GLOBAL DISTRIBUTION AGREEMENT

Exhibit 10.1

 

GLOBAL DISTRIBUTION AGREEMENT

 

THIS GLOBAL DISTRIBUTION AGREEMENT dated as of June 23, 2005, is made by and between Legg Mason, Inc., a Maryland corporation (“Legg Mason”), and Citigroup, Inc., a Delaware corporation (“Citigroup” and together with Legg Mason, the “Parties” and each, a “Party”).

 

RECITALS:

 

WHEREAS, Legg Mason, through its Affiliates (as defined below), provides asset management, securities brokerage, investment banking and other related financial products and services;

 

WHEREAS, Citigroup is a diversified global financial services holding company that through its Affiliates, provides a broad range of financial services and products to consumer and corporate customers, including investment products and distribution services in respect thereof;

 

WHEREAS, Legg Mason and Citigroup have entered into a Transaction Agreement, dated as of June 23, 2005 (the “Transaction Agreement”), under which Citigroup is selling to Legg Mason substantially all of its global asset management business currently operated as Citigroup Asset Management (“CAM”) and Legg Mason is selling the PC/CM business, including the private client business of Legg Mason (“PC/CM Business”) to Citigroup (the “Transaction”);

 

WHEREAS, the execution and delivery of this Agreement is a condition to the closing of the Transaction;

 

WHEREAS, existing CAM Products currently have access to the distribution channels of the Citigroup Distributors (as each term is defined below);

 

WHEREAS, certain existing Legg Mason Products currently have access to the PC/CM Business Channels (as each term is defined below); and

 

WHEREAS, in connection with the Transaction, the Parties desire to enter into a relationship providing for the distribution by Citigroup Distributors of CAM Products and Legg Mason Products within the United States and internationally pursuant to the terms of this Agreement and for Citigroup’s access to certain Legg Mason Products as set forth herein.

 

NOW THEREFORE, in consideration of the mutual covenants, agreements and promises contained in this Agreement, the Parties agree as follows:

 

 

Section 1. Definitions

 

(a) For purposes of this Agreement, unless the context requires otherwise, the following terms will have the following meanings:

 

“1940 Act” means the Investment Company Act of 1940, as amended from time to time, and the rules and regulations promulgated under the Act by the SEC.

 

“Advisers Act” means the Investment Advisers Act of 1940, as amended from time to time, and the rules and regulations promulgated under the Act by the SEC.

 

“Access to Citigroup Distributors” has the meaning set out in Section 6(a) of this Agreement.

 

“Access to Legg Mason” has the meaning set out in Section 6(b) of this Agreement.

 

“Affiliate” means, with respect to any specified Person, any other Person that at the time of determination, directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such specified Person.

 

“Agreement” means this Agreement and the schedules hereto, as amended from time to time.

 

“Applicable Standards and Practices” means, for Citigroup or Legg Mason or any of their respective Affiliates, the client service and relationship standards, business practices, ethical standards, confidentiality obligations and policies, customer privacy and protection policies and general service quality standards, product-selection standards, reputational considerations, industry standards and requirements of such Person as are generally applied by such Person at the time or on a consistent basis during the period in question.

 

“Business Day” means any day other than a Saturday, Sunday or day on which banking institutions in New York, New York are authorized or obligated pursuant to the Requirements of Law or executive order to be closed.

 

“CAM” has the meaning set forth in the recitals to this Agreement.

 

“CAM Products” means all of the investment products offered, sponsored, advised or subadvised by CAM or any of its Controlled Affiliates at any time on or after the date of this Agreement, including any such products acquired by Legg Mason pursuant to or after the Transaction, including any of such investment products as are RICs or other pooled investment vehicles, wrap fee programs (as defined in Rule 204-3 under the Advisers Act) or separately managed accounts.

 

“Citigroup” has the meaning set out in the preamble to this Agreement.

 

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“Citigroup Distributor” means any Affiliate of Citigroup that at any time during the term hereof distributes investment products, including CAM Products, whether domestically or internationally.

 

“Commencement Date” means the later of the date of the closing of the Transaction or the first day on which Conversion of all of the Legg Mason Exclusive Equity Products has occurred.

 

“Confidential Information” means all confidential, proprietary or non-public information disclosed by either Party, its Affiliates and their respective representatives to the other Party, its Affiliates and their respective representatives; provided , however , that this term shall not include any information independently developed or obtained by the receiving Party or its Affiliates without violating any obligation under this Agreement, so long as such information was not obtained from a third party where the receiving Party knew or should have known that such information was misappropriated or otherwise wrongfully obtained.

