMC SHARES": means 37,58,603 fully paid equity shares of Rs 10/- each, representing 47.6% of the issued capital of the AMC held by Pioneer; "PURCHASER'S WARRANTIES" means the representations, warranties and undertakings of the Purchaser set forth in Schedule 2; "REGULATIONS" means the SEBI (Mutual Fund) Regulations 1996 and as amended from time to time; "RELATED PARTY" means with respect to the AMC or a Subsidiary, as the case may be, (i) any shareholder of the AMC or such Subsidiary, (ii) any director of the AMC or such Subsidiary, (iii) any Senior Executive of the AMC or such Subsidiary, (iv) any relative of any individual shareholder, director or Senior Executive of the AMC or such Subsidiary (v) any Person in which any shareholder, director or Senior Executive of the AMC or such Subsidiary has any shareholding interest, other than a passive shareholding of less than 10% in a publicly listed company, and (vi) any other Affiliate of the AMC or such Subsidiary or of a shareholder or director of the AMC or such Subsidiary; "RETENTION AMOUNT" means an amount of Rs. 462,982,500 (Rupees Four Hundred and Sixty Two Million Nine Hundred And Eighty Two Thousand Five Hundred only) to be used for setting off and or reimbursing the AMC against the Claims in accordance with the SPA Escrow Agreement; "RETENTION PERIOD" means the period commencing from the Completion and ending at the later of 30 days after (i) the completion and communication to the Purchaser of the findings of the SEBI appointed external audit for the period ending 31st March 2003 or (ii) the statutory annual financial audit for the financial period ending 31st March 2003 which shall be completed no later than 30th September 2003; "Rs." means Indian Rupees, the lawful currency of India; "SEBI" means Securities Exchange Board of India; "SENIOR EXECUTIVE" means the employees of the AMC whose names have been set out in Schedule 4; "SHARES" means the equity shares of the par value Rs. 10/- per share in the issued and paid up capital of the AMC; "SOFTWARE" means any set of instructions for execution by microprocessor, irrespective of application, language or medium; "SPA ESCROW AGENT" means Mr Anand Bhatt/ Hamid A Moochhala, Senior Partners, Wadia Ghandy & Co., having offices at 2nd floor, N.M. Wadia 7 building, 123 M. G. Road, Mumbai 400 023 (which expression shall mean to include their respective successors); "SPA ESCROW ACCOUNT" means the fixed deposit account opened by the SPA Escrow Agent with the SPA Escrow Bank designated as "Anand S Bhatt a/c Templeton- Pioneer" in accordance with the terms of the SPA Escrow Agreement; "SPA ESCROW AMOUNT" means a sum of Rs 21,677,108 (Rupees Twenty One Million Six Hundred Seventy Seven Thousand One Hundred And Eight only) deposited by the Purchaser with the SPA Escrow Agent which shall be an amount equal to 4.7 % of the Retention Amount; "SPA ESCROW AGREEMENT" means the agreement in an agreed form to be entered into, on the Completion, by the Purchaser with ITI, Pioneer, the Vendors and the SPA Escrow Agent; "SPA ESCROW BANK" means Citibank NA, D.N. Road, Mumbai 400 001; "SUBSIDIARY" means any company, partnership or other legal entity in which the AMC owns, directly or indirectly, greater than 50% of the equity interest or voting power; "TAXATION" means all forms of taxation and statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions and levies of India whenever imposed and whether chargeable directly or primarily against or attributable directly or primarily to the AMC or its subsidiary and all penalties, charges, costs and interest relating thereto; "TRANSACTION" means the acquisition of the AMC Shares by the Purchaser and the Trustee Company Shares by the nominee of the Purchaser; "TRUSTEE OR TRUSTEE COMPANY" means the Pioneer ITI Mutual Fund Private Limited a private company incorporated under the Companies Act 1956 and having its registered address at 117, Nungambakkam High Road, Chennai -600 034 and which is the trustee of the Mutual Fund; "TRUSTEE COMPANY SHARES" means the shares of the Trustee Company held by the Trustee Shareholders; "TRUSTEE SHAREHOLDERS" mean the shareholders of the Trustee Company; "VENDORS' AMC SHARES": 3,69,600 fully paid equity shares of Rs 10/- each, representing 4.7.6% of the issued capital of the AMC held by the Employee Shareholders; "VENDORS' WARRANTIES" means the representations, warranties and undertakings of the Vendors as set forth in Schedule 3; 8 "WARRANTIES" means collectively the Vendors Warranties set out in the Schedule 3 and the Purchaser's Warranties set out in Schedule 2 and "Warranty" means any of them; "WARRANTY PERIOD" means a period of 2 years from the Completion Date; 1.2 INTERPRETATION In this Agreement (a) Any reference herein to any Clause, Schedule, Exhibit or Annex is to such Clause, Schedule, Exhibit or Annex to this Agreement unless the context otherwise requires. The Schedules, Exhibits and Annexes to this Agreement including this interpretation Clause shall be deemed to form part of this Agreement; (b) References to a Party shall, where the context permits, include such Party's respective successors, legal representatives and permitted assigns; (c) The headings are inserted for convenience only and shall not affect the construction of this Agreement; (d) Unless the context requires otherwise, words importing the singular include the plural and vice versa, and pronouns importing a gender include each of the masculine, feminine and neuter genders; (e) References to the knowledge, information, belief or awareness of any Person shall be deemed to include the knowledge, information, belief or awareness such Person would have if such Person had made reasonable inquiries; (f) Any reference to a statutory provision shall include any subordinate legislation and such provision as from time to time modified or re-enacted or consolidated whether before or after the date of this Agreement so far as such modification, re-enactment or consolidation applies or is capable of applying to any transactions entered into under this Agreement prior to Completion and (as from time to time modified, re-enacted or consolidated) which such provision has directly or indirectly replaced; (g) Any reference to "accounts" shall include the directors' and auditors' reports, relevant balance sheets and profit and loss accounts and related notes together with all documents which are or would be required by law to be annexed to such accounts before such accounts are laid before the company in general meeting in respect of the accounting reference period in question; and 9 (h) References to this Agreement shall include the Recitals and Schedules to it and references to Clauses and Schedules are to Clauses of and schedules to this Agreement. 2. SALE AND PURCHASE OF SHARES 2.1 Subject to the terms of this Agreement, the Vendors hereby agrees to sell and the Purchaser agrees to purchase on the Completion Date, the Vendors' AMC Shares, free from all Encumbrances and together with all rights and advantages now and hereafter attaching thereto and relying on Warranties contained in this Agreement. 2.2 Subject to the terms of this Agreement, in consideration for the sale of the Vendors' AMC Shares, the Purchaser will pay the AMC Purchase Price to the Vendors in the manner set out hereinafter. 2.3 The AMC Purchase Price to be paid to the Vendors will be allocated amongst the Vendors in proportion to the number of shares held by them as set out in Schedule 1, and paid to them in the following manner: - (i) 44.26% of the AMC Purchase Price will be paid at the AMC Completion ("First Installment"). (ii) 27.87% of the AMC Purchase Price will accrue and be payable six (6) months from the AMC Completion contingent on occurrence of certain conditions described herein below ("Second Installment"). (iii) 27.87% of the AMC Purchase Price will accrue and be payable one (1) year from the AMC Completion contingent on occurrence of certain conditions described herein below ("Third Installment"). The Vendors agree and accept that the Purchaser shall not be liable to make any payments to any of the Employee Shareholders under this Agreement and in relation to this Transaction in excess of the AMC Purchase Price and any addition to the AMC Purchase Price as stated in 2.6 and 2.7. The Vendors further agree and accept that the Purchaser shall not be liable to make any payments to any of the Employee Shareholders in relation to their employment with the AMC save for what is stated in their employment contract. 2.3 In the case of those of the Vendors who are employees of the Company on the date hereof and who leave the services of the AMC of their own volition (the "Exit Date") at any time after the payment of the First Installment in accordance with clause 2.3(i) above then, such Employee Shareholder shall not be entitled to any further amount in the event the amounts so far paid to such Employee Shareholder equals or exceeds the total par value of the Employee's shares sold by such Employee Shareholder. However, this prohibition will not apply if the service of such Employee Shareholder is terminated or in the event the Employee Shareholder leaves the services of the AMC on account of 10 permanent disability or death or if the annual compensation payable to an Employee Shareholder is reduced from the amount paid for financial year ending March 2002 as provided in Schedule 2 hereto. If the services of the Employee Shareholder are terminated, or in the event the Employee Shareholder leaves the services of the AMC on account of permanent disability or death or if the annual compensation payable to a Employee Shareholder is reduced from the amount paid for the financial year, ending March 2002, then in such an event all amounts due to such Employee Shareholder pursuant to the terms of this Agreement shall be accelerated and become immediately payable. Provided that, in the event any Employee Shareholder is no longer in the service of the AMC at anytime after the execution of this Agreement till the AMC Completion, then the total amount payable to such Employee Shareholder shall not exceed the total par value of the Employee Shares sold by such Employee Shareholder. 2.4 In the event an Employee Shareholder leaves the employment of the AMC (whether of his own volition or by termination of service), the Purchasers shall be at liberty to adjust all amounts owing by such Employee Shareholder to the AMC against any amounts payable under this Agreement. 2.5 The Claims shall be adjusted in accordance with the provisions of the SPA Escrow Agreement. The Parties hereby agree that if any part of the SPA Escrow Amount remains un-adjusted/un-utilised after the Retention Period not earmarked for a specific claim under the SPA Escrow Agreement, it shall paid to the Vendors as an additional purchase price at the end of the Retention Period together with interest accrued thereon. 2.6 The AMC purchase price may stand increased by the balance of the Vendor's share of the SPA Escrow Amount, which shall not exceed an amount of Rs. 21,677,108 (Rupees Twenty One Million Six Hundred Seventy Seven Thousand One Hundred And Eight Only) depending upon the occurrence of the events laid down in the SPA Escrow Agreement and shall to that extent be contingent. 3. CONDITIONS PRECEDENT TO COMPLETION 3.1 The obligation of the Purchaser to purchase the Vendors' AMC Shares is subject to the fulfilment, by the Employee Shareholders Vendors prior to or simultaneously on the Completion Date (or at the time specified below), of the following conditions: (a) the Vendors' AMC Shares are converted into electronic form and dematerialized and sufficient evidence have been produced from the depository in that regards; (b) delivery by the Employee Shareholders to the Purchasers, signed irrevocable instructions directing the depository to transfer the Vendors AMC Shares in to the depository account of the Purchaser Vendors; (c) delivery by the Trustee Shareholder to the nominee of the Purchaser, the Trustee Company Shares together with the share transfer forms executed by the Trustee Shareholders in favour of the Purchaser together with the requisite corporate approvals and other proceedings 11 (d) subject to the Disclosure Letter the Vendors' Warranties remaining true and correct in all material respects on the Completion; (e) there having been, since the date of this Agreement: (i) nomaterial adverse change in the operations, financial position of the AMC and its Subsidiary or the Fund whether arising out of additional disclosure notified to the Purchaser or not; or (ii) no receipt of any notice of any action or investigation by any Governmental Authority or any Person which would restrain, prohibit or otherwise challenge the Transaction; (f) there being no order of any Governmental Authority, or Court since the date of this Agreement that has, as against the AMC or the Trustee Company as the case may be, which has been instituted or any action or investigation to restrain, prohibit or otherwise challenge the Transaction been taken; g) the Vendors shall have caused the employees of the AMC who have availed housing loans to execute housing loan agreements in the form agreed; (h) the Vendors shall have caused identification of the Assets in relation to the Fixed Asset Register; (j) all consents and approvals required for the purpose of execution, delivery or performance and the consummation of the Transactions contemplated in this Agreement shall have been duly obtained; (k) the Vendors shall have caused the Trustee Company having written to SEBI seeking its confirmation of the Transaction. The Parties hereby acknowledge that the SEBI "no objection letter" has been procured by the Purchaser vide letter dated May 7, 2002; (l) the Vendors shall have caused the AMC having delivered to the Purchaser a certificate duly certified by its company secretary, dated the Completion Date, certifying that the conditions set forth in paragraph (e)and (f) of this Clause 3 have been satisfied; (m) the Vendors have delivered to the Purchaser a certificate dated the Completion Date certifying that the conditions set forth in paragraphs (a) to (d), and (g) to (k) of this Clause 3.1 have been satisfied; (n) the Purchaser having been given a reasonable opportunity to conduct a limited high level review, the agreed scope of which set out in Schedule 4 relating to the AMC prior to Completion, provided such review shall have been completed at least 2 days prior to the Completion Date; and (o) the Vendors shall have caused the AMC to adopt the Accounts. 12 3.2 The Completion is subject to the fulfilment by the Purchaser, prior to or on the Completion Date (or at the time specified below), of the following conditions: (a) all consents and approvals of, notices to and filings or registrations with any Governmental Authority or any other Person required pursuant to any applicable law or regulation of any Governmental Authority, in connection with the Transaction and the sale and purchase of the Trustee Company Shares ; (b) all corporate and other proceedings by the Purchaser in connection with the Transactions contemplated at or prior to the Completion Date pursuant to this Agreement shall have been procured and the Vendors having received all such counterpart originals and certified or other copies of such documents as they may reasonably request, including without limitation a copy of the resolutions of the board of directors of the Purchaser, and evidencing the approval of the Transaction; (c) the Purchaser's Warranties as stated in Schedule 2 remaining true and correct in all material respects on the Completion; and (d) the Purchaser has delivered to the Vendors a certificate dated the Completion Date certifying that the conditions set forth in paragraphs (a) to (c) of this Clause 3.2 have been satisfied. 3.3 The Vendors hereby undertakes to use its best endeavours to ensure the satisfaction of each of the conditions set out in Clause 3.1. Without prejudice to the foregoing, it is agreed that all requests and enquiries from any government, governmental, supranational or trade agency, court or regulatory body shall be dealt with the Vendors in consultation with the Purchaser and each of them shall promptly co-operate with and provide all necessary information and assistance reasonably required by such government, agency, court or body upon being requested to do so by the other. 3.4 The Purchaser hereby undertakes to use its best endeavours to ensure the satisfaction of each of the conditions set out in Clause 3.2. Without prejudice to the foregoing, it is agreed that all requests and enquiries from any government, governmental, supranational or trade agency, court or regulatory body shall be dealt with the Purchaser in consultation with the Vendors and each of them shall promptly co-operate with and provide all necessary information and assistance reasonably required by such government, agency, court or body upon being requested to do so by the other. 3.5 The Party responsible for the satisfaction of each condition as specified in Clause 3.1 and 3.2 shall promptly give notice to the other Parties of the satisfaction of the relevant conditions within (2) two Business Days of becoming aware of the same. If the conditions of the Vendors in Clause 3.1 or that of the Purchaser in Clause 3.2 are not satisfied in full by them or waived by the Purchaser (in case of Clause 3.1) or the Vendors (in case of Clause 3.2), by 31st July 2002 or such other extended date as may be mutually agreed, the Purchaser or the Vendors (as the case may be) may, in its sole discretion, terminate this Agreement at any time thereafter in accordance with Clause 10. 13 3.6 The Purchaser or the Vendors (as the case may be) shall have the sole right to waive in whole or in part, conditionally or unconditionally, any of the conditions in Clause 3.1 or Clause 3.2 by notice in writing to the Vendors or the Purchaser (as the case may be), which shall be deemed notification to the other parties hereto. 4. COMPLETION AND POST-COMPLETION ACTIONS 4.1 Subject to Clause 3 the Completion shall take place simultaneously with the Completion of the SPA with ITI and the SPA with the Pioneer at the registered office of the AMC at Chennai or at Mumbai, within seven (7) days after the conditions set out in Clause 3.1 and Clause 3.2 are satisfied or waived (the "Completion Date") or on such other date and place as the Parties may agree. 4.2 OBLIGATIONS OF THE PARTIES Simultaneously on, or before Completion all and not some only of the following events shall take place: 4.2.1 the Vendors shall: (i) procure that the appointment of the new directors of the AMC nominated by the Purchaser occurs with effect from the Completion Date; (ii) procure that a list of statutory registers maintained by the AMC, indicating therein the location where they have been kept, is handed over to the Purchaser; (iii) execute the SPA Escrow Agreement and such other agreement as may be mutually agreed to give effect to the Transaction; (iv) deliver a signed irrevocable instructions directing the depository to transfer the Vendors' AMC Shares in to the depository account of the Purchaser; and (v) procure the delivery by the Trustee Shareholder to the nominee of the Purchaser, the Trustee Company Shares together with the share transfer forms executed by the Trustee Shareholders in favor of the Purchaser. 4.2.2 the Vendors shall cause the Trustee Shareholders to procure that as of the Completion: (i) a meeting of the board of the Trustee Company be held transferring the Trustee Company Shares in favor of the nominees of the Purchaser; (ii) the written resignations of each of the directors of the Trustee Company take effect on the Completion Date with acknowledgments signed by each of them to the effect that 14 either of them has no claim against the Trustee Company for compensation for the loss of office (whether contractual, statutory or otherwise), redundancy or otherwise except only for any accrued remuneration and reimbursable business expenses incurred down to the Completion Date; (iii) execution of Deed of Variation effective as of the Completion Date and such other documents as may be necessary to transfer the sponsorship and the trusteeship functions related to the Fund in favour of the appropriate Purchaser entities. (iv) appointment of the new directors of the Trustee Company nominated by the Purchaser take effect from the Completion Date; and (v) a list of statutory registers maintained by the AMC, indicating therein the location where they have been kept, is handed over. 4.2.3 Simultaneously with the compliance to the satisfaction of the Purchaser of the provisions in Clause 3.1, 4.2.1 and 4.2.2 on Completion: (i) the Purchaser will execute the SPA Escrow Agreement and deposit the SPA Escrow Amount in the SPA Escrow Account; (ii) the Purchaser will on the Completion Date pay to each Employee Shareholder 50% of the AMC Purchase Price in proportion to his shareholding; and (iii) the Purchaser shall offer/have taken irrevocable steps jointly with the AMC or to offer an exit option to the existing unit holders of the Fund to redeem their units without imposition of any exit load in compliance with the Regulations. 4.3 The Warranties and all other provisions of this Agreement insofar as the same shall not have been performed at Completion shall not be extinguished or affected by Completion, or by any other event or matter whatsoever (including, without limitation, any satisfaction and/or waiver of any condition contained in Clause 3.1 or Clause 3.2), except by a specific and duly authorised written waiver or release by the Purchaser or the Vendors as the case may be. 5. OBLIGATIONS OF THE VENDORS BETWEEN EXECUTION AND COMPLETION 5.1 From the date hereof through to the Completion Date, the Vendors shall cause the AMC to, conduct its business in the ordinary course, in a manner, and use all reasonable efforts to shall otherwise use all reasonable efforts, so as to ensure that the Vendors' Warranties shall continue to be true and correct on and as of the Completion Date, as if made on such date. The Vendors shall give the Purchaser prompt notice of any event, condition or circumstance 15 occurring from the date hereof until the Completion Date that would constitute a violation or breach of any Vendors' Warranty if such Vendors Warranty were made as of any date from the date hereof until the Completion Date, or that would constitute a violation or breach of any terms and conditions contained in this Agreement. 5.2 The Vendors shall use its reasonable efforts to cause the AMC to preserve the relationship and goodwill with their clients; 5.3 The Vendors shall cause the AMC to comply in all material respect with all applicable laws, regulations, decrees of any court or regulatory body; 5.4 Protective Covenants 5.4.1 The Vendors shall cause in relation to the AMC, the Fund and the Trustee Company, and covenants with the Purchaser that, without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld from the date hereof until the Completion: (i) the AMC shall not incur any capital expenditure without the prior approval from the Purchaser; (ii) the AMC and Fund shall conduct business in the ordinary course and shall not incur any revenue expenses other than in the ordinary course of business; (iii) the AMC shall not incur any expense or compensation, other than in the ordinary course of business; (iv) the AMC shall not release any new product launch or corporate campaign; (v) no dividends shall be declared by the AMC or the Trustee Company; (vi) no new employee shall be hired and no new position shall be created in the AMC; (vii) there shall be no creation of any charge or encumbrance on the Assets of the AMC or the Fund; (viii) there shall be no change in the composition of the Board or Senior Executive of the AMC and the Fund, except arising out of retirement or demise (as the case may be) of such persons; (ix) there shall be no borrowing or lending of any sum of money by the AMC or the Fund; (xi) the AMC shall not induce or attempt to induce the Senior Executives of the AMC to leave the employment of the AMC, 16 (it being understood however that any director, Senior Executive or personnel may resign of his or her own volition) or appoint any additional directors, Senior Executive or otherwise change the roles of the Senior Executives; or (xii) the AMC shall not sell or otherwise dispose of any material part of its Assets (or any interest therein) or contract to do so; (xiii) except for the sale and transfer of shares pursuant to this Transaction, the AMC shall not issue, sell, repurchase, redeem or permit the transfer of or mortgage, pledge or subject to any lien any shares, partnership interests or equity interests in the AMC or otherwise permit any change in its equity structure; (xiv) the AMC shall not amend the Basic Documents or change its financial year; (xv) the AMC shall not acquire Assets or any shares, partnership interests or other equity interests (or any interest therein) or contract to do so, otherwise than in the ordinary course of its business; (xvi) the AMC shall not enter, terminate, extend or renew any arrangement, contract or agreement with any Related Party except as expressly permitted under this Agreement; (xvii) the AMC shall not give any guarantee or indemnity in favour of any party or give any financial assistance in any way to any Related Party; (xviii) the AMC shall not increase salary or compensation of any of the employee of the AMC or create, modify any benefits to the employees of the AMC; (xix) shall not, in case of the AMC or cause not to, in case of the Trustee Company re-appoint their respective present auditors at their respective annual meetings for the financial year ending 31st March 2002. All requests for approvals pursuant to this Clause shall be made to the CEO of the Purchaser by the AMC, the Trustee Company or the Fund, as the case may be and such approval shall be given within a period of two (2) working days from the date of such request.. 