 

“Control” (including its correlative meanings “Controlled by” and “under common Control with”) means the possession, directly or indirectly, of power to direct or cause the direction of the management or policies (whether through ownership of securities or partnership or other ownership interest, by contract or otherwise).

 

“Conversion” for purposes of the definition of Commencement Date means (a) for Legg Mason RICs whose shares are continuously offered, the ability of the Sales Force of the Citigroup Distributors to sell through all of their existing sales programs, including TRAK, (i) Primary Shares and (ii) Class A, Class C, Class FI and Class I shares having substantially the same features and terms as the same class currently utilized by certain of such RICs or, if they do not have such a class, the same class currently utilized by the CAM RICs, in each case through the use of level 3 or level 4 transaction processing functionality of the National Securities Clearing Corporation, (b) for other Legg Mason pooled investment vehicles and 529 plans, the ability of the Sales Force of the Citigroup Distributors to sell interests in such vehicles on substantially the same basis as such Sales Force currently does for CAM Products; and (c) for retail separately managed accounts that are Legg Mason Exclusive Equity Products, if any, the ability of the Sales Force of the Citigroup Distributors to have clients utilize the investment management service of the applicable Legg Mason Affiliate for a separately managed account managed in the same style as each of the Legg Mason Exclusive Equity Products through the various separately managed account programs offered by any of the Citigroup Distributors, including Citigroup Distributor programs such as MDA, FS and CES, including in each of items (a) through (c) above all necessary ancillary management, administrative, reporting and similar software.

 

“Covered Products” means the Legg Mason Products and the CAM Products.

 

“Exclusivity Period” means the period during which Citigroup shall have the exclusive right to distribute the Legg Mason Exclusive Equity Products under Section 4(b) of this Agreement.

 

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“Existing Legg Mason Distribution Agreements” means the agreements in effect as of the Commencement Date to which Legg Mason or a Legg Mason Affiliate is a party relating to the distribution of Legg Mason Products existing as of such date.

 

“Governmental Authority” means any federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body, including the SEC and any SRO within or outside the United States.

 

“Legg Mason” has the meaning set out in the preamble to this Agreement.

 

“Legg Mason Equity Funds” means the RICs in the family of RICs known as the Legg Mason Funds for which Legg Mason Capital Management is the investment adviser.

 

“Legg Mason Exclusive Equity Products” means (i) the Legg Mason Equity Funds and (ii) any other investment products investing primarily in equity securities, a portfolio manager of which at any time during the term hereof is an officer or employee of Legg Mason Capital Management as of the date hereof or who reports directly or indirectly to any such officer or employee.

 

“Legg Mason Products” means all proprietary investment products offered, sponsored, advised or subadvised by Legg Mason or any of its Affiliates during the term of this Agreement, including any such investment products that are RICs or other pooled investment vehicles, wrap fee programs (as defined in Rule 204-3 under the Advisers Act) and separately managed accounts, including without limitation, after the date of the closing of the Transaction, any CAM Product and Legg Mason Exclusive Equity Product.

 

“NASD” means the National Association of Securities Dealers, Inc.

 

“Party” and “Parties” have the meanings set out in the preamble to this Agreement.

 

“PC/CM Business” has the meaning set out in the recitals to this Agreement.

 

“PC/CM Business Channel” means the product distribution business of Legg Mason to be acquired by Citigroup in the Transaction, including its private client business.

 

“Person” means any individual, corporation, business trust, partnership, association, limited liability company, unincorporated organization or similar organization, or any Governmental Authority.

 

“Qualifying Investments” has the meaning set out in Schedule B to this Agreement.

 

“Representatives” means directors, officers, employees, agents, advisors and other representatives of a Party.

 

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“Requirement of Law” means, with respect to any Person, any domestic or foreign federal or state statute, law, ordinance, rule, administrative code, administrative interpretation, regulation, order, consent, writ, injunction, directive, judgment, decree, policy, ordinance, decision, guideline or other requirement of (or agreement with) any Governmental Authority (including any memorandum of understanding or similar arrangement with any Governmental Authority), in each case binding on that Person or its property or assets.

 

“Retail Institutional Accounts” means accounts investing in or constituting a portion of a Covered Product, the beneficial owners of which account are intermediaries acting for the account of or through a product marketed to individuals or vehicles that are not True Institutional Accounts.

 

“RIC” means an U.S. investment management company registered under the 1940 Act and any class, series or portfolio thereof.

 

“Sales Force” means, with respect to any Citigroup Distributor, the point of sale representatives and their direct supervisors utilized by such Citigroup Distributor or any of its Affiliates, whose job responsibility includes the distribution of the Covered Products in question or investment products that would generally be viewed as competitive with the applicable Covered Products in the channel in question.