5.5 The Vendors acknowledge that the above provisions of this Clause are no more extensive than is reasonable to protect the Purchaser of the Vendors' AMC Shares and the Trustee Company Shares. 17 5.6 Each of the restrictions in this Clause 5.2 shall be enforceable by the Purchaser independently of each of the others and its validity shall not be affected if any of the others is invalid; if any of those restrictions is void but would be valid if some part of the restrictions were deleted the restriction in question shall apply with such modification as may be necessary to make it valid. 5.7 The Purchaser shall be entitled from the date hereof through to the Completion Date to depute one or more of its officers to over see and monitor the operations of the AMC and the Fund. 6. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 6.1 The Vendors hereby represents, warrants and undertakes to the Purchaser for the period prior to this Agreement and until the expiry of the Warranty Period, in relation to itself, the AMC, its Subsidiary and the Fund in the terms set forth in Schedule 4, and acknowledges that the Purchaser in entering into this Agreement relying on such Vendors' Warranties. 6.2 The Purchaser hereby represents warrants and undertakes to the Vendors in the terms set forth in Schedule3 and acknowledges that the Vendors is entering into this Agreement relying on such Purchaser's Warranties. 6.3 The Vendors' Warranties are subject to the matters disclosed in writing to the Purchaser under letter dated July 23, 2002 addressed by ITI and Pioneer and accepted and confirmed by the Purchaser. The said letter along with its annexures is referred to as the "Disclosure Letter". The matters disclosed in the Disclosure Letter shall be acceptable to the Purchaser and shall be exceptions to the relevant Vendors' Warranty and wherever the term `except as disclosed is used in Schedule 3 it shall mean as disclosed in the Disclosure Letter. The Purchaser shall not make any Claims under the Vendors Warranties in relation to the items specified in the SPA Escrow Agreement. 6.4. The Vendors shall be entitled to make further additions to the Disclosure Letter for events arising after the date hereof, at any time upto the Completion Date. Provided that any additions to the Disclosure Letter as contemplated in this Clause 6.4 shall not be effective until after the Vendors has notified such addition in writing to the Purchaser. 6.5 For the avoidance of doubt, each Vendors' Warranty is qualified by the expression "to the best of the Vendors' knowledge after the Vendors having exercised due care and made reasonable enquiry" and does not relate to any forecasts, budgets and estimates with respect to matters on which the Vendors' Warranties are given. 6.6 The rights and remedies of the Purchaser in respect of any breach of the warranties shall not be affected because of an investigation (which shall include the preparation of legal, financial and technical due diligence as commissioned by the Purchaser), made prior to the execution of this agreement or at any time until Completion Date, in to the affairs of the AMC, the Subsidiary or the Fund. 18 6.7 The Purchaser's Warranties and the Vendors' Warranties set forth in each of Schedule 2 and Schedule 3, respectively, shall be separate and independent. 6.8 The Vendors further warrants to the Purchaser and its successors in title that: 6.8.1 subject to Clause 6.8.2, the Vendors' Warranties shall be deemed to have been repeated as at the Completion and all references therein to the date of this Agreement were references to such dates at the Completion; and 6.8.2 if after the signing of this Agreement and before Completion any event shall occur or any matter arise which results or may result in any of the Vendors' Warranties being unfulfilled to the satisfaction of the Purchaser or being untrue, misleading or incorrect in any respect at Completion then the Vendors (at their own cost) shall make any investigation and take such steps concerning the event or matter which the Purchaser may reasonably require. 6.9 Subject to contract to the contrary the parties may pursue remedies available under this Agreement. The parties shall ensure that no such remedy results in more than one claim against the party concerned for the same cause of action. It is agreed that no party would be penalized twice for the same claim or cause of action under this Agreement. 7. RESTRICTION ON ANNOUNCEMENTS; CONFIDENTIALITY 7.1 Each Party undertakes that prior to the Completion and thereafter it will not make any announcement in connection with this Agreement unless all of the other Parties shall have given their written consent to such announcement, including both as to timing and substance, except for announcements required by applicable law or regulations, in which case any information provided by the disclosing Party about the other Parties shall require the prior written approval of such other Parties. 7.2 No Party shall, without the consent of the other Parties, during the continuance of this Agreement or after its termination disclose to any Person (save to the extent to which it is obliged to make disclosure as a result of applicable law or regulations or for the purposes of procuring any approvals) this Agreement or any of the arrangements contemplated by this Agreement or any information relating to the AMC, the Trustee Company, the Subsidiary, the Fund, the Purchaser and/or the Vendors obtained in the course of preparing the Agreement or otherwise pursuant to this Agreement or the performance of the transactions contemplated by this Agreement, or use such information otherwise than as strictly required for the purpose of performing this Agreement or in the best interests of the AMC, the Trustee Company, the Subsidiary, the Fund, the Purchaser or the Vendors, as the case may be; provided that the foregoing shall not prohibit disclosure by any Party to its employees and Affiliates or to its professional advisers to the extent necessary for the purpose of this Agreement and subject to such employees, or Affiliates 19 or professional advisers being subject to confidentiality obligations no less onerous than those imposed by this Clause. The obligations set forth under this Clause 7.2 shall survive the consummation and termination of this Agreement. 7.3 At the Completion parties shall be entitled to make their own press releases provided the contents of the same have been mutual agreed prior to such release. 8. ACCESS AND FURTHER ASSURANCES 8.1 As from the date of this Agreement, the Vendors shall cause to give to the Purchaser and its accountants, counsel and agents reasonable access, upon reasonable prior notice and during normal business hours, to the premises and all the books and records of the AMC and shall instruct the officers and employees of the AMC to give promptly all information and explanations to the Purchaser or any such persons as the Purchaser may reasonably request, it being recognized that such access should not unduly hinder the AMC's normal operations. 8.2 The Vendors agree to, at any time and from time to time, upon the written request of the Purchaser: (a) promptly and duly execute and deliver all such further instruments and documents, and do or procure to be done all such acts or things, as such the Purchaser may reasonably deem necessary or desirable in obtaining the full benefits of this Agreement and of the rights and ownership herein granted; and (b) do or procure to be done each and every act or thing which the Purchaser may from time to time reasonably require to be done for the purpose of enforcing the Purchaser's rights under this Agreement; 9. COSTS AND EXPENSES 9.1 Except as otherwise provided in Clause 9.2, each Party shall pay its own costs and expenses (including the fees and costs of any financial or technical advisors, lawyers or accountants engaged by it) in relation to the negotiations leading up to the Transaction contemplated hereunder and to the preparation, execution and carrying into effect all documents referred to and or relate to the Transaction here under including this Agreement. 9.2 Any stamp duty, fees or expenses payable in connection with the Transaction including for the execution of this Agreement shall be borne by the Purchaser. 10. TERMINATION 10.1 This Agreement may be terminated prior to the Completion: (a) upon the termination of the Pioneer's and ITI's share purchase agreements 20 (b) at the election of the Purchaser, (i) under Clause 3.5; (ii) for non fulfilment of the conditions in Clause 4.2.1 and 4.2.2 due to the fault of the Vendors; (c) at the election of the Vendors, (i) under Clause 3.5; (ii) for non fulfilment of the conditions in Clause 4.2.3 due to the fault of the Purchaser. (c) at any time on or prior to the Completion, by mutual written consent of the Purchaser and the Vendors. 10.2 This Agreement shall stand fulfilled and terminated upon expiry of the Warranty Period or payment of the Retention Amount under the SPA Escrow Agreement to the Vendors or the Purchaser, as the case may be, in accordance with the SPA Escrow Agreement which ever is later. 10.3 If this Agreement is terminated pursuant to Clause 10.1 then, except for the provisions of Clauses 7, 11, and 14. (which shall survive the termination), this Agreement shall have no further force and effect and Parties shall have no further liability or claim against each other except for those which have already been incurred prior to the termination or except for those which relate to the provisions which survive the termination. 11. NOTICES 11.1 Each notice, demand or other communication given or made under this Agreement shall be in writing and may be given by facsimile, by personal delivery or by sending the same by prepaid registered mail (or prepaid registered airmail or a recognized international courier service where the address of the Party to receive the notice is not in the same country as that of the Party giving the notice) addressed to the Party concerned at the address or fax number below (or such other address or fax number as the addressee has by five (5) days' prior written notice specified to the other Parties): TO THE PURCHASER: Address: Templeton Asset Management (India) Private Limited, 1st Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021, Attention: Mr. Rajiv Vij Phone: + 91 22 288 6129 Fax: + 91 22 288 6707 Email: rvij@templeton.com 21 TO VENDORS: Address: Mr. Vivek Reddy, c/o Pioneer ITI AMC Limited, Century Centre 75 TTK Road, Chennai - 600018 Attention: Vivek Reddy Phone: + 91 44 4679222, 91 44 8274169 Fax: + 91 44 4986707 Email: vivek.reddy@pioneeriti.com Any notice, demand or other communication so addressed to the relevant Party shall be deemed to have been delivered (a) if given or made by personal delivery, when actually delivered to the relevant address; and (b) if given or made by prepaid registered post to an address within the same country or by a recognized international courier service to an overseas address, seven (7) days after the dispatch of the same; (c) if given or made by prepaid registered airmail to an overseas address, ten (10) days after the dispatch of the same; (d) if given or made by fax, upon dispatch and the receipt of a transmission report confirming dispatch. 12. POST COMPLETION OBLIGATIONS 12.1 The Vendors covenant and agree that, it by itself and or through its Related party shall not without the consent of the Purchaser, from the Completion until two (2) years after the Completion Date hire any the employees of the AMC and or induce them to leave the employment of the AMC and join another asset management company under different management or an organization carrying on activities of, connected to or associated to a mutual fund. 12.2 The Vendors covenant and agree that, it by itself and or through its Related party shall not without the consent of the Purchaser, divulge any information, whether confidential or not, in relation to the business or operations of the AMC or the Fund. 13. MISCELLANEOUS 13.1 This Agreement may not be amended, modified or supplemented except by a written instrument executed by each of the Parties. 13.2 No waiver of any provision of this Agreement shall be effective unless set forth in a written instrument signed by the Party waiving such provision. No failure or delay by a Party in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. Without limiting the foregoing, no waiver by a Party of any breach by another Party of any provision hereof shall be deemed to be a waiver of any subsequent breach of that or any other provision hereof. 22 13.3 This Agreement shall inure to the benefit of the Parties and is binding upon the Parties hereto and their respective successors, legal representatives and permitted assigns. This Agreement shall not be assignable by any Party, except with the written consent of the other Parties. 13.4 This Agreement constitutes the whole agreement between the Parties relating to the subject matter hereof and supersedes any prior (not simultaneous) agreements or understandings with effect from the execution hereof as regards the MOU. 13.5 Any liability of the Vendors to the Purchaser under this Agreement may in whole or in part be released, compounded or compromised or time or indulgence given by the Purchaser in its absolute discretion as regards any such liability without in any way prejudicing or affecting the Purchaser's rights against any other or others or the Vendors under the same or a like liability. 13.6 Each and every obligation under this Agreement shall be treated as a separate obligation and shall be severally enforceable as such and in the event of any obligation or obligations being or becoming unenforceable in whole or in part. To the extent that any provision or provisions of this Agreement are unenforceable they shall be deemed to be deleted from this Agreement, and any such deletion shall not affect the enforceability of this Agreement as remain not so deleted. 13.7 This Agreement may be executed in one or more counterparts which, each of which when so signed and taken together, shall be deemed an original but all the counterparts shall together constitute one and the same instrument. 13.8 Subject to contract to the contrary the parties may pursue remedies available under this Agreement. The Parties shall ensure that no such remedy results in more than one claim against the Party concerned for the same cause of action. It is agreed that no Party would be penalised twice for the same claim or cause of action under this Agreement. 13.9 Nothing in this Agreement shall be deemed to constitute a partnership between the Parties hereto or constitute any party the agent of another party for any purpose. 13.10The illegality, invalidity or unenforceability of any provision of this Agreement, whether in whole or in part, under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision or part 14. GOVERNING LAW AND JURISDICTION 14.1 This Agreement shall be governed by and construed in accordance with the laws of India. 23 14.2 Any dispute or claim arising out of or in connection with or relating to this Agreement, or the breach, termination or invalidity hereof (the "Dispute"), shall be referred to the CEO of the Purchaser for resolution. 24 Schedule 1
LIST OF EMPLOYEE SHAREHOLDERS LIST OF SHAREHOLDERS NO OF AMT PER NAME OF THE SHARE HOLDER FATHER'S NAME TYPE OF SHARES SHARES SHARE ADDRESS 1. Vivek Reddy D G K Reddy Equity 216600 10 12, Subba Rao Avenue 3 rd Street Madras Tamilnadu 2. Ravi Mehrotra Umesh Mehrotra Equity 100000 10 23 Cenotaph Road Rahul Apts Ground Floor Flat B Teynampet Madras 3. R.Narayanan N Ramachandran Equity 5000 10 55 C MIG FLAT A L MUDALIAR ROAD Madras Tamil Nadu 4. Anoop Bhasker Amrit Rai Bhasker Equity 4000 10 44/5 3 rd street East Abhirampuram Madras 25 Tamilnadu 5. Anil Prabhudas JeevanPrabhudas Equity 4000 10 B 34 PA Towers 869PHRoad Kilpauk Madras Tamilnadu 6. K N Sivasubramaniam Narayanan Equity 4000 10 No 2 22nd cross Street Indira Nagar Madras Tamilnadu 7. R Sukumar A M Rajah Equity 4000 10 8, Sadulla Street Madras Tamilnadu 8. V Rajagopal Veeraraghavachari N K Equity 3000 10 No43 Kalaignar Street Anna Nagar Pammal Madras Tamilnadu 9. Lalitha Swamy K Ramaswamy Equity 2000 10 E 2 Sriji Apts 25 Rajasekharan Road Mylapore Madras Tamilnadu 10. Prem Khatri J P Khatri Equity 2000 10 6 D Cambrae East 26 Victoria Cresent Road Egmore Madras Tamilnadu 11. Tamil Selvi M Balasubramanian Equity 2000 10 61, Vasudevan Nagar Jafferkhanpet Ashok Nagar Madras Tamilnadu 12. P L Ambal Saravanan Equity 1500 10 C/O Kumarappa Chethyar 162A Kamar Salai Ramakrishna Nagar Aiwarthirunagar Madras Tamilnadu 5 A Muthu Lakshmi 13. D Vijayraghavan K V Desikachari Equity 1500 10 Street Muthu Lakshmi Nagar Extn Chitlapakkam Madras Tamilnadu 14. S Chellappa N Sivaguru Equity 1500 10 C 2, Paras Apts Jeevarathnam Nagar Adyar 27 Madras Tamilnadu 15. S R Ramesh S K Ramamurthi Equity 1400 10 Vigneswar house (upstairs) No 1 New Thillai Nagar Plot 25, Part 6 P N Pudur Coimbatore Tamilnadu 16. Indira Menon P R Menon Equity 1200 10 No 9, M Block Anna Nagar East Madras Tamil Nadu 17. Rajendra Mukadam Upendra Dhondo Mukadam Equity 1200 10 23/C Zaoba Wadi Thakurdwar, JSS Road Bombay Maharashtra 18. Aseem Malhotra R I Malhotra Equity 1200 10 B 302 Rosewood Apts Mayur Vi bar Phase I (Extn) New Delhi 19. Samvita Reddy A Koti Reddy Equity 1000 10 73, E V K Sampath Road Vepery Madras Tamilnadu 28 20. Sanjeev Patnaik K C Patnaik Equity 1000 10 No 67 kamaraja nagar Ernavur Ennore Madras Tamilnadu 21. G Srinivas G V Sastry Equity 1000 10 3, Ill Main Road Kasturiba Nagar Adyar Madras Tamilnadu 22. K Thirugnanam C Karuppiah Equity 1000 10 13, Park Street 108, Pandian Nagar Thiru Nagar Madurai Tamilnadu 23. V N Srikanth V N Subba Rao Equity 1000 10 22 Umayal Road Kilpauk Madras Tamilnadu 24. P K Saravanan P Kannabiran Equity 600 10 No 5,Ratnam Nagar Thruvanmiyur 29 Madras Tamilnadu 25. S Balasubramaniam TV Sivararnakrishnan Equity 600 10 No 4 Arul Jyothi Rossary Church Road Lane Santhome Madras Tamilnadu 26. Senthi Kumar M A Mariappan Equity 600 10 No 3, V Cross Ammayappa Nagar Trichy Tamilnadu 27. R Anantharaman A Ramaswamy Equity 600 10 No 26, Nore Veeraswamy Street Nungambakkam Madras Tamil Nadu 28. K Bharati Raj M S Krishnamurthy Equity 500 10 No 102, Bazaar Road Mylapore Madras Tamilnadu 29. R Sekhar S Ramamoorthy Equity 500 10 5 Raman Street Madras Tamilnadu 30 30. P S Balasubramaniam P Sitaraman Equity 500 10 A1 Damayanthi Apts South Mada Street Nungambakkam Madras Tamilnadu 31. J VS Ravi Kumar J Kameswara Sastry Equity 400 10 60-3-19, Ashok Nagar SBI Colony Road Near ITI Vijaywada Andhra Pradesh 32. A V Ravi Kumar A V N Murthy Equity 400 10 Lakshmi Sudha Nivas 54-1-30, Plot No 26 L.I.C Colony Vijaywada Andhra Pradesh 33. Vinay Kumar B Devadattam Equity 400 10 2/3 R T Prakasam Nagar Begumpet Hyderabad Andhra Pradesh 34. S Vidyasagar R S Mani Equity 400 10 K -7 Turn Bulls Road Nandanam Madras Tamilnadu 31 35. B Parthiban N Balasubramaniam Equity 400 10 No 11 Jacob Street Madipakkam Madras Tamilnadu 36. R Ramesh S Raju Equity 400 10 3/0, Supdt Qtrs The Sea Farer's Club Rajaji Salai Opp- Reserve Bank Of India Madras Tamilnadu 37. Simon Solomon MT Solomon Raj Equity 400 10 1219, 17th Street Anna Nagar West Extn Madras Tamilnadu 38. R S Gopalan S Rajan Equity 400 10 86,A V Krishnaswamy Street Janaki Nagar Valsarvakkam Madras Tamilnadu 39. K Balaji E Krishnan Equity 300 10 No 28-C Third Agraharam Salem Tamilnadu 40. P Jayaraman K Pitchai Raman Equity 300 10 No 3, 3 rd Cross Ammoiyappa Nagar 32 Puthur Trichy Tamilnadu 41. T Srikumar M P Thiruvengadam Equity 200 10 No 28, III Street Jayalakshmi Puram N ungambakkam Madras Tamilnadu 42. B Srinivas Rao B Seetharamaraju Equity 200 10 No 20 Ambika Nagar Main Road Madhavaram Milk Colony Madras Tamilnadu 43. MKannan Muruganandan Equity 200 10 270 G, GST Road Thirunagar Madurai Tamilnadu 44. D Venkatesh B Deivasigamani Equity 200 10 10 Kandappa Gramani Street Pu rasawalkam Madras Tamilnadu 369600
33 SCHEDULE 2 PURCHASER'S WARRANTIES 1 ORGANISATION, GOOD STANDING AND QUALIFICATION: The Purchaser has been duly incorporated and organised, and is validly existing in good standing, under the laws of India. The Purchaser has the corporate power and authority to carry on its business as currently conducted and proposed to be conducted. 2 the Purchaser has the legal right and full power and authority to enter into, deliver and perform this Agreement and any other documents to be executed by the Purchaser pursuant to or in connection with the Transaction which when executed will constitute valid and binding obligation of the Purchaser, and enforceable against them in accordance with their terms. 3 The execution, delivery and the performance by the Purchaser of this Agreement and the respective obligations in relation to the Transaction contemplated herein, do not and will not: (i) breach or constitute a default under the Charter Document of the Purchaser; (ii) result in a violation or breach of or default under any applicable law or regulation or of any order, judgement or decree of any Court, Governmental Authority, regulatory body to which each of the Purchaser is a party or by which the Purchaser or any of its assets are bound. (iii) Result in a breach of, or constitute a default under any contract to which the Purchaser is a party 4 Except for the approvals of the FIPB, Reserve Bank of India and the corporate approvals, no consent, approval, order or authorisation of, or registration, qualification, designation, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance by the Purchaser, of this Agreement and or the Transaction and 5 All corporate action on the part of the Board, the board of directors of the Purchaser, necessary for the authorisation, execution, delivery of and the performance of all obligations of the Purchaser under this Agreement have been taken as of the date of this Agreement; 34 SCHEDULE 3 VENDOR WARRANTIES INTERPRETATION In this Schedule, unless the context clearly indicates a contrary intention, - (a) The provisions of the agreement ("Agreement") to which these warranties relate to its interpretation shall apply, mutatis mutandis, and the words and expressions defined in the Agreement shall bear the same meanings in this Schedule; (b) The warranties, representations and undertakings herein shall apply in respect of each of the AMC and its Subsidiary (together "the AMC" for the purpose of this Schedule), and references in these warranties to AMC shall also be deemed where the context so admits, unless specified otherwise, to apply to the Trustee Company; (c) Where ever the warranty refers to accounts of the AMC it shall relate to a period on or after April 1, 2001 unless specified otherwise. 1. AUTHORITY AND CAPACITY OF THE VENDOR 1.1 The Vendor is a company duly incorporated and validly existing under the law of its incorporation. 