 

“SEC” means the Securities and Exchange Commission.

 

“Selling Agreement” has the meaning set out in Section 7 of this Agreement.

 

“SRO” means the NASD, the National Futures Association, each national securities exchange in the United States and each other board or body, whether United States or foreign, that is charged with the supervision or regulation of brokers, dealers, commodity pool operators, commodity trading advisors, futures commission merchants, securities underwriting or trading, stock exchanges, commodities exchanges, insurance companies or agents, investment companies or investment advisers.

 

“Transaction” has the meaning set out in the recitals to this Agreement.

 

“Transaction Agreement” has the meaning set out in the recitals of this Agreement.

 

“True Institutional Accounts” means accounts investing in or constituting a portion of a Covered Product, the beneficial owners of which account are not (i) individuals, (ii) trusts, partnerships or other vehicles for the account of or owned primarily by individuals or (iii) intermediaries acting for the account of or through a product marketed to individuals or such vehicles; provided , however , that (a) an account (such as a 401(k) plan or similar defined contribution retirement plan or variable insurance subadvisory product, in either case providing access to numerous investment alternatives in addition to Legg Mason Products, interests in which are sold without participation by registered representatives or insurance agents for transactional or asset-based compensation, (b) pooled investment vehicles, interests in which are not marketed in or from the U.S. to

 

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individuals and (c) any unregistered investment company exempt from registration under the 1940 Act by Section 3(c)(7) of that Act that is distributed primarily to investors other than those in clauses (i)-(iii) above; provided however that any investor included in clauses (i), (ii) or (iii) above must have a minimum investment of at least $25 million.

 

Section 2. Representations and Warranties of Citigroup

 

Citigroup represents to Legg Mason as follows:

 

(a) Each of Citigroup and each Citigroup Distributor (i) is duly organized, validly existing and, to the extent applicable, in good standing under the laws of its jurisdiction of organization; (ii) has the power and authority, and the legal right, to own its assets and to transact the business in which it is engaged; (iii) is duly qualified to do business and, to the extent applicable, is in good standing under the laws of each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification; and (iv) is in compliance in all material respects with all Requirements of Law.

 

(b) Each of Citigroup and each Citigroup Distributor has all necessary power and authority to make, execute, deliver and perform this Agreement and each Selling Agreement to which it is or becomes a party and to perform all of the obligations to be performed by it under this Agreement or under such Selling Agreement. The making, execution, delivery and performance by Citigroup and each Citigroup Distributor of this Agreement and each Selling Agreement to which it is or will become a party, and the consummation by Citigroup and such Citigroup Distributor of the transactions contemplated by this Agreement and by such Selling Agreement to which it is or will become a party, have been, or will be, duly and validly authorized by all necessary corporate action on the part of Citigroup and such Citigroup Distributor. Except as shall have been obtained prior to execution thereof, 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 execution, delivery, performance, validity or enforceability by or against Citigroup or any Citigroup Distributor of this Agreement and each Selling Agreement, to which it is, or will become, a Party.

 

(c) This Agreement has been duly and validly executed and delivered by Citigroup, and assuming the due authorization, execution and delivery by Legg Mason, this Agreement constitutes the valid, legal and binding obligation of Citigroup, enforceable against it in accordance with its terms, except as may be subject to applicable bankruptcy, insolvency, moratorium or other similar Requirement of Law, now or hereafter in effect, affecting the enforcement of rights of creditors generally and by legal and equitable limitations on the enforceability of specific remedies.

 

(d) Upon execution and delivery, and assuming the due authorization, execution and delivery by Legg Mason or any of its Affiliates, each Selling Agreement will constitute the valid, legal and binding obligation of the respective Citigroup Distributor which is a party thereto, enforceable against it in accordance with its terms, except as may be subject to applicable bankruptcy, insolvency, moratorium or other similar Requirement of Law now or hereafter in effect, affecting the enforcement of rights of creditors generally and by legal and equitable limitations on the enforceability of specific remedies.

 

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(e) Neither the execution and delivery of this Agreement nor any Selling Agreement by Citigroup or any Citigroup Distributor which is an Affiliate of Citigroup as of the date of this Agreement, respectively, nor the consummation of the transactions contemplated by this Agreement or by any such Selling Agreement, respectively, will (i) violate or conflict with any provision of the articles of incorporation or bylaws or other organizational documents of Citigroup or any such Citigroup Distributor, (ii) violate any of the terms, conditions, or provisions of any Requirement of Law or license to which Citigroup or any such Citigroup Distributor is subject or by which either one or any of their assets are bound, or (iii) violate, breach or constitute a default under any contract to which Citigroup or any such Citigroup Distributor is a party or by which either one or any of their assets is bound.