1.2.1 The Vendor has the legal right and full power and authority to enter into, deliver and perform this Agreement and any other documents to be executed by the Vendor pursuant to or in connection with the Transaction which when executed will constitute valid and binding obligation of the Vendor, and enforceable against them in accordance with their terms. 1.2.2 Subject to applicable laws, regulations and rules, the execution, delivery and performance by the Vendor and the AMC, of this Agreement and the respective obligations in relation to the Transaction contemplated herein, do not and will not: (i) breach or constitute a default under the respective Charter Document of Vendor and AMC; (ii) result in a breach of, or constitute a default under, any Contract to which the AMC, or the Vendor is a party or by which they are bound or give any third party a right to terminate or modify, or result in the creation of any Encumbrance under any agreement, licence or other instrument; or (iii) result in a violation or breach of or default under any applicable law or regulation or of any order, judgement or decree of any Court, Governmental Authority, regulatory body to which each of the Vendor 35 or the AMC is a party or by which each of the Vendor or the AMC or any of their respective assets are bound. 1.2.3 Except for the approvals of the SEBI, FIPB, Reserve Bank of India, the Trustees, the unit holders and the corporate approvals, no consent, approval, order or authorisation of, or registration, qualification, designation, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance by the Vendor or the AMC, of this Agreement and or the Transaction and 1.3 VENDOR'S AMC SHARES: (i) the Vendor's AMC Shares were validly issued and are fully paid-up; (ii) the Vendor is the sole beneficial owner of the its shares and is registered as the sole owner of such shares; (iii) the Vendor has clear and marketable title to its shares and that the shares are free from any Encumbrance or claim, demand or doubts, and the Vendor is not aware of any claims against their shares or any circumstances which might reasonably believed to lead to a claim or demand against the Vendor's AMC Shares; (iv) the Vendor has good right, full power and absolute authority to sell and transfer the Vendor's AMC Shares free from any third party claim or demand of any nature and that they have not nor anyone on their behalf have done, committed or omitted any act, deed, matter or thing whereby the Vendor's AMC Shares is or can be forfeited extinguished or rendered void or voidable; and (v) that the Vendor has not entered into or arrived at any agreement and/or arrangement, written or oral, with any person or party in respect of the Vendor's AMC Shares, or their membership of the AMC which, will render the sale of the sale and transfer of AMC Shares violative of such agreements. 2. CORPORATE MATTERS 2.1 CHARTER DOCUMENT: The copies of the Charter Documents of the AMC (having attached thereto all amendments made to date) delivered to the Purchaser and filed with the Registrar of Companies are true and complete copies, and the AMC has complied with all the provisions of its Charter Documents and, in particular, has not entered into any ultra vires transaction. All legal and procedural requirements and other formalities concerning such Charter Documents have been duly and properly complied with in all material respects. 36 2.2 ORGANISATION, GOOD STANDING AND QUALIFICATION: The AMC has been duly incorporated and organised, and is validly existing in good standing, under the laws of India. The AMC has the corporate power and authority to own and operate its Assets and properties and to carry on its business as currently conducted and proposed to be conducted. 2.3 CAPITALISATION AND OTHER PARTICULARS OF THE AMC: The particulars of the AMC as disclosed in the Accounts are true, complete and correct as of the date. 2.4 ISSUED SHARES: The 7,893,965 million shares now outstanding comprise the entire issued share capital of the AMC. No modification or variation of the terms of issue or the rights attaching to such Shares has been made since the dates of issue. 2.5 PAID UP: All the issued shares of the AMC are fully paid up and the AMC has not exercised nor purported to exercise or claimed any lien over any of them. 2.6 CONDUCT IN RELATION TO CAPITAL: The AMC has not at any time repaid or redeemed or agreed to repay or redeem any of its share capital or otherwise reduced or agreed to reduce its issued share capital or purchased any of its own shares or carried out any transaction having the effect of a reduction of capital. 2.7 CONVERSION RIGHTS: No person has the right to call for the issue of any share or loan capital of the AMC by reason of any conversion rights or under any option or other agreement and there are no claims, charges, liens, equities or encumbrances on the Vendor's AMC Shares. 2.8 OPTIONS, WARRANTS AND RESERVED SHARES: Except as disclosed in Clause 12.2(e) of the SPA, there are no outstanding options, warrants, rights (including conversion or pre-emption rights) or agreements for the subscription or purchase from the AMC of any shares in the capital stock of the AMC or any securities convertible into or ultimately exchangeable or exercisable for any shares of the AMC, and no shares of the AMC when issued, are subject to any pre-emptive rights, rights of first refusal or other rights pursuant to any agreement or commitment of the AMC as the case may be. 2.9 OTHER RIGHTS WITH RESPECT TO SHARES: Except as contemplated in this Agreement, no voting or similar agreements exist relating to the AMC Shares or any other securities issued by the AMC or the shares of the Subsidiary which are presently outstanding or that may hereafter be issued. 2.10 EXISTENCE OF SUBSIDIARIES: The AMC has a subsidiary called ITI Capital Markets Limited , a company incorporated under the Companies Act 1956 and having its registered office at No.39, TTK Road, Alwarpet, Chennai 600 018 . The particulars of the subsidiary as the its capital and other statutory details such as capital, director are disclosed in the Disclosure Letter. Except for the Subsidiary the AMC does not own any direct or indirect equity or voting interest in any other AMC, partnership or any other legal entity. 2.11 CORPORATE RECORDS: Except as disclosed the statutory books, minute books and register of members of the AMC have been properly and accurately 37 maintained and written up to date in all material respects and contain full and accurate records of all resolutions passed by the directors and the shareholders of the AMC and all issuances and transfers of shares or other securities of the AMC. All such documents are in its possession or under the control of the AMC. 2.12 REGISTER OF MEMBERS: Except as disclosed the register of members of the AMC contains a complete and accurate record of the members of the AMC and the AMC has not received any notice of any application for rectification and so far as the Vendor is aware such members are the beneficial owners of the shares listed against their names. 2.13 DIVIDENDS: Except as disclosed and except for the dividends declared under an investment scheme operated by the AMC, the AMC has not declared any dividend or made any distribution to its shareholders since their incorporation. 2.14 POWERS OF ATTORNEY: Except for the powers of attorney disclosed in the Disclosure Letter there are no outstanding powers of attorney given by the AMC or the Fund. 2.15 WINDING-UP ORDERS: No order has been made, no resolution has been passed, no petition has been presented by the AMC and no petition has been presented by any other person for the Winding-up of the AMC; no receiver or manager has been appointed by any person of the business or assets of the AMC or any part thereof and there is no unfulfilled or unsatisfied judgement or decree or court order outstanding against the AMC. 2.16 The Vendor does not hold any equity or voting interest in any entity that carries on any business that competes with the business of the AMC or Fund in India. 3. ACCOUNTS AND RECORDS 3.1 Except as disclosed therein and except as disclosed, the Accounts and the accounts for the period ending March 31, 2001 ("2001 Accounts") of the AMC have been prepared in accordance with applicable law and in accordance with accounting principles, standards and practices generally accepted at the date of this Agreement in India and give a true and fair view of the assets, liabilities and state of affairs of the AMC at the Account Date. 3.2 MANAGEMENT ACCOUNTS: Except as disclosed, the Management Accounts have been prepared in accordance with applicable law and in accordance with accounting principles, standards and practices generally accepted at the date of this Agreement in India and, subject thereto, on a basis consistent with that adopted in preparing the audited accounts for the previous two financial periods so as to give a true and fair view of the assets, liabilities and state of affairs of the AMC at the Management Account Date and of the profits or losses for the period concerned and as at that date make: 3.2.1 full provision for all actual liabilities, 38 3.2.2 proper provision for all contingent liabilities, and 3.2.3 provision reasonably regarded as adequate for all bad and doubtful debts. 3.3 ACCOUNTING AND OTHER RECORDS: Except as disclosed, the AMC's books and records are in its possession or under its control and have been properly maintained in accordance with all applicable laws. As at the Completion Date, the AMC's books and records will accurately record all transactions of the AMC up to and including [the Management Accounts Date] and will be capable of being written up within a reasonable time so as to record all subsequent transactions of the AMC. 3.4 CHANGES SINCE APRIL 1ST 2001 AS REGARDS THE AMC AND THE FUND: Except as disclosed: 3.4.1 there has been no material adverse change in its financial position or turnover and no event, fact or matter has occurred that will give rise to any such change; 3.4.2 its business has been carried on in the ordinary course, without any interruption or alteration in its nature, scope or manner, and so as to maintain the same as a going concern; 3.4.3 it has not entered into any transaction or assumed or incurred any liabilities (including contingent liabilities) or made any payment not provided for in the Accounts or the Management Accounts otherwise than in the ordinary course of carrying on its business; 3.4.4 its profits have not been affected by changes or inconsistencies in account treatment, by any non-recurring items of income or expenditure, by transactions of an abnormal or unusual nature or entered into otherwise that on normal commercial terms or by any other factors rendering such profits exceptionally high or low; 3.4.5 no dividend or other distribution has been declared, made or paid to its shareholders; 3.4.6 no share or loan capital or any other security giving rise to a right over the capital has been allotted or issued or agreed to be allotted or issued; 3.4.7 it has not redeemed or purchased or agreed to redeem or purchase any of its share capital; and 3.4.8 except in the ordinary course of business, no debt or liability has been incurred, assumed or guaranteed by the AMC except, advance share application monies of Rs 450 lakhs, which will be returned to Pioneer. 39 3.5 ABSENCE OF UNDISCLOSED LIABILITIES: Except as disclosed, there are no liabilities of the AMC other than (I) liabilities disclosed or provided for in the Accounts and the Management Accounts; (ii) liabilities incurred in the ordinary course of business since the Management Accounts Date, none of which results in a material adverse change in the financial position or turnover of the AMC; or (iii) liabilities disclosed elsewhere in this Agreement. 4. FINANCE 4.1 Except for the funds of the investors in the Blue Chip Fund, open end Scheme aggregating to Rs 1.5 crores, which are lying with the Fund for want of instruction from the investors, and except as disclosed, neither the AMC nor the Fund has outstanding any obligation for the payment or repayment of money, whether present or future, actual or contingent. 4.2 The AMC and the Fund have no encumbrance, mortgage, charge, pledge, lien (save by operation of law in the ordinary course of business) or other security interest or any other agreement or arrangement having a similar effect subsisting over the whole or any part of its present or future revenues. 4.3 Except for the payments under the Blue Chip Scheme and except as disclosed, no borrowing of the Fund or AMC has become or is now due and payable or capable of being declared due and payable, before its normal or originally stated maturity and no demand or other notice requiring the payment or repayment of money before its normal or originally stated maturity has been received by the AMC. 4.4 No event or circumstance has occurred of which the Vendor is aware which is or, with the giving of notice or lapse of time or both, shall be such as to terminate, cancel or render incapable of exercise any entitlement to draw money or otherwise exercise the rights of the AMC or Fund under an agreement relating to borrowing. 5. TAXATION MATTERS 5.1 RETURNS, INFORMATION AND CLEARANCES, EXCEPT AS DISCLOSED AND TO THE BEST OF THE VENDOR'S KNOWLEDGE AND UNDERSTANDINGS: i) All returns, computations, notices and information which are or have been required to be made or given by the AMC for a Taxation purpose (i) have been made on a proper basis and are correct and (ii) none of them is subject of any dispute with the Indian Taxation authorities. ii) The AMC is in possession of sufficient information or has reasonable access to such information to enable it to compute its liability to Taxation. 5.2 TAXATION CLAIMS, LIABILITIES AND RELIEFS: Except as disclosed, there is no liability of Taxation in respect of which a claim has been made to the knowledge of the Vendor. 40 5.3 AMC RESIDENCE: The AMC has been resident for tax purposes in India 5.4 DEDUCTION OF TAX AT SOURCE: Except as disclosed, the liability on account of late filing/remittance of returns for tax to be deducted at source does not exceed an amount of Rs 25,000/- on account of interest and such returns are true and correct in all material respects. To the best of our knowledge and understanding the deductions have been made in accordance with law. 6. LEGAL MATTERS 6.1 Except as disclosed, the Vendor hereby represents and warrants in respect of the AMC Trustee and the Fund that: (i) NO VIOLATION OF LAW: There has not been any investigation or enquiry by nor any notice or communication, or order, decree, decision or judgment of, any court, tribunal, arbitrator, governmental agency or regulatory body received by and against the AMC, with respect to any material violation and/or there has been no subsisting violation to comply with any such applicable law, regulation, byelaw or Charter Documents, which has resulted in any liability or criminal or administrative sanction; (ii) PERMITS: Consistent with industry practice, the AMC has all permits, approvals, authorisations, licenses, registrations, and consents (including, without limitation, the registrations of the AMC with SEBI), necessary for the conduct of its business as currently conducted have been obtained and are in full force and effect. The AMC is not in material breach of or in material default under any such permit, approval, authorisation, franchise or license and the Vendor are not aware of any event or circumstance under which any of those licences, registrations, permissions or consents is likely to be revoked terminated and/or cancelled, except for those which are consequential arising out of this Agreement or the Transaction; (iii) ETHICAL CODE OF CONDUCT: The AMC has not and has not authorised or permitted any of its employees, agents or representatives to make or promise any payment of anything of value to any Governmental Authority or any employee, agent or representative of any Governmental Authority for the purpose of obtaining or retaining business; and (iv) UNLAWFUL ACTS: The AMC has not, so far as the Vendor is aware, nor have any of its Senior Executives in the course of theiremployment by any act or default committed: a. any criminal or unlawful act involving dishonesty; b. any breach of trust; or 41 c. any breach of contract or statutory duty or any tortuous act which could entitle any third party to terminate any contract to which the AMC is a party; which could have a material adverse effect on the AMC. 6.2 COMPLIANCE WITH AGREEMENTS: Except as disclosed, all the contracts and all leases, tenancies, licences and agreements of whatsoever nature to which the AMC is a party are, except as disclosed, valid, binding enforceable obligations of the parties thereto and the terms thereof have been complied with by the AMC and there have occurred no grounds for rescission, avoidance or repudiation of any of the contracts or such leases, tenancies, licences or agreements and no notice of termination or of intention to terminate has been received in respect of any thereof. 6.3 LITIGATION: 6.3.1 Except as disclosed, and except as in the ordinary course of business, since the Account Date no claim for damages or otherwise has been made against the AMC. 6.3.2 The AMC, except as disclosed, is not involved whether as plaintiff or defendant or other party in any claim, legal action, proceeding, suit, litigation, prosecution, investigation, enquiry or arbitration and no such claim, legal action, proceeding, suit, litigation, prosecution, investigation, enquiry or arbitration is pending against the AMC. 6.4 INSOLVENCY: 6.4.1 No order has been made, petition, presented, resolution passed or meeting convened for the winding up (or other process whereby the business is terminated and the assets of the AMC concerned are distributed amongst the creditors and/or shareholders or other contributories) of the AMC and there are no cases or proceedings under any applicable insolvency, reorganisation, or similar laws in any jurisdiction concerning the AMC and no events have occurred which, under applicable laws, would justify any such cases or proceedings. 6.4.2 No petition has been presented or other proceedings have been commenced for an administration order to be made (or any other order to be made by which during the period it is in force, the affairs, business and assets of the AMC concerned are managed by a person appointed for the purpose by a Court, governmental agency or similar body) in relation to the AMC, nor has any such order been made. 6.4.3 No receiver (including an administrative receiver), liquidator, trustee, administrator, custodian or similar official has been appointed in any jurisdiction in respect of the whole or any part of the business or assets of the AMC and no step has been taken for or with a view to the appointment of such a person. 6.4.4 The AMC is not insolvent as on date. 42 7. TRADING AND CONTRACTUAL ARRANGEMENTS 7.1 CAPITAL COMMITMENTS: Since March 17, 2002 (the "MOU Date"), except under various investment schemes operated by the AMC for its clients, the AMC: 7.1.1 has not entered into any capital commitments; 7.1.2 is not, nor has been, party to any unusual, long-term or onerous commitments, contracts or arrangements otherwise at an arm's length basis in the ordinary course of business; 7.1.3 except as disclosed, is not party to any agency, distributorship, marketing, purchasing, agreement or arrangement that restricts its freedom to carry on its business in such manner as it thinks fit; and 7.1.4 is not, nor has agreed to become, a member of any joint venture, consortium, partnership or other unincorporated association (other than a recognised trade association). 7.2 CONTRACTS: The AMC is not a party to or bound, except as disclosed, by any Contract (collectively, "Material Contracts") that: 7.2.1 grants management, operational or voting rights in the AMC to any Person; 7.2.2 is a consulting Contract that involves payments of an amount equal to or in excess of Rs. 1 million for any 12-month period; 7.2.3 is a non-competition Contract restricting in any way the business activities of the AMC; 7.2.4 was entered into outside of the ordinary course of business of the AMC; 7.2.5 is a Contract with any Person relating to the use of the Assets of the AMC, including without limitation use of the Assets for Internet services, telephone services or the provision of data or other value-added services, excluding Contracts with its customers or clients; 7.2.6 is a Contract involving subscriber management or systems, call centres or other customer service systems; 7.2.7 The AMC is not in default in the performance, observance or fulfilment of any of the material obligations, covenants or conditions contained in any Contract to which it is a party. Each Material Contract has been duly authorised, executed and delivered by the AMC, and constitutes a valid and binding obligation of each party thereto, enforceable against each party thereto in accordance with its terms. To the best of the Vendor knowledge, no party (other than the AMC) is in material breach of any Material Contract or has indicated any intention to terminate any such Contract prior to the expiration of its term. 43 7.3 ARRANGEMENTS WITH ASSOCIATES ETC: Except as disclosed: 7.3.1 There is no indebtedness (actual or contingent) nor any indemnity, guarantee or security arrangement, except as disclosed, between the AMC and any current or former employee, current or former director or any current or former consultant of the AMC. 7.3.2 The AMC is not a party to any contract, arrangement or understanding, except as disclosed, with any current or former employee, current or former director of the AMC other than the employment contracts. 7.3.3 Other than employment contracts with the Employee Shareholders, there are no existing contracts or arrangements, except as disclosed, between or involving the AMC and any of the Vendor and/or any of the directors. 7.4 TRANSACTIONS WITH DIRECTORS: There is no outstanding: 7.4.1 loan, except as disclosed, made by the AMC to, or to the AMC, by the Vendor, or any director or officer of the AMC; 7.4.2 agreement or arrangement, except as disclosed, to which the AMC is a party and in which the Vendor or any director of the AMC; 7.4.3 Related Party Transaction: Except as disclosed, there are no Contracts, understandings, transactions or proposed transactions between the AMC and any Related Party on the other hand. Except for loans/advances aggregating to not more than Rs. 65 lacs made to any single employee, pursuant to staff Housing/Vehicle Assistance Scheme existing as of the date of this Agreement, no Related Party or employee of the AMC is indebted to the AMC, nor is the AMC indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Vendors' knowledge, no such Person is, directly or indirectly, interested in any Contract with the AMC, excluding employment contracts. 7.5 Investment Management Agreement: The Investment Management Agreement executed between the Trustee Company and the AMC is the only investment management agreement for the family of funds operated and managed by the AMC on behalf of the Trustee Company. 7.6 Guarantee: Except as disclosed in the Accounts, there is not outstanding guarantee, indemnity, surety or comfort (whether or not legally binding) given by or for the benefit of the AMC. 44 8. EMPLOYEES 8.1 DISCLOSURE OF MATERIAL FACTS: 8.1.1 Except as disclosed, all material facts and matters relating to the employment of all employees of the AMC have been disclosed to the Purchaser. 