 

(f) All CAM Products which are existing as of the date of this Agreement, and which will be existing as of the date of the closing of the Transaction are, and as of the date of the closing of the Transaction will be, offered in compliance with the Applicable Standards and Practice of Citigroup and its Affiliates.

 

Section 3. Representations and Warranties of Legg Mason

 

Legg Mason represents to Citigroup as follows:

 

(a) Legg Mason and each of its Affiliates identified on Schedule A to this Agreement (i) is duly organized, validly existing and, to the extent applicable, in good standing under the laws of its jurisdiction of organization; (ii) has the power and authority, and the legal right, to own its assets and to transact the business in which it is engaged; (iii) is duly qualified to do business and, to the extent applicable, is in good standing under the laws of each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification; and (iv) is in compliance in all material respects with all Requirements of Law.

 

(b) Legg Mason and each of its Affiliates identified on Schedule A to this Agreement have all necessary power and authority to make, execute, deliver and perform this Agreement and each Selling Agreement, respectively, and to perform all of the obligations to be performed by it under this Agreement or under each such Selling Agreement. The making, execution, delivery and performance by Legg Mason and each such Affiliate of this Agreement and each Selling Agreement, respectively, and the consummation by Legg Mason and each such Affiliate of the transactions contemplated by this Agreement and by each such Selling Agreement, respectively, have been, or will be, duly and validly authorized by all necessary corporate action on the part of Legg Mason and each such Affiliate. Except as shall have been obtained prior to execution thereof, 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 execution, delivery, performance, validity or enforceability by or against Legg Mason or any of such Affiliates of this Agreement and each Selling Agreement, respectively, to which it is, or will become, a Party.

 

(c) This Agreement has been duly and validly executed and delivered by Legg Mason, and assuming the due authorization, execution and delivery by Citigroup, this Agreement constitutes the valid, legal and binding obligation of Legg Mason, enforceable against it in accordance with its terms, except as may be subject to applicable bankruptcy, insolvency,

 

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moratorium or other similar Requirement of Law, now or hereafter in effect, affecting the enforcement of rights of creditors generally and by legal and equitable limitations on the enforceability of specific remedies.

 

(d) Upon execution and delivery, and assuming the due authorization, execution and delivery by the respective Citigroup Distributor, each Selling Agreement will constitute the valid, legal and binding obligation of the respective Affiliate of Legg Mason which is a party thereto, enforceable against it in accordance with its terms, except as may be subject to applicable bankruptcy, insolvency, moratorium or other similar Requirement of Law now or hereafter in effect, affecting the enforcement of rights of creditors generally and by legal and equitable limitations on the enforceability of specific remedies.

 

(e) Neither the execution and delivery of this Agreement nor any Selling Agreement by Legg Mason or any of its Affiliates identified on Schedule A to this Agreement respectively, nor the consummation of the transactions contemplated by this Agreement or by any such Selling Agreement, respectively, will (i) violate or conflict with any provision of the articles of incorporation or bylaws or other organizational documents of Legg Mason or any such Affiliate, (ii) violate any of the terms, conditions, or provisions of any Requirement of Law or license to which Legg Mason or any such Affiliate is subject or by which either one or any of their assets are bound, or (iii) violate, breach or constitute a default under any contract to which Legg Mason or any such Affiliate is a party or by which either one or any of their assets is bound.

 

(f) All Legg Mason Products which are existing as of the date of this Agreement, and which will be existing as of the date of the closing of the Transaction are and, as of the date of the closing of the Transaction will be, offered in compliance with the Applicable Standards and Practices of Legg Mason and its Affiliates.

 

Section 4. Product Distribution Arrangements

 

(a) With respect to any Covered Product, Citigroup shall cause each Citigroup Distributor to provide Legg Mason and its Affiliates (including, after the closing of the Transaction, CAM) substantially the same access to distribution by the applicable Citigroup Distributor or Distributors (i) with respect to an existing CAM Product or a CAM Product introduced after the date hereof and prior to the closing of the Transaction, on at least as favorable a basis as such Citigroup Distributor currently provides with respect to such CAM Product or provides to such new CAM Product on the date of the closing of the Transaction and (ii) with respect to any existing Legg Mason Product or, subject to Section 8(a), any Legg Mason Product or CAM Product introduced after the date of the closing of the Transaction, on at least as favorable a basis as such Citigroup Distributor that di