8.1.2 The AMC has no collective agreements, arrangements and other understandings with any recognised trade union, staff association or other body representing the employees of the AMC and, to the best of the Vendor's knowledge, no labour union has requested, sought or attempted to represent any employees, representatives or agents of the AMC. There is no strike or other labour dispute involving the AMC. 8.1.3 STATUS OF EMPLOYEES: Except as disclosed to the best of the Vendor's knowledge, no Senior Executive has terminated their employment with the AMC since the MOU Date. 8.1.4 EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS: Except as disclosed, other than standard employment contracts of the AMC in the form as disclosed, and the employment contract of the current CEO of the AMC as disclosed, the AMC is not a party to nor bound by any currently effective employment contract (other than contracts that can be terminated on an at-will basis), deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement. To the best of the Vendor knowledge, none of these employees or the CEO is in breach of their respective employment contracts or any terms by which any such person may have been seconded to the AMC. 8.2 COMPLIANCE WITH REQUIREMENTS: Except as disclosed, the AMC has in relation to each of its employees and (so far as relevant) to each of its former employees: 8.2.1 complied in all material respects with its obligations (as appropriate) under relevant laws and all other statutes and regulations relevant to its relations with each employee or the conditions of service of the employee and has maintained adequate and suitable records regarding the service of the employee; 8.2.2 discharged or adequately provided for in all material respects its obligations to pay all salaries, wages, commissions, bonuses, overtime pay, holiday pay, sick pay and other benefits of or connected with employment upto the date of this Agreement; and 8.2.3 complied in all material respects with all its obligations under the master mediclaim policy. 45 8.3 AGREEMENTS: Except as disclosed, the AMC has not since the MOU Date entered into: 8.3.1 any agreement or arrangement to make any payments (other than emoluments) to or on behalf of any of its directors or employees; 8.3.2 any contract of service with any employee, which is not terminable by the AMC by three months' notice or less without payment of compensation (except as provided by statute); 8.3.3 any agreement imposing a legal obligation on the AMC to increase the rates of remuneration of, or to make any bonus or incentive payments or any benefits in kind or any payments under a profit-sharing scheme to or on behalf of, any of its employees at any future date which would result in an increase in the AMC's employment costs; 8.3.4 any negotiation for a change in the emoluments or other terms of engagement of any grade of the AMC's employees resulting in an increase in the AMC's employment costs; 8.3.5 any agreement or arrangement for the provision of compensation on the termination of employment of any employee of the AMC, beyond the minimum required by law and by the employment contracts. 8.4 DISPUTES: 8.4.1 Except as disclosed, no subsisting material dispute has arisen since incorporation between the AMC and any member or category of its employees or former employees. 8.4.2 Except as disclosed, there are no significant complaints pending against the AMC of whatsoever nature in relation to any of its employees or former employees and there is no industrial action or dispute or of such nature existing in respect of or concerning any employees or former employees of the AMC. 8.4.3 Except as disclosed, no employee has given notice of termination of his contract of employment or is under notice of dismissal. 8.4.4 Except as disclosed, the AMC has not offered any contract of employment to any person for a salary of more than [Rs.1 million] per annum, which offer remains outstanding. 8.5 PENSIONS: Except as disclosed, the AMC does not make, and is not party to any arrangement under which it could be liable to make payments (except for statutory payment) for providing retirement, death, disability, life assurance or medical benefits to any person. 46 9. OPERATIONS AND COMPLIANCE OF THE FUND AND ITS SCHEMES: 9.1 ACCOUNTS: Except as disclosed, the 2001 Accounts and the Accounts of the Fund and its Schemes have been prepared in accordance with the Regulations and the Schedule Nine of the Regulations; 9.2 LIABILITIES AND NPAS: Except as disclosed and except as disclosed in the portfolio statement the Fund and the Schemes do not have any non-performing other than those reflected in the 2001 Accounts, the Accounts and Management Accounts incurred in the ordinary course of business. 9.3 ACTIVITIES SINCE ACCOUNTS DATE: Except as disclosed and otherwise than in the ordinary course of business, since the Accounts Date, there has not been: 9.3.1 any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the Assets used by the AMC or the Fund or the operating results or the business of the Fund as currently conducted; 9.3.2 any waiver by the AMC or the Fund of a valuable right or of a debt owed to the Fund or any of its Schemes with a value of over Rs. 500,000 owed to it; 9.3.3 any material change or amendment to a contract by which the Fund is bound, except for changes or amendments which are expressly provided for or disclosed in this Agreement; 9.3.4 any declaration or payment of any dividend or other distribution by any Scheme of the Fund otherwise than in ordinary course of business; 9.3.5 any debt or liability incurred, assumed or guaranteed by the Fund or any of its Schemes otherwise than in ordinary course of business. 9.4 CURRENT OPERATIONS: Except as disclosed, to the best knowledge of the Vendor, there is no existing fact or circumstance as on date that has a material adverse effect on the ability of the Fund or Schemes to conduct its business as currently conducted. 9.5 TAXES: The liability/ penalties on account of late filing/remittance of returns for tax to be deducted at source does not exceed an amount of Rs.2,35,000/- on account of interest and such returns are true and correct in all material respects. To the best of our knowledge and understanding the deductions have been made in accordance with law. COMPLIANCE 47 9.5 A list of the all the Schemes operated by the Vendor is attached in Annexure 4.3 of the Disclosure Letter. There has been no material adverse change that is inconsistent with normal industry conditions in any of the information contained in the offer documents of the Schemes since the [MOU] Date; 9.6 AUM: (i) The Vendor represents that the Mutual Fund, as on February 20 2002 had assets under management of Rs. 3833.79 crores in the equity schemes and Rs. 1476.68 crores and under fixed-income schemes aggregating to assets under management at Rs.2357.10 crores as certified by the auditors. (ii) the Vendor represents that the Mutual Fund, as on July 19, 2002 had assets under management of Rs.1405.80 crores in the equity schemes and Rs. 2688.85 crores and under fixed-income schemes aggregating to assets under management at Rs. 4094.64 crores as certified by the auditors. 9.7 COMPLIANCE WITH REGULATIONS: Except as disclosed, the Vendor represents and warrants that: 9.7.1 The affairs of the Fund have been conducted materially in accordance with the Regulations and the related circulars of the Regulations. 9.7.2 The accounting operations of the Fund and the Schemes have materially been carried out in accordance with Schedule Nine of the Regulations and with the guidance note of Institute of Chartered Accountants of India. 9.8 The Code of Ethics relating to conduct of the directors of the Trustee and the employees of the AMC and Code for Personal Trading and Insider Trading guidelines have been complied with and the AMC is not aware of any violations thereof; 9.9 The business of the Schemes has been conducted generally in a bonafide manner with the interests of the unit holders paramount; 9.10 The AMC fees and the other expenses charged to the Fund and the Schemes are within the limits provided in the Regulations and the offer documents of the respective schemes; 9.11 That the entry and exit loads collected from the investors has been utilised in accordance with the Regulations; 9.12 The investor services have been rendered fully in accordance with the Regulations; 9.13 The offer documents (including abridged offer documents)/sales literature/annual reports /all sales material have been fully prepared and updated in accordance with the Regulations; 48 10. ASSETS 10.1 THE PROPERTIES: Except as disclosed, the Properties shown in Schedule_ comprise all of the premises and land owned, leased, occupied or licensed used in connection with the businesses of the AMC and the Fund. The AMC has provided to the Purchaser, except as disclosed, true and complete copies of documents for all immoveable property owned, leased and or occupied by the AMC. The AMC is in compliance in all material respects with all such leases. 10.2 TITLE: Except as disclosed, the AMC has full and clear title to the immoveable properties owned by the AMC which free and clear of all Encumbrances and there is no dispute pending or of which the Vendor is reasonably aware with regard to the title or rights to any such owned property. 10.3 STATUTORY OBLIGATIONS, NOTICES AND ORDERS: Except as disclosed, in relation to each of the owned properties, no notices, orders, proposals, applications, requests or schedule of dilapidation, demands for duty or taxes affecting or relating to any of such Properties have been served or made by any authority on the AMC or the Fund. 10.4 NOTICES OF BREACH: Except as disclosed, in relation to the leased or licensed immovable property occupied by the AMC or the Fund neither the AMC nor the Fund has not received any notice or complaint from the landlord of any breach of the terms of the leases or tenancy agreements which would entitle the landlord to terminate the leases or agreements or claim damages for breach of terms or covenant; under which such properties are held. 10.5 DISPOSAL OF ASSETS: Except for the sale of securities owned by the AMC and except as disclosed, no Assets of the AMC above the value of Rs. 25,000/-have been disposed of since July 1, 2001 to June 30, 2002 except as disclosed and in the ordinary course of business. 10.6 STAMP DUTY: All documents, except as disclosed, to which the AMC or Fund is a party, or which form part of the title to any asset owned or possessed by the AMC, or which the AMC or the Vendor may need to enforce or produce in evidence in any court of law have been duly stamped and registered. 10.7 TRANSACTIONS NOT AT ARM'S LENGTH: 10.7.1 Since the MOU Date, the AMC does not own, nor has agreed to acquire, any asset, nor, has received or agreed to receive any services or facilities (including, without limitation, the benefit of any licensee or agreements), the consideration for the acquisition or provision of which was otherwise than on an arm's length basis. 10.7.2 Except as disclosed, since the MOU Date, the AMC has not disposed, nor has agreed to dispose, of any asset, nor has provided or agreed to provide any services or facilities (including, without 49 limitation, the benefit of any licences or agreements), the consideration for the disposal or provision of which was or will be less than its market value, or otherwise than on an arm's length basis. 10.8 CONTROL OF RECORDS AND INFORMATION: Except as stated in Annexure 3.3 of the Disclosure Letter and subject to the Custodian Agreement, all records and information belonging to the AMC or the Fund or relating to their affairs (whether or not held in written form) are in the exclusive possession and under the direct control of the AMC and or the Fund and subject to unrestricted access by them. 10.9 INTELLECTUAL PROPERTY 10.9.1 The AMC has such interest in any intellectual property rights and has, as disclosed, entered into any agreement for: (i) the licensing or use of intellectual property rights; or (ii) the provision or acquisition of know-how or technical information or assistance; or (iii) the prohibition or restriction of the disclosure of any know-how or technical information. 10.9.2 INTELLECTUAL PROPERTY RIGHTS. (i) True and complete copies of all licenses granted to or by the AMC in respect of any Intellectual Property (collectively, the "IP Licenses"), have been made available to the Purchaser. Except as provided in the IP Licenses, the AMC is not obligated to pay any royalties or other payments to any Person in respect of Intellectual Property used by the AMC. The AMC is not in breach of any IP License or of any agreement under which any confidential business information was or is to be made available to it; (ii) Except as otherwise set out in the respective IP Licenses, (1) all rights in all Intellectual Property and confidential business information owned or otherwise required for the business of the AMC as currently conducted are vested in or validly granted to the AMC and, (2) except as disclosed in relation to paragraph (i) above, all renewal fees and steps required for their maintenance or protection have been paid and taken as on date; (iii) To the best of the Vendor knowledge, the processes and methods employed, the services provided, the businesses conducted and the products, used or dealt with by the AMC, do not, or at the time of being employed, provided, conducted used 50 or dealt in did not, infringe the rights of any other Person in any Intellectual Property or business information; (iv) To the best of the Vendor knowledge, there is not, nor has there been at any time, any unauthorised use or infringement by the AMC of any of the Intellectual Property or confidential business information owned or otherwise required for the business of the AMC. 11. INSURANCE Assets of the AMC and the Fund as stated in Annexure 11 of the Disclosure Letter are at the date of this Agreement adequately insured according to prudent business practices thereof against fire and other risks normally insured against by companies carrying on the same classes of business or owing assets of a similar nature and all such insurances are in full force and effect and the premiums have been paid. 12. CONFIDENTIALITY So far as the Vendor are aware neither the AMC nor the Fund have disclosed or permitted to be disclosed or undertaken or arranged to disclose to any person any of its know-how, secrets or confidential information other than under an obligation of confidentiality. 13. GENERAL 13.1 NO MISREPRESENTATION: No representation, warranty or statement by the AMC, the Vendor in this Agreement, or in the Disclosure Letter, or Exhibit, Schedule of this Agreement, statement or certificate furnished to the Purchaser pursuant to this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made herein, in light of the circumstances under which they were made, and are not misleading; 13.2 FULL DISCLOSURE: To the best of knowledge of the AMC and the Vendor, there are no fact or circumstance relating to the affairs of the AMC which has not been disclosed to the Purchaser and which if not disclosed might reasonably have been expected to influence the decision of the Purchaser to enter into this Agreement; and 13.3 ACCURACY AND ADEQUACY OF INFORMATION DISCLOSED TO THE PURCHASER: All information contained in this Agreement, Disclosure Letter and all other information which has been given in writing or made available by or on behalf of the Vendor to the Purchaser or its agents, employees or professional advisers in the course of the negotiations leading to this Agreement or in the course of any due diligence or other investigation carried out by or on behalf of the Purchaser prior to entering into this Agreement was when given and remains true, complete and accurate in all respects and to the best knowledge 51 of the Vendor, the Vendor is not aware of any fact or matter or circumstances which have not disclosed in writing to the Purchaser or which renders any such information untrue, inaccurate or misleading or the disclosure of which might reasonably affect the willingness of the Purchaser to purchase the AMC Shares or the price at or terms upon which the Purchaser would be willing to purchase them. 52 Schedule 4 List of Senior Executives 1. Mr. Vivek Reddy 2. Mr. Ravi Mehrotra 3. Mr. R. Narayanan 4. Mr. Anoop Bhaskar 5. Mr. Anil Prabhudas 6. Mr. K N Sivasubramaniam 7. Mr. R Sukumar 8. Mrs. Lalitha Swamy 9. Mr. S Chellappa 53 IN WITNESS WHEREOF this Agreement has been executed on the day and year first above written. TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE LIMITED, By its duly authorised signatory Name: Mr Rajiv Vij /s/ Rajiv Vij FOR SELF AND ON BEHALF OF THE EMPLOYEE SHAREHOLDERS Name: VIVEK REDDY /s/ Vivek Reddy Title: Constituted Attorney of the Employee Shareholders 54 EX-12 8 exhibit_12.txt EXHIBIT 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES YEAR ENDED SEPTEMBER 30, (dollars in thousands) 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------------------------- Income before taxes $578,275 $637,790 $739,591 $574,084 $676,284 Add fixed charges: Interest expense-excluding interest on deposits 18,108 21,336 22,580 26,989 35,247 Interest expense-deposits 9,812 10,768 2,742 3,622 5,102 Interest factor on rent 20,977 20,228 19,170 12,953 12,416 - -------------------------------------------------------------------------------------------------- Total fixed charges $48,897 $52,332 $44,492 $43,564 $52,765 - -------------------------------------------------------------------------------------------------- Earnings before fixed charges and taxes on income $627,172 $690,122 $784,083 $617,648 $729,049 - -------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges- including interest on deposits 12.8 13.2 17.6 14.2 13.8 Ratio of earnings to fixed charges- excluding interest on deposits 15.8 16.0 18.7 15.4 15.2 - --------------------------------------------------------------------------------------------------
EX-21 9 exhibit_21.txt EXHIBIT 21
FRANKLIN RESOURCES, INC. LIST OF SUBSIDIARIES State or Nation of Name Incorporation - --------------------------------------------------------------------------- ------------------------ Continental Property Management Company California FCC Receivables Corporation Delaware FTCI (Cayman) Ltd. Cayman Islands FTI-Banque Fiduciary Trust Switzerland FTI Institutional, LLC Delaware Fiduciary Financial Services Corp. New York Fiduciary International, Inc. New York Fiduciary International Holding, Inc. New York Fiduciary International Ireland Limited Ireland Fiduciary Investment Corporation New York Fiduciary Investment Management International, Inc. Delaware Fiduciary Tax Services, Inc. New York Fiduciary Trust (International) S.A. Switzerland Fiduciary Trust Company International New York Fiduciary Trust International Asia Limited Hong Kong Fiduciary Trust International Australia Limited Australia Fiduciary Trust International Investment Management, Inc. Japan Fiduciary Trust International Limited England Fiduciary Trust International of California California Fiduciary Trust International of Delaware Delaware Fiduciary Trust International of the South Florida Franklin Advisers, Inc. California Franklin Advisory Services, LLC Delaware Franklin Agency, Inc. California Franklin Capital Corporation Utah Franklin Investment Advisory Services, Inc. Delaware Franklin Mutual Advisers, LLC Delaware Franklin Private Client Group, Inc. California Franklin Properties, Inc. California Franklin Receivables LLC Delaware Franklin Templeton Asset Strategies, LLC Delaware Franklin Templeton Asset Management S.A. France Franklin Templeton Bank & Trust, F.S.B. United States Franklin Templeton Companies, LLC Delaware Franklin Templeton France S.A. France Franklin Templeton Global Investors Limited United Kingdom Franklin Templeton Holding Limited Mauritius Franklin Templeton International Services S.A. Luxembourg Franklin Templeton Investment Management Limited United Kingdom Franklin Templeton Investment Services GmbH Germany Franklin Templeton Investment Trust Management Co., Ltd. Korea Franklin Templeton Investments (Asia) Limited Hong Kong Franklin Templeton Investments Australia Limited Australia Franklin Templeton Investments Corp. Canada Franklin Templeton Investments Japan Limited Japan Franklin Templeton Investor Services, LLC Delaware Franklin Templeton Italia SIM S.p.A. Italy Franklin Templeton Management Luxembourg SA Luxembourg Franklin Templeton NIB Asset Management (Proprietary) Limited South Africa Franklin Templeton NIB Investments Limited South Africa Franklin Templeton NIB Management Company Limited South Africa Franklin Templeton Services, LLC Delaware Franklin Templeton Services Limited Ireland Franklin/Templeton Distributors, Inc. New York Franklin/Templeton Securities Investment Consulting (SinoAm) Inc. Taiwan Franklin/Templeton Travel, Inc. California FS Capital Group California FS Properties, Inc. California Happy Dragon Holdings Limited British Virgin Islands ITI Capital Markets Limited India Pioneer ITI AMC Limited India Pioneer ITI Mutual Fund Private Limited India Property Resources, Inc. California Templeton (Switzerland) Ltd. Switzerland Templeton Asian Direct Investments Limited Hong Kong Templeton Asset Management (India) Private Limited India Templeton Asset Management (Labuan) Limited Malaysia Templeton Asset Management Ltd. Singapore Templeton Capital Advisors Ltd. Bahamas Templeton China Research Limited Hong Kong Templeton do Brasil Ltda. Brazil Templeton Franklin Global Distributors, Ltd. Bermuda Templeton Funds Annuity Company Florida Templeton Global Advisors Limited Bahamas Templeton Global Holdings Ltd. Bahamas Templeton Heritage Limited Canada Templeton International, Inc. Delaware Templeton Investment Counsel, LLC Delaware Templeton Research and Management Venezuela, C.A. Venezuela Templeton Research Poland SP.z.o.o. Poland Templeton Restructured Investments, L.L.C. Delaware Templeton Trust Services Private Limited India Templeton Worldwide, Inc. Delaware Templeton/Franklin Investment Services, Inc. Delaware TRFI Investments Limited Cyprus
*All subsidiaries currently do business principally under their respective corporate name except as follows: Templeton/Franklin Investment Services, Inc. operates as Templeton Private Client Group; Franklin Private Client Group, Inc. conducts business as Private Client Group. Some Templeton subsidiaries also occasionally use the name Templeton Worldwide. EX-23 10 exhibit_23.txt EXHIBIT 23 ---------- CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference of our report dated December 6, 2002, relating to the consolidated financial statements of Franklin Resources, Inc. and subsidiaries, which appears in this Form 10-K, in the following Registration Statements, as amended: Form S-3 filed April 14, 1994 for issuance of debt securities, Amendment No. 2 to Form S-3 filed May 18, 1994 Form S-3 filed September 30, 1994 for the registration of shares of common stock, Amendment No. 1 to Form S-3 filed October 28, 1994 Form S-3 filed September 16, 1996 for the issuance of medium term notes, Amendment No. 1 to Form S-3 filed October 4, 1996 Form S-3 filed December 7, 2000 for the issuance of common stock, Amendment No. 1 to Form S-3 filed January 30, 2001 Amendment No. 2 to Form S-3 filed February 12, 2001 Amendment No. 3 to Form S-3 filed February 15, 2001 Form S-3 filed August 6, 2001 for the issuance of zero-coupon convertible senior note offering, Amendment No. 1 to Form S-3 filed November 1, 2001 Form S-4 filed December 26, 2001, for the issuance of common stock in connection with acquisition of Fiduciary Trust Company International. Amendment No. 1 to Form S-4 filed January 26, 2001 Form S-8 filed April 29, 1994 for United Kingdom Stock Option Plan #1 Form S-8 filed September 13, 1995 for Universal Stock Plan Form S-8 filed March 18, 1998 for 1998 Employee Investment Plan Form S-8 filed December 31, 1998 for 1998 Employee Incentive Plan Form S-8 filed July 21, 1999 for 1998 Universal Employee Incentive Plan Form S-8 filed October 22, 1999 for 1998 Universal Employee Incentive Plan Form S-8 filed March 27, 2001 for Amended and Restated 1998 Universal Employee Incentive Plan Post Effective Amendment No. 1 to Form S-8 filed March 27, 2001 for 1998 Universal Employee Incentive Plan Form S-8 filed October 28, 2002 for the 1998 Employee Stock Incentive Plan Annual Report on Form 11-K filed on October 28, 2002 for the 1998 Employee Stock Incentive Plan /s/ PricewaterhouseCoopers LLP San Francisco, California December 18, 2002 EX-99 11 exhibit99-1.txt EXHIBIT 99.1 EXHIBIT 99.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Charles B. Johnson, Chief Executive Officer of Franklin Resources, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Annual Report on Form 10-K of the Company for the fiscal year ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 18, 2002 /s/ Charles B. Johnson ---------------------- Charles B. Johnson Chief Executive Officer EX-99 12 exhibit99-2.txt EXHIBIT 99.2 EXHIBIT 99.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Martin L. Flanagan, Chief Financial Officer of Franklin Resources, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Annual Report on Form 10-K of the Company for the fiscal year ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 18, 2002 /s/ Martin L. Flanagan ---------------------- Martin L. Flanagan Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----